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Thinking outside the cube

Peter Warnes  |  28 Apr 2017Text size  Decrease  Increase  |  

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Morningstar's Peter Warnes looks at a company which, like TPG Telecom, possesses a long-term strategic focus leveraged to Australia's population growth.


In last week's Overview, I explored the reasons why I believe TPG Telecom (ASX: TPM) decided to become Australia's fourth mobile operator. Driven by Malaysian-born CEO David Teoh, who understands investing for the long term, the decision to spend around $2 billion on spectrum and network was based on understanding Australia's favourable long-term demographics.

Our population is likely to grow at a faster rate than any other developed economy over the next 50 years. This week I look at another company whose management has a similar long-term investment focus, Qube Holdings (ASX: QUB).

Australia is one of the world's seven continents and is the only inhabited island continent. The international shipping industry carries around 90 per cent of world trade cargoes. Over 90 per cent of Australia's imports and exports arrive and depart by sea. Ports and port facilities, including terminals, are the vital link between sea and land.

While ownership of ports can be rewarding, so is the ownership and operation of container facilities at ports, even more so should they be integrated into an efficient intermodal logistics network. The supply chain is critical to manufacturers, wholesalers, freight forwarders, and retailers.

The advent of just-in-time manufacturing, to reduce inventory costs, relies heavily on the efficiency of logistical support. Economies thrive on efficient transport infrastructure, complemented by efficient logistical support services.

Stevedoring methods changed dramatically with the introduction of shipping containers. Invented and patented in 1956 by American trucker Malcolm McLean they revolutionised global cargo handling, reducing the cost of loading and unloading freight by over 90 per cent.

In 1956, loose cargo cost US$5.86 per ton to load, while using an International Standards Organisation (ISO) shipping container the cost was just 16 cents per ton. The shipping container could be one of the most influential inventions of the 20th century.

It is difficult to contemplate world trade without containerisation. Globalisation may not exist in its current form had it not been for McLean's intuition, the key being the standardisation of the dimensions of containers in the form of twenty foot equivalent units (TEUs).

Container ships were designed to exclusively fit TEUs. These uniform-sized containers can be easily moved between ship, rail, or truck. The container revolutionised intermodal cargo transport.

Qube is one of Australia's leading operators of container parks in the major east coast ports of Melbourne, Sydney, and Brisbane. It also operates in Port Adelaide in South Australia, and Fremantle in Western Australia.

Qube is the only national provider of container park facilities and has services and facilities in 28 Australian ports, allowing the company to provide services and solutions for the handling of containers, bulk, automotive, and general cargo.

These are strategic long-term assets and Qube's management team is patiently building a unique footprint around Australia, which will be difficult and very expensive to replicate.

Think of Qube's desired Australian logistics-sensitive infrastructure footprint as a giant jigsaw puzzle where pieces are painstakingly put together over the long term. Acknowledge the planning, patience, and tenacity behind finally acquiring 50 per cent of Patrick's container operations at Port Botany, and the parallel focus to develop the Moorebank Intermodal Terminal (MIT).

The integration of container terminals at Port Botany and MIT via a rail link will ease congestion around the port significantly and accelerate the clearing process. Costly handling will be minimised, allowing the distribution of cargo to be streamlined.

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Peter Warnes is Morningstar's head of equities research. Any Morningstar ratings/recommendations contained in this report are based on the full research report available from Morningstar.

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