Container
terminal operator earnings have declined as slowing trade and escalating costs
have brought margins under pressure. But an improving economic outlook and
falling energy costs are expected to provide some reprieve through the second
half of the year.
Widespread easing of port congestion
reduced average container dwell times at terminals and led to a corresponding fall in
storage revenues in 4Q22, according to the latest readings from Drewry’s Global
Container Terminal Revenue Index which is published in the Ports and Terminals
Insight. In their financial statements, both APMT and Westports confirmed that
their storage income has dropped back to 2020 levels.
Meanwhile,
costs continued to rise, according to Drewry’s Global Container Terminal Cost
Index, due to continuing inflationary
pressure particularly from escalating labour and energy costs. This
together with softening revenues put pressure on operator margins, sending
Drewry’s Global Container Terminal Earnings Index down 19% YoY and 21% QoQ in
the final quarter of last year.
The index
measures quarterly changes in industry earnings per teu, based on the financial
results of selected global terminal operators. A similar approach is used to
measure indexed trends in terminal operator revenue and operating costs and all
three indexes are updated quarterly in Drewry’s Ports and Terminals Insight.
Looking
ahead, while weakening container traffic will depress total revenues, the
impact on per unit revenues will be partially offset by inflation-linked annual tariff increases. Additionally, if
carriers continue to use blank sailings to manage trade-lane capacity then
average terminal dwell times could settle at a level above pre-pandemic norms
which would see some of the storage revenue gains maintained.
On the
cost side, we expect personnel costs,
which are partially inelastic and typically account for the highest proportion
of unit operating costs, to increase with the rise in annual salaries. Drewry’s
analysis of recent pay deals underpins our previous expectation that global
average dock workers’ wages will rise by 6-9% in 2023.
Meanwhile,
fuel and energy costs are expected to fall over the course of the year and
lower volumes will lead to further easing of port and landside congestion which
will provide some efficiency gains. However, these gains could be reversed if
terminal utilisation levels fall too low.
In
summary, annual tariff increases are expected to have helped offset the loss of
storage revenues in 1H23, but higher
manpower costs will keep margins under pressure and falling cargo demand
could lead to diseconomies of scale. The expected easing in energy and fuel
costs plus recovery in volumes is expected to relieve the pressure on margins
in 2H23.
Hence,
despite economic headwinds, Drewry expects container terminal operator earnings
to recover through the course of the year on reduced cost pressures and
inflation-linked revenue protection.