ICTSI on managing container ports and terminals worldwide

Transcript

International Container Terminal Services Inc has been operating for more than two decades, and has become a leader in port management on an international scale. World Finance speaks to Martin O’Neil from the company about how the industry is developing.

World Finance: Well Martin, maybe you can start by telling me, how is the container port business structured?

Martin O’Neil: For a private operator like ICTSI, the basic structure is a concession lease. Port authorities are reluctant to actually let go of ownership of these assets for understandable reasons, and what they do is give us a 25 year lease to work on the facility, operate it, take responsibility for all the capital investment, the maintenance of the equipment, and to generate an efficient service. At the end of the 25 year lease, what the contract will say is that actually all the assets revert to the port authority, so we’re really a long term tenant and operator of these facilities.

World Finance: You’ve really grown into a global company, so how do you negotiate the different port authorities and regulations, what challenges do these pose, and what do people need to know when they’re approaching this?

Martin O’Neil: Fortunately, although we operate in a lot of locations, the issues are common across many of these ports, so we’re often solving a problem we’ve solved somewhere else, which helps. There is a local component, it’s very important. In most of our locations we prefer to have a local national as the resident CEO. That I think is much easier for facilitating whatever arrangements you have to make with the local port authority, being perceived to be a good corporate citizen. But overall, if you’re operating efficiently and you’re investing in the facility and improving the general efficiency they’ll be happy.

There is a local component, it’s very important. In most of our locations we prefer to have a local national as the resident CEO

World Finance: Trade sanctions are of course prominent at the moment, what challenges do these pose and do foreign policies such as this push up costs?

Martin O’Neil: There are probably two components to it. The biggest impact we see from trade sanctions is it restricts markets that we can go into. So if there are countries that are subject to enough sanctions it’s just not actually viable to really operate there. Once we’re in a market, we actually have to deal with other issues such as currency weakness that causes the central bank to want to make imports difficult so that they can hoard foreign exchange reserves. We’re seeing that in Argentina today, and to a certain extent in Ecuador, and that will effect the business. But that’s a bigger issue on an operating business than the sanctions.

World Finance: You’ve been working on some very prominent projects such as the port of Melbourne where innovation played a strong role, so how is technology changing the face of the business?

Martin O’Neil: I think there are probably three impacts. What people don’t probably see is there’s a very significant and growing IT component in our business. I think our terminal in Manila has 12 cranes, room for 29,000 containers in the yard, they get something like 60 ship calls per month, and actually each ship call may have 800 to 1000 containers taken on and off. It’s grown to a point where you can no longer do this on index cards in order to get a ship turned around in 12 hours. We receive electronic data that tells us what ships on the vessel to load and unload, we know where the boxes are stored because of our IT systems, and that trend I think is going to continue. The second one in automation is it’s an opportunity for cost reduction. It’s more important in high labour cost countries, so I think where you see automated terminals in the world, you’re more likely to see it in Northern Europe. I think the London gateway here has actually undertaken a fair amount of automation and we’ll be doing that in Melbourne as well. So all of that’s leading to just more efficient operations which generally will probably spread around the globe as time goes on.

World Finance: Your company has quite a unique approach to project finance, what is that exactly and how does it impact your clients?

I don’t think the clients are actually interested in how we finesse the terminal, they view it as our problem

Martin O’Neil: Hopefully it has minimal impact on the clients. I don’t think the clients are actually interested in how we finesse the terminal, they view it as our problem. Firstly, we actually start with the premise that we would fund it ourselves on a corporate basis. That having been said, there are always exceptions. Anywhere we have a joint venture, it becomes advantageous just to use project finance rather than the two partners disagreeing over what the right cost should be. And there are other locations like Poland and Ecuador where we are already very well established, and the local financial community was quite eager to actually lend money to the company, which we took advantage of. So, we do it selectively. There are costs, there are constraints when you do it, and we always look at the alternative of just funding it with ICTSI corporate balance sheet funds.

World Finance: The shipping container business can sometimes be linked to illegal activity such as human trafficking. I know in the UK the Tilbury Docks was the most recent example, so how do you ensure security?

Martin O’Neil: It’s a challenge. The two big components of security, believe it or not, most container ports, if you actually put a proper fence around the perimeter, with good lights, and then you control gate access tightly, you’ve probably eliminated 50 percent of your security problems just doing those basic blocking and tackling things. The second component is many of facilities following the events of September 11, there was a heightened scrutiny put on security issues, and at many of our facilities we actually weigh and scan each container that comes in to the facility. Many cases you can’t even load that container on to a ship if you haven’t actually done that. That will catch a lot of things. Nothing’s perfect. We are in the somewhat uncomfortable position of we don’t actually know the contents of each container, that’s not really our business, that’s between the shipper and the shipping line, we’re just told “we want to load 600 containers onto this vessel by such and such a time”. But we do make an effort and, as I said, some very basic measures can catch most of it, but there’ll always be that two percent that’s hard to completely tighten up on.

World Finance: Finally, what’s your strategy for future growth?

Martin O’Neil: I think we’re particularly happy with our position in Latin America, we see continued opportunities in Africa, where there’s been a real lack of investment in these type of facilities. And then there’s some fantastic market opportunities like Turkey and Indonesia that we’ve either missed the early rounds or the regulatory regime is not yet favourable for us as an international operator, and we patiently wait and lobby for that to change.

World Finance: Martin, thank you.