By Costas Paris
Macquarie Infrastructure Partners has an important piece of financial support in its bid to build up its role in U.S. shipping.
The Australian investment group’s purchase of a multiyear concession to run the Long Beach Container Terminal in Southern California comes with a guarantee from the seller, Hong Kong-based shipping and ports operator Orient Overseas International Ltd. , that the facility will generate $9 billion in revenue over 20 years.
Under a sale that was triggered by U.S. national security concerns, Macquarie paid $1.78 billion to run LBCT until 2051. The site, a major gateway for trans-Pacific container trade crucial to retailers and manufacturers, will give Macquarie a kind of bookend for its North American maritime infrastructure portfolio, alongside the Maher Terminals LLC operation at the Port of New York and New Jersey that the group bought in 2016.
LBCT is one of the best-performing cargo-port operations in North America. It more than doubled its container volumes from 2014 to 2018, when more than 1.6 million boxes passed through its gates.
The prime property was available because of the rampant consolidation in the container shipping industry that left its owner, OOIL, in the hands of Cosco Shipping Holdings Co. The Chinese shipping behemoth bought the Hong Kong company last July for $6.3 billion in its drive for a bigger share of the world-wide container shipping market.
Cosco and OOIL had to shed the terminal, however, to allay U.S. national-security concerns about a Chinese state entity running a major U.S. gateway.
LBCT is a pillar of the Long Beach port, the second-busiest container port in the U.S. behind the neighboring Port of Los Angeles. It handles a fourth of the port’s eight million containers a year, which are mainly Asian imports. The port will have a capacity to handle around 3.3 million containers by 2022.
The terminal is a regular call for some of the world’s biggest shipping companies, bringing in a steady source of income. Revenue figures aren’t available, but the deal came with a guarantee that if Orient Overseas Container Line—the OOIL container line unit—and other liners don’t ship enough boxes over the next 20 years to generate $9 billion in revenue, OOCL would make up the difference.
Shipping and port executives said commitments by a seller to compensate the buyer over volume shortfalls for such a long period are rare.
The pact gives Macquarie a cushion against seasonal downturns, trade tensions and the potential impact of deeper changes in supply chains. Despite LBCT’s growth, figures suggest companies have diverted shipments toward East Coast ports since the widening of the Panama Canal in 2016, casting a cloud over the Pacific Coast gateways.
The U.S.-China trade tensions also have triggered sharp swings in trans-Pacific shipping volumes over the past year. The Port of Long Beach reported double-digit declines in container imports and exports in February and March, after several months of strong growth, as shippers rushed to move goods ahead of possible new tariffs.
Big shipping companies that also run ports, such as Denmark’s A.P. Moller-Maersk A/S, didn’t bid for LBCT, as they are now looking to invest more in inland logistics rather than in sea assets.
But commercial and trade concerns didn’t deter Macquarie and other bidders for the asset.
“Long Beach is one of the best terminals in the world,” said Yuksel Yildirim, chairman of Yildirim Holding Inc., a port operator based in Turkey that was on the shortlist to buy LBCT. “I never thought it would be sold. It is an excellent opportunity that came to the market.”
Macquarie’s other rival bidders included additional investment groups.
An executive from another bidder said Macquarie “paid a fair price and hit the jackpot,” given the terminal’s extensive automation, which cuts operating costs, as well as its skilled workforce and growth potential.
The terminal has two berths and a third coming online by 2022 that will boost its container handling capacity by 50%. When completed, the new facility will be able to handle some of the industry’s biggest container vessels. Some cargo is even moving through the third berth while it is still under construction.
“The new site started being used in 2016 and we saw a significant increase in box volumes to 1 million containers, from 700,000 in 2015 and 2014,” said Lee Peterson, a spokesman for the Port of Long Beach.
OOCL will continue to send its ships through the terminal. Other big container operators that call at Long Beach include France’s CMA CGM SA, Cosco, Taiwan’s Evergreen MarineCorp. and Singapore’s Pacific International Lines.
Macquarie has extensive holdings in the U.S., with more than $12 billion invested in more than 30 separate transactions over the past 15 years. It bought 80% of Maher Terminals in New York and New Jersey in 2016, owns the Goethals Bridge connecting Elizabeth, N.J., with New York’s Staten Island, and has majority ownership in utility companies, toll roads and cellphone towers.
Cosco Shipping said in a filing to the Hong Kong stock exchange that it booked a pretax disposal gain of $1.09 billion from the sale. The deal will boost OOCL’s cash reserves, which the carrier will use to renew its fleet and expand logistics services.
Cosco will maintain its minority investments in other U.S. ports, meanwhile, including another pier at Long Beach and at the ports of Los Angeles and Seattle.