APMT Expands Investment Strategy

APMT Expands Investment Strategy

Poti port in the Republic of Georgia isn’t one of Europe’s major container gateways. It’s a small niche port on the Black Sea, with liner services to Russia, Ukraine, Romania, Bulgaria, Turkey, Greece, Italy and Sardinia.

But APM Terminals decided last month to buy an 80 percent stake in the site and spend $100 million over the next five years to upgrade and expand its facilities. That’s because the port is part of a broader move by the terminal operator to shift its focus from big ports on east-west trade routes and invest heavily in emerging markets.

Georgia is “a very exciting country that has turned around over the last five years,” said Kim Fejfer, CEO of APM Terminals and a partner in parent A.P. Moller-Maersk. “It has great prospects for getting into trade with the Western world. It’s a good location to serve the countries in the hinterland.”

APMT, the world’s fourth-largest terminal operator, bought the majority stake in Georgia’s biggest port from Ras Al Khaimah Investment Authority of the United Arab Emirates for an unspecified price. Poti’s container throughput last year — 210,000 20-foot equivalent units — pales in comparison to the big ports in northern Europe, such as Rotterdam, which handled 11.1 million TEUs last year. But Poti’s year-over-year growth of 21 percent was stronger than Rotterdam’s 14 percent rise.

APMT’s investment is one of many the company is making or planning in emerging markets, where it projects volumes will grow faster than in the developed world. Most new projects are in ports in Africa, Central and South America, where APMT can still acquire stakes in existing terminals or concessions to build new facilities while the cost of the investment is still relatively low.

A growing number of international trade observers say the “hinterland” is where they expect the greatest growth in trade in the next decade. “Emerging markets are where the action is,” said Tomas Drybye, chief executive of Safmarine, the container line that is, like APM Terminals, a subsidiary of A.P. Moller-Maersk.

Mathijs Slangen of the Netherlands-based Seabury consulting group, said trade for countries in emerging markets has been growing at a faster rate than that in developed markets since 2006, and emerging markets withstood the downturn in global trade better than larger economies. Seabury expects trade for traditional, developed economies to grow 3 to 5 percent in container volume this year while emerging markets will grow 7 to 9 percent.

Slangen said the emerging markets have been less volatile in recent years than the larger markets, and APMT suggests that is one reason for its shift. APMT’s diversification in its ports portfolio is partly tied to freight rates that have been volatile on east-west routes because of the global economy and the over- or undersupply of ship capacity.

Container freight rates between Poti and ports in the Black Sea and the Mediterranean have been much more stable than those in the east-west trades because they employ smaller feeder vessels that are not in excess supply and because demand is steady.

When container lines lost a collective $15 billion during the 2009 recession, APMT had to cut its terminal-handling fees to stay competitive. It’s been able to lift those fees since then, but not back to pre-recession levels.

“The volumes are back, but price-wise it will take some time to recover,” Fejfer said. He is determined to resist further fee cuts.

“The global shipping lines are seeing freight rates going down at this time of year. They are hurting in terms of their profitability. So we might face pressure to reduce prices,” he said, “but we don’t really see this as our role to safeguard the shipping lines in this. So we don’t have any plans to reduce our prices. We want to improve our service and be fairly paid for this.”

APMT is actively managing its portfolio of 55 marine terminals in 34 countries. Last year, the business sold its interest in terminals in Kaohsiung, Taiwan and Yantian, China.

At the same time, it has five new projects in emerging markets and 11 expansions under way. This month, it signed a 30-year concession contract with the Peruvian government to operate Terminal Muelle Norte at the Port of Callao, where it will invest $749 million to update and expand the existing facility into a modern multipurpose terminal serving general, roll-on, roll-off, breakbulk and containerized cargoes as well as cruise ships.

In February, it started operating a terminal at the Port of Monrovia following Liberia’s ratification of the 25-year concession agreement. This gives the company a near-monopoly on container terminals in West Africa, where it operates eight other facilities in seven countries. It is seeking new projects in East and South Africa.

In March, APMT won a 33-year concession to design, build and operate a new container terminal at the Port of Moin on the Caribbean in Costa Rica. “It will open in 2016 as the reefer gateway for all the pineapple and bananas coming out of Costa Rica to the U.S. East Coast and northern Europe,” Fejfer said.

Operations also began in March at the new terminal in Cai Mep International Terminal, Vietnam, where APM Terminals holds a minority share. “It’s the only deep-water port in Vietnam with the ability to accommodate vessels larger than 10,000 TEUs,” Fejfer said.

Still, the terminals with the best growth in the first quarter of 2011 were in the U.S.

APMT earned a $139 million profit in the first quarter, up 22 percent from $114 million in the same period last year. Revenue was flat year-over-year, reflecting the end of operations in Kaohsiung and Yantian and several other terminals, but there was a 11.6 percent return on invested capital in the quarter, “which we consider rather high for this kind of infrastructure business,” Fejfer said.

Contact Peter T. Leach at pleach@joc.com