The Netherlands: Explanatory Notes Port Authority Study of Container Sector

The Port Authority asked McKinsey to make an analysis of the demand for and availability of container throughput capacity in Rotterdam in the coming years. The purpose of the study was to get an independent opinion on the situation as it will develop from 2014 onwards when the new terminals on Maasvlakte 2 become operational.

Two things prompted the Port Authority to commission this study: on the one hand, the economic unrest in the course of 2011 and the lack of clarity regarding its consequences for the container sector, and, on the other hand, the fact that ECT, the largest container terminal operator in Rotterdam, regularly expresses its concerns about the situation that will arise after 2014.

Summary of the study

The researchers expect throughput in Rotterdam to increase faster than in other ports of the Hamburg-Le Havre range, due to a combination of the consolidation of shipping lines, increases in scale in shipping, and the presence of modern, easily accessible terminals on deep navigable water. Considering the expansion of capacity in the region, substantial competition can be expected, particularly in the transhipment sector.

With the construction of the initial phases of the RWG and APMT terminals on Maasvlakte 2 and the planned expansion of Euromax on the existing Maasvlakte, Rotterdam will account for 45% of all capacity expansion in the region. As a result, Rotterdam will not only be able to handle the anticipated growth, but also stimulate an increase in the market share.

The study worked out three scenarios: low, base and high case. They extend no further than 2017. In that year, the researchers expect all new capacity in Rotterdam to be operational and the capacity utilisation of the terminals therefore to be at its lowest. At the same time, it is reasonably easy to predict the capacity that will be added to the market in the Hamburg-Le Havre range up to 2017. The amount of extra capacity that becomes available after 2017 depends largely on the investment decisions that will only be made in the coming years based on economic developments.

Container terminals break even with a capacity utilisation of between 55 and 65%. In the base case scenario, the capacity utilisation of the terminals in Rotterdam in 2017 will be an average 78% (17 million TEU), in the low case scenario 68% (15 million TEU) and in the high case 89% (19 million TEU). In the last case, extra capacity will have to be created quickly to prevent congestion. The capacity utilisation of 68% for the port of Rotterdam as a whole in 2017 in the low case is higher than the break-even point. Some stevedores or their individual terminals will be above this 68%, others below it. Also, if a terminal is at or just below the break-even point, this will only be for a short period, insofar as can be foreseen. Added to this, the researchers expect capacity utilisation rates in Rotterdam to be higher than average for the Hamburg-Le Havre range, whatever the case.

Conclusion for the Port Authority

As things look at present, the scenarios will vary in 2017 between ‘quickly create additional capacity’, ‘business as usual’ and ‘after a number of good years, one or two terminals have a harder time for one or two years’. That last possibility, if it materialises, is not abnormal in a market economy. The study therefore supports the Port of Rotterdam Authority in the choices it made in 2005-2006 to allocate two terminals on Maasvlakte 2: one to APM Terminals and one via an open assessment procedure to RWG. If no additional capacity is created, there is a danger of congestion occurring in the handling of container ships as early as 2014 in the base scenario.

Other developments

Whilst this study was being completed, a potentially far-reaching series of consolidations was taking place in the shipping sector. MSC and CMA-CGM announced their intention to cooperate closely from March 2012. In addition to this, the six shipping companies of the Grand Alliance and the New World Alliance indicated their intention to work together from April 2012. And Evergreen announced that it would be collaborating with CKYH (‘Green Alliance’). Such consolidation processes can have serious consequences in terms of shifting cargo between ports and between terminals within ports. It looks as if ports with enough, state-of-the-art terminal capacity such as Rotterdam are more likely to gain market share than lose it in such a process. Naturally, this can vary from terminal to terminal.

According to McKinsey, there is no reason to take any action at present. However, the Port of Rotterdam Authority, as is the custom, will keep its finger firmly on the pulse of the container sector so that it can see where, in cooperation with terminal operators and shipping companies, it can strengthen the position of the Rotterdam port complex.