Vietnam could be the next economic miracle - ICTSI

Vietnam could be the next economic miracle - ICTSI

Port operator ICTSI, which has been acquiring small and middle-sized ports overseas, is now setting its sights on Vietnam, which it expects to become a major trading nation. Philippines Correspondent Liza Leong explains the firm's strategy

International Container Terminal Services Inc (ICTSI), which recently reported a big jump in 2007 income largely backed by revenues from its international operations, sees Vietnam as the next great trading nation after China.
Edgardo Abesamis, executive vice-president of ICTSI, singled out Vietnam as the nation that is most likely to have spectacular trade growth - from 15 to 20 percent - in the next three years. Many factories, such as manufacturers of shoes, garments and electronics, which are big cargo generators, have relocated to Vietnam, he explained. "This was the same fast pace that China achieved for several years until growth flattened from about 10 to 12 percent now," he added.
Regarding Indonesia, Abesamis sees a slowdown as many manufacturing companies move out elsewhere in Asia, but Philippine prospects remain optimistic on sea-borne cargo volumes, with imports providing the silver lining. In terms of physical export cargo, he added that the performance looks flat this year, although he sees no steep decline in volumes. Trade will be severely affected by price considerations, he noted.
ICTSI chairman and president, Enrique Razon, has built up a company with a diverse collection of operations across emerging markets. Many are small terminals in chaotic political environments - and consequently unlikely to appeal to larger operators such as Hong Kong's Hutchison Port Holdings and Singapore's PSA. Razon's willingness to take the company into difficult markets has not only created a distinctive niche for ICTSI but also created a company with better returns than its rivals.
Revenues from ICTSI operations outside its Philippine home base accounted for 51 percent of the total income of US$362.66 million from port operations in 2007 and net income attributable to equity holders was $67.69 million. Overseas business improved by 60 percent compared with 2006.
ICTSI's strategy contradicts the terminal industry's conventional app-roach. Large operators steer clear of privatisations. They prefer to build new terminals on greenfield sites, set up with modern equipment and labour agreements free of long-established restrictive practices.
Razon feels that in some places - such as Georgia, where ICTSI now runs a container terminal near Batumi - there is no scope for new developments but more opportunities for improving productivity following privatisation.
"That's how we make our money - by making the ports run better," said Razon. "Better equals good investment return."
Abesamis said: "We owe the company's success so far to our strategy of focusing on developing relatively small ports. We look for ports that have strong promise of growth, those that are starting to improve their facilities and will benefit most from the infusion of our technology and new investments."
While this is the general investment direction, he explained that the company looks at each project on a case-to-case basis. Projects leading to high growth areas are those that normally require investment. He cited the Suape port in Brazil, a medium-sized port which started with 40,000 TEUs but to date has grown to over 240,000 TEUs.
Abesamis attributed the volume improvement to the Brazilian government's initiati-ves and ICTSI's set--up of modern port facilities there. Suape is also strategically located as it serves as a hub for European trade.
"We just have to be ready when a tender is called. Most of the countries we have business in are investor-friendly and have helped to provide the growth opportunities for ICTSI. But in the end, it really depends on how well investors like us are prepared and done our homework that can help determine the success of ventures like those that we have," Abesamis stressed.
At the moment, the industry is closely monitoring the impending implementation of the 100 percent scanning of cargo to the US. This is part of the US's security policy as an anti-terrorism measure.
"I think that this policy should be selective, seriously considering impediments such as space, equipment and people. All these translate to extra costs to end customers," said Abesamis. "Even port operators in the US are reportedly against this policy, which will only slow down port processes."
ICTSI handled consolidated volume of three million TEUs in 2007, 51 percent up on the 1.99 million TEUs handled in 2006. Domestic operations accounted for 1.61 million TEUs or 54 percent of consolidated volumes. Manila container terminals increased throughput by 14 percent, from 1.19 million TEUs in 2006 to 1.37 TEUs in 2007.
Foreign container volume grew by 83 percent in 2007 over the previous year, driven principally by the addition of the company's China, Ecuador and Syria port operations, and exceptional strong growth at the company's operations in Poland, Brazil, and Madagascar.
During 2007, ICTSI invested $280.46 million for expanding handling capacity and improving operating efficiency of the company's operations in Manila, Poland, Brazil and Madagascar.
The investment also paid for the acquisition and rehabilitation of the new terminals in Ecuador, China, Syria, Georgia, Colombia and Davao, Philippines.