Europe's Ports Prepare for Box Battles

Fears that Europe is heading for a Japanese-style decade of snail’s pace economic growth or even stagnation are hardening into reality as the continent faces another year of recession while the rest of the world is in recovery mode.

This is the nightmare scenario facing Europe’s major ports as they prepare to begin operations at giant container terminals that were commissioned during the extended bull run before the global financial crisis erupted in 2008.

The Organization for Economic Co-operation and Development today forecast the eurozone will shrink by 0.6 percent this year, following a 0.5 percent decline in 2012, and warned the prolonged recession “could evolve into stagnation with negative implications for the global economy.” A year ago the Paris-based organization forecast the 17-nation eurozone would grow by 1 percent in 2013.

Container traffic is slowing across the dominant Le Havre-Hamburg port range. Rotterdam, Europe’s top box hub, increased traffic by 4 percent in the first quarter to 2.9 million 20-foot equivalent units to reverse a flat performance in 2012. But most of the extra boxes were empty, reflecting Europe’s anaemic economic performance. Second-ranked Hamburg seemed almost relieved to announce that first quarter traffic was “almost” at the same level as a year earlier at 2.2 million TEUs following a 1.7 percent drop in 2012. Antwerp, Europe’s number three box port, was down 2.8 percent at 2.1 million TEUs.

Germany’s JadeWeserPort is a frontline victim of the crisis threatening to engulf parts of the European waterfront. The nation’s only deepwater container port, with an annual capacity of 2.7 million 20-foot equivalent units, it has handled barely 40,000 containers since it opened last September. With just two weekly liner services — operated by Maersk Line, whose sister company APM terminals has a 30 percent stake in the facility — and a single customer at its logistics park, the port has put most of its 400 employees on short-time work rotas.

JadeWeserPort made good sense at the time it was commissioned. Container traffic was surging across the Northwest European waterfront, fueling fears ports would soon run out of capacity to keep pace with the explosive growth of imports from China. And unlike river ports such as Hamburg and Antwerp, it would be able to handle the new generation of 18,000-TEU container ships — the first of which is due to enter the Asia-Europe trade next month — regardless of tidal conditions.

Not only did growth fizzle five years ago as construction was getting underway, but handling the giant newcomers is not proving as difficult as feared. Due to their cargo mix, operating drafts of the 18,000-TEU mega-ships will be 14 to 15 meters, rather than their 16-meter design maximum, which puts them on a par with 15,000-TEU ships. So Hamburg and Antwerp, despite significant draft and tidal restrictions, “are still very much in the big ship game,” according to Drewry, a London-based shipping consultancy.

The U.K. industry faces the greatest uncertainty, with a slew of major projects coming on stream over the next two years that were planned to prevent diversion of deep-sea traffic to continental hubs for transshipment to British ports on smaller feeder vessels.

All eyes are on DP World’s $1.5 billion London Gateway hub 30 miles from downtown London, which is due to open at the end of the year but has yet to name the carriers it claims to have signed up for the terminal. The 1.6-million-TEU logistics hub on the River Thames is barely 55 miles from Felixstowe, the UK’s biggest container port, which handles more 3 million TEUs a year and is adding an extra 1 million TEUs of capacity. Despite London Gateway’s imminent opening, Hong Kong’s Hutchison Ports, Felixstowe’s owner, is sticking to plans for a $500 million container terminal at Harwich, a nearby ferry port. Other ports are entering the fray, with Liverpool upgrading its terminals to handle ships up to 13,500 TEUs and to boost capacity by 625,000 TEUs in a bid to capture the containers bound for the northern U.K. that mostly enter the country via southern ports like Felixstowe. Southampton, a south coast port that risks being sucked into the looming cargo battle between Felixstowe and London Gateway, is spending $225 million to increase capacity by 500,000 TEUs to 2.8 million TEUs.

Rotterdam faces the biggest upheaval as it starts the 18-month countdown to the opening of two facilities that will expand its annual capacity by 8.5 million TEUs. The Port Authority alone has spent around $4.5 billion on Maasvlakte 2, a tract of land reclaimed from the sea that will house APM Terminals’ 4.5-million-TEU facility and a 4-million-TEU terminal jointly owned by DP World and four ocean carriers — CMA CGM, APL, Hyundai and MOL. With cargo traffic stagnating, these giant terminals likely will seek business from rival ports, triggering a free-for-all rate war across the north European waterfront. But the underlying potential of the new terminals was highlighted by the $1.2 billion legal suit by ECT, Rotterdam’s top container stevedore, against the port authority for allegedly treating it unfairly in the bidding process.

There are still some bright spots, ironically most of them in southern Europe, where the sovereign debt crisis is biting hardest. Gioia Tauro, the southern Italian transshipment port that faced a bleak future after Maersk Line pulled out a couple of years ago, has rebounded, with traffic surging 18 percent to 2.72 million TEUs in 2012. Piraeus grew a spectacular 63 percent to 2.74 million TEUs, reflecting its growing role as a south European gateway for Chinese goods since Hong Kong-based Cosco Pacific took over the Greek port’s main container terminal.

But this revival may turn out to be a flash in the pan, with economists predicting Spain and Italy could face a downturn as severe as Greece, Europe’s economic basket case.

The ports will take a bigger hit from the deepening downturn than terminal operators such as APM Terminals, DP World and Hutchison Ports, which are offsetting sluggish and maturing European growth by investing in rapidly growing emerging markets in South and Central America, Africa and the Middle East.

Despite the bearish outlook ports harbor a bullish faith in the future — whenever that arrives. So much so that Bremen and Lower Saxony, the German states that built JadeWeserPort, recently commissioned a $3 million feasibility study regarding the construction of a second terminal in 2015. And there was no hint of hard times ahead when Rotterdam last week inaugurated the first phase of Maasvlakte 2 on time and $195 million under budget. A few days earlier, Chinese leaders told visiting Greek prime minister Antonis Samaras that the country will boost investment in Piraeus. DP World is keeping its powder dry, with $1 billion available to expand London Gateway to 3.5 million TEUs. And French ports, led by Le Havre, are convinced hard-won labor reforms will enable them to double their traffic and win back French traffic that currently passes through more productive Antwerp and Rotterdam.

This optimism that “normal” growth will return allowed European ports to shrug off the remarkable demise of Amsterdam as a container port just weeks before the fanfare opening of JadeWeserPort. Europe’s fifth largest port by tonnage shuttered its box terminal two years after it lost its sole regular liner service to neighbouring Rotterdam, and just 11 years after it opened for business. Amsterdam City Hall invested $160 million in the terminal, which handled 425,000 TEUs in 2008 but now deals only with inland barge traffic.

But while container fixated ports prepare to slug it out for flat cargo flows, Amsterdam is extending its lead in less glamorous bulk and breakbulk traffic and niche cargoes like cocoa. And proving there’s life beyond the box.

Contact Bruce Barnard at brucebarnard47@hotmail.com.

[Updated to reflect the fact that Hutchison Ports still plans a container terminal at Harwich.]

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