MAXIMIZING INVESTMENT AND UTILIZATION

Luis AjamilBermello, Ajamil & Partners

November 2013

OPTIMIZATION

How to increase

use of the

facility

How to improve

the capacity of

the facility

Two perspectives

issu

es

Issues

• Cruise terminals have a very low utilization rate• Seasonally

• Weekly

• Daily

• Hourly

• Whenever ports begin to optimize use, new

competitive facilities are created lowering the use

• Cruise lines push for certain dates and times keeping

utilization low

• Terminals are becoming increasingly more expensive

• Low utilization = low capital capacity

What drives low utilization?

• Interport competition• Come to my port – I will offer a Saturday berth

• Lack of cruise line competition

• Inability for ports to have meaningful discussions with

cruise lines

• Lack of desire by cruise lines to change timing• Imagine an airport where people only begin vacations in the

weekend?

• Lack of recognition of the strategic place of the port

be

rth

utiliz

atio

n

Global growth

0

5,000

10,000

15,000

20,000

25,000

'95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 09 10 11 12

Pa

xs

('0

00

)

North America Europe Asia

Global expansion

1960 1970 1980 1990 2000 2010

Growth factors affecting ports

• Natural potential for development

• Timing of cruise line expansion and strategy

• Interline competition

• Seasonality (by month)

• Daily fluctuations

The 5 phases of port growth

Growth through small ships

Growth through increases in

ships and ship size

Growth through increases in ship

size and decreases in numbers

of ships

Growth through increases in size

and number of ships

Back to growth in ship size

North American passengers

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

'95 '97 '99 '01 '03 '05 '07 '09 '11

Pa

sse

ng

ers

Regional homeport passengers (multi-day)

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Port of Miami Port Everglades Port Canaveral Port of Tampa

Source: B&A, 2009.

Florida homeport passengers

6,000,000

7,000,000

8,000,000

9,000,000

10,000,000

11,000,000

12,000,000

13,000,000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Source: B&A, 2009.

Keys

• Growth is not unlimited or linear

• Growth occurs in steps as capacity is added

• Lines tend to compete with each other at the same

port, therefore causing large and fast increases

• There are glass ceilings at each port• Growth will diffuse to many ports as the lines continue to globalize

• Lines do not compete with themselves

• Capacity issues

Seasonality

S E A S O N A L

S E A S O N A L

Y E A R R O U N D

Warm weather seasonality (Los Angeles)

0

5

10

15

20

25

30

35

40

JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC

2002 2003 2004 2005 2006

Low

season

Cold weather seasonality (Alaska)

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

1 2 3 4 5 6 7 8 9 10111213141516171819202122232425262728293031323334353637383940414243444546474849505152

Low

season

Low

season

tra

nsi

t to

Ala

ska

tra

nsi

t fr

om

Ala

ska

low

se

aso

n

low

se

aso

n

Yearly seasonality (SF)

0

2

4

6

8

10

12

14

16

18

jan feb mar apr may jun jul aug sep oct nov dec

Berth demand by day

0%

20%

40%

60%

80%

100%

2001 2003 2010

PORT OF CALLHOMEPORT HOMEPORT

Current trigger for facility demand

• Very specific for each port

• Driven by:• Seasonality

• Peaking patterns

• On average each homeport should handle 300,000

passengers per berth increasing to 500,000

• Designing a new facility cannot be triggered by a

single event• A port cannot build for a single peak day or week

• Provide facilities once the weekend berth occupancy

reaches 90%

• Most ports wait for a customer to request a berth they

don’t have

North America homeport terminal demand

• If we add 100 more ships in the next 15 years

• Assume 50% to other markets

• These 50 ships will require = 75 homeport

berths/week

• If 40% are seasonally deployed that translates

into 105 berths/week

• Utilization of 4 days a week = 25 terminals

• Utilization of 5 days a week = 20 terminals

WE WILL OUTSTRIP NA CRUISE PORT CAPACITY IN LESS THAN10 YEARS AND ONLY IF:

- build larger ships

- weekday departures

- full use of the entire coastal port system

co

sts

Both scenarios offer challenges

• Start-up ports• Lack of certainty

• High start-up costs

• Low volumes

• Slow ramp up to profitability

• Legacy ports• Fixing an old terminal could be as expensive as a

new one

• Incremental increases

• Rare that legacy ports have huge jumps in traffic

• Usually large incremental costs

Development costs

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

1970 1980 1990 2000 2013

Co

st (

mill

ion

s)

terminal pier

What is driving the costs?

• Inflation

• Size

• Parking

• Equipment

• Security

• Two level operations

• Multiple gangways

• Elevators, escalators

20 TO 25 TERMINALS AT $50 TO $100

MILLION

=

$1 TO $2.5 BILLION IN INVESTMENT

inc

om

e

Marine gross income per passenger (major US home ports)

$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

Revenues

• On average the total per passenger charge in the US is

$14.52

• This varies widely by region

• West coast is lowest at $9.01

• North Atlantic is highest at +$19.00

• Legacy ports average at $15.51

Gross revenues per terminal

$0

$2,000,000

$4,000,000

$6,000,000

$8,000,000

$10,000,000

$12,000,000

$14,000,000

$16,000,000

1 1 1 1 2 2 3 3 3 4 4 4 5 5 6 7

Evolution of cruise line involvement

NO AGREEMENTS

VOLUME GUARANTEES

DIRECT INVESTMENT

VOLUME AND RATE GUARANTEES

Agreements

• Cruise lines are strategically looking for longer

agreements

• They know that cost will be switching more favorably to

the ports in the future

• They want to control the remaining berths

• Ports are signing agreements at record rates

Optimization

• Agreements and pricing need to begin to reflect the

pricing realities of the peaking patterns to:• Incentivize higher utilization

• De-incentivize overbuilding

• Differences need to be meaningful to affect change

• The concept can be developed for the full group of

itineraries to make it meaningful to all

OPTIMIZATION

How to increase

use of the

facility

How to improve

the capacity of

the facility

Two perspectives

What does this mean

• Getting it right from the start

• Building for expansion

• Building for changes

• Do not overbuild

de

sig

ns

Two types of development

• Legacy ports• Are redeveloping older terminals for the new realities

• Start-up ports• Are developing for new capacity from the on-set

solu

tio

ns

Realities today

• All ports started with low cost solutions

• Using existing abandoned berths and warehouses

• Low investments

• Those easy solutions are all exhausted

• Few if any berths are available

• Ports are building new

Concepts

• New concepts must be utilized

• More expensive at first – but cheapest in the long-run

• Break the mold and look to future common sense

solutions

Legacy vs. new ports

• Legacy ports• The legacy ports have huge problems

• Most built cheap and fast and now the solutions are

complicated and expensive

• Most terminals over 10 years old are obsolete

• Yet the volumes are marginally larger

• New ports• Have huge jumps in volumes

• No track record to be decisive

Existing growth development model

• Ports wait for the cruise line to call

• Then you have at best 24 months to deliver a facility

• But…….

• Terminals are now much more complicated, expensive

and difficult to execute

• Planning is essential

crite

ria

Terminals

• More complex• Security

• CBP

• Baggage handling

• More expensive

• Ever changing

• Transportation issues

Cruise terminal area comparison (mt2)

0

5,000

10,000

15,000

20,000

25,000

ARRIVE DEPART OTHER

How do we measure success?

PASSENGER

SATISFACTION

PORT

AUTHORITY

SATISFACTION

CRUISE LINE

SATISFACTIONMORE VOLUME

THIRD PARTY

OPERATOR

SATISFACTION

MORE PROFIT

General guidelines (homeport)

• Currently depending on region or size:

• North American terminals can vary from 3.5 to 7.0 mt2

per passenger

• European terminals vary from 1.6 to 3.0 mt2 per

passenger

• Asian terminal are being designed with +4.0 mt2 per

passenger

Performance standards

• Passenger experience

• Time

• Flow

• Queues

• Spaciousness

• Direction

• Friendliness

• Cruise company

• Cost

• Efficiency

• Labor

• Turn around time

• Passenger experience

• Ports

• Revenues and costs

• Volumes

Performance standard

• Establish levels of terminal performance to

match frequency or likelihood of demand

• Size the terminal with the Base Design Load

(BDL)

• Time to clear the ship

• Provide processing capacity for Peak Design

Load (PDL)

• Flow and capacity

• Concentrate on throughput improvements to

reduce space needs

co

nc

lusi

on

s

Conclusions

• Optimize traffic• Do not over build

• Create pricing to reflect the scarcity of the asset and the demand

• Adjust pricing to incentivize full use

• Promote 24-7 use of the facilities

• Optimize design• Get it right

• Master plan

• Design to a standard

MAXIMIZING INVESTMENT AND UTILIZATION

Luis AjamilBermello, Ajamil & Partners

November 2013