With 1.6 million teu of new container terminal capacity soon to be opened in London Gateway, questions continue to be raised about where the business to fill it will come from.Marks & Spencer’s recent decision to establish a distribution centre in London Gateway’s logistics park is good news for DP World, but a salient reminder that its adjacent mega-container terminal, which is due to open at the end of the year, still has not yet attracted a single deep-sea ocean carrier customer. It underlines the precarious nature of container terminal management business, even though it is highly profitable.
Subject to planning permission, construction of M&S’ 900,000 square meter facility will start in 2014 and could become operational in 2015. Assuming the terminal has customers by then, M&S’ containers will move directly from its ships to the neighbouring warehouse. As well as saving cost, M&S suggests that it will allow millions of lorry miles to be taken off the UK’s already congested road network every year. M&S is planning to use the rail terminal being built at London Gateway to provide a direct link to the M&S Midlands distribution centre in Castle Donington.
The announcement gives a significant boost to the container terminal, located just 25 miles from the centre of London. As well as providing a base load of cargo in the form of M&S imports, and possibly exports as well, it is a badge of confidence in the project that the DP World London Gateway team will wear with pride.
However, the reality is that it remains far from certain how many ships, and which shipping lines, will be calling at London Gateway when the new distribution centre is completed. DP World has loosely mentioned having around one million teu of ocean carrier business already committed in principle, but is that fact or fiction? Nobody has yet been confirmed as the start-up client, and some analysts are getting quietly nervous as opening day gets nearer.
London Gateway is a massive multi-million gamble for DP World, being the biggest investment project under development anywhere in the world right now. Eventually the facility is expected to provide six berths with 2,700m of quay, equipped with 24 quay cranes and the capacity to handle 3.5 million teu, close to the 3.7 million teu handled last year by the UK’s biggest port, Felixstowe. It will be phased in, with one berth becoming operational in 4Q 13, and two more in 2014, providing an initial capacity of around 1.6 million teu a year.
But is there room in the UK market for a port even of this initial size? Will the much-hyped newcomer be able to prize the big shipping lines away from the two other long established gateways in Felixstowe and Southampton, or will it have to settle for crumbs from the table of smaller ports?
When London Gateway was originally conceived, the market place was very different. There were fears that the UK was running out of port capacity and that this would harm UK plc. The Dibden Bay fiasco in Southampton marked a low point, and seemed to point towards a future where the UK might be served increasingly by feeders or subsidiary services, to the advantage of European mainland ports. There was, it was widely agreed, a need for a new deep water container port in the UK and London Gateway fitted the bill perfectly.
The 2008 financial crisis changed this landscape dramatically, and container trade growth has been much less robust than anyone would have forecast ten years ago. Moreover, substantial port expansion has taken place in Felixstowe and Southampton, clearly indicating that neither competitor is ready to lose market share without a fight.
Felixstowe’s 16m draught berths 8 and 9 which opened in September 2011 represent the first phase of a planned $1.5 billion investment by the port’s owners HPH. The commitment has encouraged shipping lines to deploy larger vessels. Still more development is planned by HPH, including a 555m deep water quay extension equipped with six more super-post-panamas cranes. Beyond that, HPH could develop neighbouring Bathside Bay which would take Felixstowe-Harwich’s annual capacity up to around 8 million teu a year.
Earlier this month Felixstowe opened its new $65 million North Rail Terminal, doubling the port’s already impressive intermodal rail capacity.
Elsewhere, Associated British Ports and DP World have started building a new 500m deep water berth in Southampton that will be also be capable of handling the world’s largest container ships. The $240 million project will include widening and deepening the main access to the container terminal. Once completed in 2014, Southampton will offer 1,800m of quay with 16m alongside, and 16 gantry cranes of super post-Panamax capacity.
So, where will London Gateway fit into this network? DP World maintains that the need for transport to become greener remains paramount, so its location just outside of the London metropolitan area, which has a population of 15 million, is highly advantageous. Whether or not that will be enough of a differentiator to compel ocean carriers to change remains to be seen, but it will surely take a lot more than one logistics customer to tip the balance in its favour.
Source: Drewry Maritime Research