CE chairman Captain Michael McCarthy considers what will happen to investment in port facilities in the light of Covid-19
This is the first time the cruise industry has been unjustly associated with the spread of a major disease with social media sentiment turned negative, indicating that cruising’s association with Covid-19 may endure longer than is warranted.
This has resulted in non-turnaround ports in the sector reviewing potential investments and commitments, particularly in light of the old cruiseline adage: We have a mobile asset that we can move around the world.
However during a recession, or an unpredictable and emotionally charged economic crisis like the coronavirus pandemic, the smart port executive understands that difficult environments may also coincide with the best opportunities and infrastructure’s ability to ride out economic downturns. When investing for the long term, experts say that while waiting for the best time to invest, this could just mean missing out on potential returns in the future.
Historically, many companies do well during economic downturns while acting cautiously and remaining vigilant in monitoring the market landscape for opportunities to pick up high-quality assets at discounted prices. Currently, at a time of historically low interest rates and government bond yields, port infrastructure remains an attractive sector for investment from private capital.
There is no doubt that many port management boards will be re-evaluating their investment strategies. Ports’ management are generally excellent in planning for the future and building flexibility to ensure the future strategy will strike the right balance between progress and adaptability amid changing scenarios.
This is a critical period where relationships between the cruiselines and ports are paramount in identifying the future and proactively examining changing customer needs, particularly in light of the Paris Agreement and meeting net-zero-carbon targets
This can give ports and potential investors confidence by evaluating where the cruise sector fits within the future strategy of the port. It is also the time when a port establishes itself within a segment of the cruise industry in relation to future ambition and ship size/passenger numbers.
Have designs had to be altered and therefore costs reconsidered?
In discussing infrastructure with a number of ports, investment that has not been committed to has been stalled and is being re-evaluated. Ports are now looking at the limitations of the port and destination, which will include the sustainability of the port in relation to multiple ships and a huge influx of visitors to the port/region. This may subsequently lead to a limit in the number of vessels in port at the same time.
The Covid-19 pandemic, and the suspension of cruising, has given breathing space to ports to look at the unique selling points for each destination, to match with the right cruiselines and to differentiate the destinations in the region.
Given the rapidly-evolving industry landscape, ports are looking at their plans on an incremental basis - and the ability to adapt - rather than a prescriptive roadmap. This is due to environmental and sustainability issues, more stringent regulations and changed customer expectations. This will have a follow-on effect on designs, costs and investments.
Are those investing pulling back from that investment?
The general concensus is less about whether, but more on how, developments will go forward. A big concern revolves around the worrying question of sustainability: If we build, will they come? And stay? And who will pay for it?
Ports are pretty resilient in that they build facilities that are usually funded by long-term investments. This is particularly relevant to the cruise sector, more so than cargo and logistics.
With nearly 90% of international trade being seaborne, port infrastructure development is a continuous process so as to maintain economic growth, productivity and competitiveness.
In fact, trade and economic growth has strained existing port infrastructure in many countries to the point where they simply cannot accommodate further expansion without serious investments. This is more important today with the increasing size of ships as carriers compete with economies of scale.
Ports have shown resilience throughout the pandemic, with very little disruption in supply chains. Investment in cargo port infrastructure continues as planned as part of an integrated digital platform for supply chains, which have done enormously important work during Covid-19 to ensure the flow of goods and cargoes.
Regarding investment for the cruise sector, the importance of location and sufficient (natural) water depth and shelter to accommodate vessel arrivals/departures, and for safe and efficient movement of passengers, cannot be understated.
For it to be successful and economically viable, it is dependent on sufficient economic and tourism hinterland and unrestricted access to efficient transport modes of sufficient capacity of road, rail and river to transport and disseminate passengers.
While downturns require immediate action to steady the ship, there will be a recovery. Historically, winners have invested during the downturn.
These infrastructure investments will have to consider easy embarkation and disembarkation processes, particularly of larger ships with high passenger volumes. Ports may limit access, and require additional screening protocols, at points of disembarkation.
Shore excursions may require additional tenders to ferry passengers to lower on-tender density. Itineraries may have to account for an additional day after disembarkation for deep cleaning before re-embarking which will have a major impact on time in port, infrastructure, berths, turnarounds and itinerary planning.
What will this mean for when the industry does return to full capacity?
Congestion issues prior to Covid-19 were already a problem in many places so would delaying development simply postpone that problem further down the line?
I would agree that, at the beginning of 2020, many ports had a congestion issue and were working with the cruiselines to adjust itineraries and work together, in a more coordinated manner within regions, to facilitate more flexible routing.
This pandemic period should be used by ports and the cruiselines to identify the bottlenecks that were building and working together to look at solutions to alleviate problems that were clearly visible.
If it doesn’t act quickly, the cruise sector may be left behind regarding investments committed to port infrastructure, as investment sentiment is quickly shifting to spending on renewable power and particularly on the offshore wind sector.
Governments globally are introducing Green Stimulus Packages for ports, including investment in hydrogen renewables from offshore wind. These packages focus on low carbon energy and infrastructure, which will have a fundamental effect on reducing emissions during the recovery.
While the cruise industry has historically recovered quickly from previous shocks, there is potential for long-term impact and a delayed recovery. The financial profile of cruising could be significantly different than in the past based on changes in demand, consumer expectations, and regulations. Flexibility in port infrastructure is key as the future landscape becomes clearer with time.
The cruise sector, while accounting for less than 1% of shipping, is at the forefront of over 20 years of innovation in the shipping sector with regard to fuels, emissions, exhaust gas cleaning systems and air quality, waste water treatment systems, ballast water management and shorepower etc.
It is pushing to be carbon neutral by 2050 and is well on the way to achieving this. Understanding what the ‘new normal’ will look like, and the actions to take to succeed in it, will require ongoing measurement and research as it evolves.
It will also require a greater communication by the destinations of the positive impacts of cruising and measures being taken by the lines. Comparators of footprint for cruising versus other forms of leisure and holidays/travel will have to be spelt out so the general public and politicians can understand it.
The cruise industry is a great industry and needs all our help to bring it back safely and financially viable for all.