Source: adapted from Rodrigue, J-P, T. Notteboom and A. Pallis (2010) “The Financialization of the Terminal and Port Industry: Rediscovering Risk”, International Association of Maritime Economists.
The rationale for the growing involvement of the financial sector in port terminals is mainly that terminals are increasingly capital-intensive because their assets have intrinsic and operational value. The substantial productivity gains brought by containerization have resulted in a much more capital-intensive industry that depends on financing not only for asset acquisition but also for operations. Since terminals occupy strategic waterfront locations, their value as real estate assets is expected to increase. In turn, there is the expectation that terminals are relatively liquid assets, implying they can be sold and a buyer readily found. However, such an expectation can change rapidly during recessions, when terminal assets can become illiquid. The amortization of investments tends to occur over longer time periods, implying a more direct involvement and oversight by financial firms. Terminals in landlord ports became particularly attractive investments because land lease arrangements in these ports allow investors to acquire exclusive user rights to prime port sites for the entire lease term, typically 25-40 years for larger terminals.
With the growth of international trade, the volume handled by terminals grew accordingly, and with it, their revenue. This attracted the attention of financial firms, such as banks, insurance companies, and even pension funds, who saw transportation assets, such as port terminals, as an investment class within a diversified global portfolio, thereby permitting risk mitigation. Pension funds became interested in terminal assets because the time horizon of an investment, such as a concession agreement, corresponded to their long-term time horizon. This helped provide substantial capital to develop intermodal assets and increase their value. Scale factors were also important. Global financial firms were looking for opportunities large enough to accommodate the vast amounts of capital at their disposal, and terminals were an asset class that suited the scale of this allocation well. Therefore, both the capital time and scale prospects of the maritime industry were in synchronism with the prospects of the financial industry. With the growth of international trade, transactions between commercial actors became increasingly complex and reliant on financing.