Container market trends: What is going on in the Strait of Gibraltar?

This article aims to cover the current and near-future container market in the Strait of Gibraltar. It highlights the region’s relevance in international trade and the occupancy of its major container terminals. The article also provides ALG’s overview of the potential reasons and market dynamics that are shaping the container market.

The Strait of Gibraltar, due to its geostrategic location, plays a key role in the container traffic between the Far East and the Mediterranean and North/ Western Africa. In fact, the main container terminals in the surroundings of the Strait show high occupation rates, and are driven by transhipment traffics as result of the hub-and-spoke model.

Despite this context, some of the latest new container terminals’ tenders launched by the Port Authorities in the region are encountering difficulties in finding investors to operate the concession. So, what is causing this situation? How are the maritime dynamics and alliances impacting on port operators/ terminals? What might occur in the near future?


The Strait of Gibraltar: a key location within the container market

The Mediterranean is the third largest region worldwide for transhipment (TS) container traffic, with around 15% of the total TS market (after Malacca Strait and Southeast China), accounting for circa 30% of the global container maritime traffic. This share is highly supported by the relevance of the major West Med hubs that respond to hub-and-spoke strategies of main liners serving nearby secondary markets and ports with limited hinterland.

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Main transhipment areas worldwide

Within this overall context, the “Strait of Gibraltar Hubs” play a key role due to their geostrategic location on the transhipment traffics served by East-West deep sea routes and North-South routes, which feed the regional markets of Iberia and Western and Northern Africa.

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This fact, together with the relevant TS volumes handled in the Gibraltar hubs (Algeciras, TangerMed, Sines, Valencia and Las Palmas)—which amount over 11 MTEUs—make the ports/ terminals in the region attractive for major shipping lines and/or port operators worldwide.

 The current occupancy rates underline the need for additional capacity

The increasing relevance of the Strait as a hub for feedering Iberian Peninsula, Northern Africa and Western African from modern routes is mainly driven by the strong and rapid growth of new economies. Transhipment traffics in the region rose at annual rates of 6.4% in the 2003-2016 period (and 4.8% CAGR 2010-2016). Such rapid growth in traffic was possible thanks to the reaction on the container supply side with the opening of XXI Terminal – PSA in Sines in 2004 and the subsequent openings of MSC in Valencia at the end of 2006, of TC1 – APMT & TC2 – Eurogate in TangerMed in 2007 and of TTIA in Algeciras in 2010.

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Transhipment traffics evolution in Gibraltar hubs

As a result, the main current container facilities in the region have started to show signs of saturation, which impacts negatively on the service levels offered to shipping lines (waiting times to berth, gates in/ out collapse, etc.).

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Current capacity & occupation at Gibraltar Strait (MTEU, 2016)

Overall, Gibraltar’s container hubs are close to 80% of their maximum declared capacity, stressing the situation in APMT terminals at both sides of the Strait (Algeciras and TangerMed).

The latest new container terminal tenders are having difficulties to attract investors

Some of the latest new container tenders in the region have encountered or are encountering difficulties to find investors, despite the current congestion rates of the major container terminals—and within a context where TS traffic is expected to continue growing in the coming years driven by the growth of the African markets and international trade, although at a lower peace. This is for example the case of the tender of Phase B of Isla Verde Exterior in the Port of Algeciras, which has been postponed several times and its new deadline is 31st October 2017, despite it was first called for on 1st August 2016.

What is the reason?

The container maritime dynamics and the high risk of making huge investments in a highly uncertain TS market are the main dissuasive factors.

On the one hand, the ongoing consolidation process of shipping lines and their verticalisation are key decision factors:

  • Consolidation of shipping lines: in recent years consolidation has gained momentum within the shipping container market through Mergers & Acquisitions, as well as through Alliances aimed to produce economies of scale and cut operational costs (especially in major routes). Judging by the latest news (Cosco has submitted a binding offer for OOCL), the amount of global relevant shipping lines has reduced to 12, and may likely continue to reduce to 6-8 in the medium term. In addition to the ongoing M&A process, major shipping lines are joining their forces into 3 alliances to operate the East-West routes.
  • Ports and port operators are vulnerable to the ongoing consolidation that is taking place in the container shipping industry. On the one hand, ports have fewer clients with higher volumes, and therefore rebates are increasing. On the other hand, the consolidation of carriers entails the renegotiation of contracts, which inevitably passes through a request for lowest charges and tariffs.
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Ongoing consolidation process
  • Verticalisation: The vertical integration carried out by major shipping lines aims to ensure berth availability and premium service levels and at the same time keep control of call costs. In this context, most of the major liners have entered the terminal operations business, following the development of transhipment strategies at certain locations. This trend is spread widely in the West Med, and especially in the Strait of Gibraltar, where none of the major container terminals are currently owned by independent operators, once Noatum Container Terminal in Valencia has been acquired by Cosco.
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Vertical integration process in the West-Med. Source ALG analysis

On the other hand, several factors related to the high risk to be assumed by the potential investors have arisen also as relevant barriers:

  • Investment needs: new high-profile Greenfield terminals require huge investments to accommodate 18,000-21,000 TEUs vessels, considering the industry best practices (i.e. automated terminals).
  • Major shipping lines/ alliances are already present in the region: the verticalisation of carriers and their consolidation process either through M&As or alliances have assured the present of major carriers in the Strait of Gibraltar, which in turn has dissuaded other potential stakeholders from entering the region.
  • Additional capacity expected/ planned in the short and medium term: There are numerous expansion and Greenfield projects across the region (of which TangerMed II, to be operated by APMT and MarsaMaroc, and PSA terminal expansion in Sines are planned to open before the rest, together with Isla Verde Phase B in case an investor is founded). Moreover, there are other 4 ambitious hub projects in Northern Africa (Nador, Oran, Cherchell and Djen Djen), in addition to Valencia Port expansion, that in case they are materialised will raise the total capacity above 40 MTEUs.
  • Use of secondary ports for the relocation of empties: in a highly competitive market with high occupation rates, smaller ports/ terminals in the region are trying to position themselves as secondary hubs for the relocation of empty container from West/ Northern Africa to the Far East.
White Paper GibraltarAdvanced Logistics Group. Mid-term planned expansions at Gibraltar Strait hubs
Mid-term planned expansions

Conclusions

Some major container terminals could face a catastrophic failure as they prepare to serve the growing number of megaships, even if the consolidation of global shipping lines is gaining momentum through M&As and alliances. The major hub terminals in the region, as well as the numerous Greenfield projects planned in North Africa, are making/will need to carry out major investments to serve 18,000-21,000 TEUs vessels with little guarantee of a return in the investment.

About ALG activities in the container market

ALG has acquired vast experience in mainstream container-market and dynamics, thanks to the numerous projects and assessments carried out for major port operators worldwide (PSA, DP World, Noatum Ports, Yilport, Portek, Gulftainer, Marsa Marroc, Abu Dhabi Ports, etc.) and for financial institutions (JPMorgan, QIC, Carlyle, Maquarie, etc.), either through conducting market assessments or commercial and technical/commercial due-diligences.

For more information about the article or if you want to learn more about ALG’s services in the Port and Maritime sector, please do not hesitate to contact us at the emails below.


About the authors
Xavier Roca is Port and Maritime Director at ALG
Ibai Erdozain is Port and Maritime Senior Manager at ALG
For more insights, please check www.alg-global.com or contact:
xroca@alg-global.com
ierdozain@alg-global.com