In June 2018, Hutchison Ports switched the Port of Felixstowe, the UK’s busiest container port, from its old terminal operating system to Hutchison’s own in-house solution. The new system was a fiasco. It lost track of things, trucks queued for up to 16 hours outside the gates, and the disruption ran for >2 months. Hutchison didn’t switch back. It patched nGen through the summer and had productivity back to about 80% of normal after some months, but by the end of that summer, important customers like CMA CGM had already started moving to other terminals.
Felixstowe isn’t the only example. Durban, in South Africa, has been through it twice at the same container terminal. When the terminal switched to Navis in 2011, trucks were taking 10-11 hours to get in and out with their loads. This August it moved onto Navis again, and the number of boxes it handled each week fell by about a quarter. That the terminal was stacked up with old cranes made the whole thing worse, but it got bad enough that South Africa’s freight forwarders asked the President to step in. (And Navis is the biggest name in the business, so going with the market leader clearly didn’t help much.)
A terminal operating system, or TOS, is the software that decides where every container is positioned in a port, which ship it goes on, which crane lifts it, and which truck carries it, minute by minute.
When it works, nobody outside the terminal ever thinks about it, at least until it breaks. Then the port clogs up real quick, a bit like a four-way intersection at rush hour with the traffic lights out.
So when terminal operators change their TOS, they approach the decision with something close to dread. Carlos Arias, managing director of APM Terminals’ Spanish Gateways, put it plainly when Valencia moved systems in 2022, saying that implementing a new operating system “is not an easy process which is usually done every two decades.”
So if you’re a terminal operating system vendor, that means once you’re in, you’re in for a long time.
Total Soft Bank, a Korean company most investors have never heard of, makes one of these systems. The business is good, and the stock is cheap. It earns a ~85% ROIC, it has tripled revenue over the past 10 years, it’s priced at ~3.5x EBIT and ~3.3x FCFF, and ~55% of the market cap is covered by net cash. I’m venturing outside of the Korean net nets with this one, so the potential investment case rests on earnings power. It’s right up the alley of Greenblatt’s magic formula.
Let’s dig in…