Ocean carriers’ ability to switch transhipment traffic away from
unrelated container terminals in the Mediterranean puts those facilities in a difficult negotiating position. Piraeus Container Terminal is a
good example, despite Cosco Pacific being related to Cosco Group, and
the facility having a strong local cargo base. A report from Drewry
Maritime Equity Research
Ever since COSCO Pacific contracted with Piraeus Port Authority in June 2008 for a concession to develop and operate Piraeus Container Terminal (PCT) for 35 years under a EUR 4.31 ($6.86) billion agreement, PCT has witnessed a steady increase in container throughput, and been a key contributor to COSCO Pacific’s Terminal business. The concession covers Piers 2 and 3, and COSCO Pacific took over Pier 2 in June 2010. COSCO Pacific initially focused on the existing four berths at Pier 2, and completed a capacity expansion from 1.6m teu to 2.6m teu per annum in June 2012.
PCT now has a significant role in COSCO Pacific’s terminal portfolio. Encouraged by the volume increase, the company started constructing Pier 3 in 4Q 11 as the throughput at PCT reached 2.1m teu in 2012, recording a 77% increase over 2011. COSCO Group plans to develop PCT as the main gateway to south and central Europe, North Africa and the surrounding regions. According to the Piraeus Container Terminal director, Fu Cheng Qiu, the company is also interested in developing a logistics centre using Piraeus Port as a base, for which it has received encouraging signals from Greece’s Government. The company also inaugurated Pier 3 for testing operations in June 2013. This involves the construction of two new berths on a brownfield site, adding 1.1m teu per annum, bringing the total across Pier 2 and Pier 3 to 3.7m teu per annum once completely developed.
Total port volumes were 1.37m teu in 2007 but industrial action by dockers opposing the privatisation of PCT led to a loss almost overnight of transhipment traffic, and volumes fell to just 0.43m teu in 2008. MSC in particular was one of the large customers which switched volumes to Gioia Tauro in Italy. The subsequent dramatic rise in volume is backed by the return of MSC and new volumes from Evergreen from 2011 onwards. In 2012, MSC and Evergreen contributed around 35% and 34% of the total volumes, according to the company.
As shown in the map below, PCT faces competition from ports such as Thessaloniki which are better placed to serve inland points beyond Greece. More importantly, Terminal Investments Limited (TIL) is developing Asyaport in Turkey, not far from Istanbul, which could pose a key threat for Piraeus considering TIL has a strategic relationship with MSC, and MSC is a key customer at Piraeus.
Asyaport will become operational in the next 12-18 months, and be capable of handling approximately two million teu in its final phase. Drewry Maritime Equity Research (DMER) has conducted a scenario analysis to illustrate the possible impact of Asyaport on PCT’s volume, and hence on the financial performance of COSCO Pacific (see table below).
It is to be noted that any potential diversion of traffic by MSC from PCT to Asyaport will depend on a number of factors, including MSC’s contract with PCT. For instance, how long the concession is, and are there guaranteed minimum volumes. It will also prefer to shift transhipment cargo from PCT as it is more foot-loose. There is a possibility that MSC could also divert some transhipment cargo from Ambarli to Asyaport rather than from PCT. However, considering that TIL has a stake in Ambarli, it is assumed that volumes from PCT to Asyaport will shift first, and accordingly not considered diversion from Ambarli to Asyaport for this analysis.
* The above is only for illustration purposes as the impact of Asyaport on Piraeus is not clear at this stage
Source: Drewry Maritime Equity Research
In conclusion, Piraeus Port has been a turnaround story, and had a positive effect on Cosco Pacific’s bottom line. It has provided a base for the company to expand in Southern Europe irrespective of COSCO Pacific’s future investments in Greece. However, recurrence of action by labour unions and opening up of Asyaport could slow the progress made to date.
TIL’s connection to MSC puts it in a strong position in Asyaport as far as transhipment business is concerned, although Cosco Pacific may argue that this is the least profitable part of its business. As shown in the table, the loss of this business will only reduce Cosco Pacific’s global revenue from all of its terminals by 5% in 2014, and its EBITDA reduction will be an even smaller 2.3%.
Our View
Even if Piraeus Container Terminal loses its transhipment business from MSC to Asyaport, its location and economies of scale will enable it to continue attracting new business. Also, Greece will not stay in recession forever, so its local cargo base should start growing again soon after 2014.
Source: Drewry Maritime Research
Ever since COSCO Pacific contracted with Piraeus Port Authority in June 2008 for a concession to develop and operate Piraeus Container Terminal (PCT) for 35 years under a EUR 4.31 ($6.86) billion agreement, PCT has witnessed a steady increase in container throughput, and been a key contributor to COSCO Pacific’s Terminal business. The concession covers Piers 2 and 3, and COSCO Pacific took over Pier 2 in June 2010. COSCO Pacific initially focused on the existing four berths at Pier 2, and completed a capacity expansion from 1.6m teu to 2.6m teu per annum in June 2012.
PCT now has a significant role in COSCO Pacific’s terminal portfolio. Encouraged by the volume increase, the company started constructing Pier 3 in 4Q 11 as the throughput at PCT reached 2.1m teu in 2012, recording a 77% increase over 2011. COSCO Group plans to develop PCT as the main gateway to south and central Europe, North Africa and the surrounding regions. According to the Piraeus Container Terminal director, Fu Cheng Qiu, the company is also interested in developing a logistics centre using Piraeus Port as a base, for which it has received encouraging signals from Greece’s Government. The company also inaugurated Pier 3 for testing operations in June 2013. This involves the construction of two new berths on a brownfield site, adding 1.1m teu per annum, bringing the total across Pier 2 and Pier 3 to 3.7m teu per annum once completely developed.
Total port volumes were 1.37m teu in 2007 but industrial action by dockers opposing the privatisation of PCT led to a loss almost overnight of transhipment traffic, and volumes fell to just 0.43m teu in 2008. MSC in particular was one of the large customers which switched volumes to Gioia Tauro in Italy. The subsequent dramatic rise in volume is backed by the return of MSC and new volumes from Evergreen from 2011 onwards. In 2012, MSC and Evergreen contributed around 35% and 34% of the total volumes, according to the company.
As shown in the map below, PCT faces competition from ports such as Thessaloniki which are better placed to serve inland points beyond Greece. More importantly, Terminal Investments Limited (TIL) is developing Asyaport in Turkey, not far from Istanbul, which could pose a key threat for Piraeus considering TIL has a strategic relationship with MSC, and MSC is a key customer at Piraeus.
Asyaport will become operational in the next 12-18 months, and be capable of handling approximately two million teu in its final phase. Drewry Maritime Equity Research (DMER) has conducted a scenario analysis to illustrate the possible impact of Asyaport on PCT’s volume, and hence on the financial performance of COSCO Pacific (see table below).
It is to be noted that any potential diversion of traffic by MSC from PCT to Asyaport will depend on a number of factors, including MSC’s contract with PCT. For instance, how long the concession is, and are there guaranteed minimum volumes. It will also prefer to shift transhipment cargo from PCT as it is more foot-loose. There is a possibility that MSC could also divert some transhipment cargo from Ambarli to Asyaport rather than from PCT. However, considering that TIL has a stake in Ambarli, it is assumed that volumes from PCT to Asyaport will shift first, and accordingly not considered diversion from Ambarli to Asyaport for this analysis.
* The above is only for illustration purposes as the impact of Asyaport on Piraeus is not clear at this stage
Source: Drewry Maritime Equity Research
In conclusion, Piraeus Port has been a turnaround story, and had a positive effect on Cosco Pacific’s bottom line. It has provided a base for the company to expand in Southern Europe irrespective of COSCO Pacific’s future investments in Greece. However, recurrence of action by labour unions and opening up of Asyaport could slow the progress made to date.
TIL’s connection to MSC puts it in a strong position in Asyaport as far as transhipment business is concerned, although Cosco Pacific may argue that this is the least profitable part of its business. As shown in the table, the loss of this business will only reduce Cosco Pacific’s global revenue from all of its terminals by 5% in 2014, and its EBITDA reduction will be an even smaller 2.3%.
Our View
Even if Piraeus Container Terminal loses its transhipment business from MSC to Asyaport, its location and economies of scale will enable it to continue attracting new business. Also, Greece will not stay in recession forever, so its local cargo base should start growing again soon after 2014.
Source: Drewry Maritime Research