A sale by Hong Kong-based CK Hutchison of its international ports, which includes facilities in Panama, to a group led by BlackRock continues to fuel discussions about what the final result will be. China has shown dissatisfaction with this move, indicating that it could harm national interests, whereas CK Hutchison maintains that the transaction is strictly business-related. In our two-part series, we delve into conversations with industry experts who discuss how factors like geopolitics, the internal political landscape of Panama, and shifts within the port sector have impacted CK Hutchison’s decisions. Part two focuses specifically on transformations occurring within the port business. You can find the initial piece here.
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CK Hutchison Holdings, led by Li Ka-shing, has remained tight-lipped following Beijing’s disapproval of the company’s choice to offload its Panama ports. However, experts suggest that various problems had long beset these operations, putting the corporation in an extremely difficult situation.

They mentioned that an exit was inevitable considering all the elements in motion.

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Although the strained relations between the United States and China intensified due to U.S. President Donald Trump’s insistence on freeing the Panama Canal from what he perceived as Chinese influence, there was also the complex issue of dealing withPanamanian authorities and navigating their internal political landscape.

However, another crucial but often neglected element of the agreement was the transformation of the port industry into a vertically integrated system, according to analysts.

When these elements came together, they resulted in the most favorable outcome for the company overall. However, this does not necessarily bode well for the Li family’s political ties with Beijing. It remains uncertain whether they will yield under pressure and annul the transaction.

Willy Lin Sun-mo, who heads the Hong Kong Shippers’ Council, observed the growing vertical integration among shipping companies, which might have implications for the future earnings potential of port operators like CK Hutchison.

“Globally, shipping companies have put money into ports around the world to cater to their fleet requirements and maintain their integrated business approach,” he explained.

Shipping companies operate through various ports. Besides handling logistics services, they also manage air cargo transportation, third-party logistics, as well as oversee the entire supply chain.

Lin observed that numerous shipping companies currently lease and manage ports under the control of local authorities, adopting an approach distinct from what CK Hutchison has implemented. Under their strategy, a dedicated port company secures a plot of land for constructing facilities and offers its services to various shipping lines.

Despite an uptick in CK Hutchison’s port business revenue last year, increasing by 11% to reach HK$45.2 billion (US$5.8 billion), he maintained his stance. This growth was fueled by a 6% boost in throughput, showing expansion across various sectors.

In a statement within the company’s 2024 annual results published last Thursday, CK Hutchison Chairman Victor Li Tzar-kuoi cited risks beyond just geopolitical factors.

Li stated that looking forward to 2025, challenges might arise from supply chain disruptions expected at the beginning of the year. These could stem from shipping companies adjusting to new alliances and persistent geopolitical risks affecting international commerce.

The conditions under which the company’s operations will function are anticipated to be highly erratic and uncertain.

On March 4, one day prior to the opening of the annual session of the Chinese People’s Political Consultative Conference, CK Hutchison unexpectedly declared a deal to offload its international port holdings, which encompass facilities at both ends of the Panama Canal, to a group headed by American investment company BlackRock for $23 billion.

This agreement will position the consortium as a leading entity in the worldwide port sector. The transaction will yield US$19 billion in cash for CK Hutchison. Both parties must finalize the sale exclusively within a 145-day timeframe.

Rickey Chan Chi-po, the managing director of the local property firm Dorbo Realty, informed the Post that a connection within Li Ka-shing’s CK Hutchison requested him to post an article on March 12 aimed at defending the company’s stance on the sale of the ports.

Chan mentioned that he received content to author a piece for BossMind, a platform covering business and real estate news, and he consented to have his name appear as the writer.

To sum up, the article mentioned that the transaction was primarily a business move, with neither the central administration nor the Hong Kong officials raising initial objections. Additionally, it highlighted that the main purchaser was the Aponte Italian shipping clan, who own the leading company MSC Mediterranean Shipping Co.

The article mentioned “the key player” as Diego Aponte, who serves as the group president of MSC and chairs Terminal Investments Limited (TiL). This entity, which he established, has grown into one of the globe’s biggest terminal operators and collaborates with BlackRock as a joint venture partner in the port agreement.

It has been gathered that the aim was to highlight that the Americans were not the main figures in the deal; rather, the Italians held more prominence. Chan chose not to disclose which CK Hutchison executive provided him with the information for his column.

“In response to the swiftly evolving political and economic landscape, investors ought to remain adaptable when modifying their investment initiatives as a means to mitigate potential risks,” the article stated.

The divestiture of the port business by CK Hutchison can not only mitigate policy-related risks but also bolster the group’s liquidity to address the swift shifts in the market and facilitate suitable adjustments.

CK Hutchison holds onto port assets both on the mainland and in Hong Kong, encompassing Yantian Port in Shenzhen and Hongkong International Terminals, due to their belief in the promising future of maritime activities in Hong Kong and the mainland.

BossMind did not respond to the Post’s queries.

Lin mentioned that the Li family’s decision to sell the ports caught everyone off guard with its timing.

However, if observers had examined the firm closely, they would have recognized its skill in anticipating future profit trends and shifts in competition. To illustrate this point, he referred to how the Lis divested their telecommunications company in the UK in 1999 during the peak of its prosperity.

The transaction encompassed Hutchinson Whampoa’s disposal of a 44.81 percent shareholding in the telecommunications firm Orange in the United Kingdom. This move resulted in an extraordinary pre-expense gain of approximately $113 billion Hong Kong dollars for Hutchinson. “Currently, the telecommunication sector faces intense rivalry and minimal profitability,” Lin further commented.

Stewart Leung Chi-kin, who chairs the executive committee of the Real Estate Developers Association of Hong Kong, stated that Beijing’s viewpoint differs from that of developers or business entities.

He mentioned that from a business standpoint, CK Hutchison might have thought the pricing was suitable after managing the ports for such an extended period.

“I believe I’ve earned sufficient funds, so I’ll transfer it to another party,” stated Leung, who also serves as the chairperson of Wheelock Properties.

From a national standpoint, China might wonder why CK Hutchison is selling port assets along such a crucial waterway to the US rather than to entities closer to China or to a neutral party, as Leung pointed out.

In earlier times, CK Hutchison managed such issues quite effectively…CK Hutchison surely has its own rationale behind their decision-making,” Leung noted further. “I am confident they will discover a solution that respects our nation’s sentiments yet doesn’t forfeit the agreement. I trust they will devise a strategy that achieves an optimal outcome.

In 2024, CK Hutchison managed to handle 39 percent of the containers that went through Panamanian ports, as reported by the Panama Maritime Authority (AMP). The company is now choosing to sell these port operations while the market conditions remain favorable.

The data from the AMP indicates that these five ports processed 9.4 million twenty-foot container units in 2024, marking a rise of 14.2 percent compared to 2023 figures and reversing a downward trend over the past two years.

Based on AMP statistics, CK Hutchison’s Balboa port experienced an increase of 13.7 percent and Cristobal saw a rise of 24.6 percent in container handling during 2024. This growth can be attributed to the Panama Canal draft limitations, which compelled numerous shipping lines to conduct unloading and loading operations on either side of the canal.

By the close of the fiscal year 2024, the canal announced a net profit of US$3.45 billion, marking a 131 percent growth over half a decade, as stated by the Panama Canal Authority.

Based on CK Hutchison’s 2024 annual report, their ports and related services segment contributed 22 percent of the earnings before interest and taxes, totaling HK$13.12 billion—a rise of 24 percent compared to the prior year.

This increase was mainly due to a 13 percent rise in storage revenue along with the positive outcome from a shipping line associate firm and efficient cost management.

However, Lin, who serves as an honorary chairperson for the Hong Kong Exporters’ Association and is part of the city’s Maritime and Port Board, attributes this sale to shifts in the worldwide ports industry approach.

It was expected that Chinese shipping companies could experience increased port and logistics expenses due to this purchase. However, Lin mentioned that some of these firms already owned their ports and operated across the entire supply chain, making them unlikely to be impacted by the transaction.

There could also be alterations to the schedules and port calls, potentially impacting the efficiency of the liner operations as well as their business partnerships with shippers and importers.

Lin mentioned that the profit margins of port operators like CK Hutchison were being progressively impacted by shipping companies moving towards greater vertical integration. Additionally, he noted that the worldwide port sector was undergoing transformation due to advancements like higher levels of automation and an emphasis on sustainable practices.

He mentioned that changes in international politics were significantly affecting shipping paths and port operations globally.

CK Hutchison is a worldwide enterprise not controlled solely by an individual; it boasts a large and formidable team,” Lin further stated. “I am convinced that such a choice was certainly not made hastily.

Completed in 1914 by the United States following an unsuccessful attempt by France, the Panama Canal transformed international commerce by offering a direct route between the Atlantic and Pacific oceans, eliminating the need for vessels to sail around South America. This shortcut substantially decreased voyage duration and expenses for ships, resulting in heightened sea traffic and economic expansion.

More from The South ChinaMorning Post:

• Slap to BlackRock over Hutchison Panama ports agreement? Experts disagree.
• Devil lurking in the specifics of the Hutchison-BlackRock Panama port agreement

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