Thursday, 21 February 2013

Shipping slump? Not for our ports

By Jonathan Kwok, The Straits Times, 19 Feb 2013

CASUAL observers of the global maritime sector will be familiar with the five-year shipping slump, which has seen many smaller firms go under, be forced to consolidate or be acquired by larger liners.

Since 2008, even the most well-known global container liner firms have been hit, with profits well down - if they are even making money at all.

The giants generally suffered losses in 2009, before a tentative recovery helped them to flip to the black in 2010. 2011 turned out to be another loss-making year for most liners with the recoveries coming only in the later part of last year.

The financial figures have see-sawed in such a pattern at Singapore's Neptune Orient Lines (NOL) and Denmark's Maersk Line, the world's biggest container shipping operator.

The recent tough times were highlighted in a recent note by offshore specialist DNB Bank, which declared that "we have just entered the sixth year of the shipping downturn".

However, Singapore's port has managed to pack in strong growth during the same years of the shipping downturn, growing strongly on several measures used to chart port performance.

Vessel arrival tonnage - a measure of the combined capacity of ships calling here - has risen almost 40 per cent since 2008, to last year's estimated 2.25 billion gross tonnes.

And the sale of bunker fuel has grown over 20 per cent in this period, to about 42.7 million tonnes last year.

Singapore is tops worldwide in both these measures, and the numbers make for encouraging reading for the maritime sector, which employs more than 170,000 people and contributes to 7 per cent of economic output.


SO WHY the incongruence between the downbeat fates of the shipping lines and the strong growth in Singapore's port?

The basic reason lies in the vastly different economics underpinning the ports and shipping sectors.

Essentially the key problem facing the shipping firms is that they ordered too many new ships in the boom years leading up to 2008. This excessive optimism led to an oversupply of ships when the new builds were eventually delivered.

With all the glittering new vessels lying around, the shipping companies tried to gain market share by slicing freight rates - but this in turn bit hard into bottom lines and even forced some firms into the red.

"Container shipping, in an oversupply situation, is a commoditised business," NOL's chief executive officer Ng Yat Chung said last year.

This means that firms tend to compete on price and customers have many providers to pick and choose from. High fuel costs are also a headache for the liners.

But underlying all this, global trade was growing every year except in 2009. In 2011, when shipping firms were awash in red, the volume of world merchandise trade grew 5 per cent and the World Trade Organisation expects 2.5 per cent growth last year and a 4.5 per cent rise this year.

Asian trade growth has been even faster, helping Singapore's port and competitors like Shanghai and Malaysia to grow their businesses.

While Singapore's port has done well to distinguish itself, it still faces key challenges that it has to overcome in order to grow further.

Land constraints

SINGAPORE'S container terminals are run by PSA Corp and located at Tanjong Pagar, Keppel, Brani and Pasir Panjang. A port in Jurong handles "bulk" cargo not carried in containers, such as steel products, cement and copper slag.

Together, these facilities occupy about 600ha of space - just a fraction of Singapore's total land area of 714.3 sq km, or 71,400ha.

Still the sector, like all other industries, faces the challenge to raise productivity while using as little land as possible.

It is encouraging then that the Government is planning way ahead in this aspect. It has outlined a longer-term scheme to concentrate port activities in Tuas.

The upcoming Tuas Port will sit on 1,700ha of reclaimed land, according to the Government's recently released Land Use Plan.

The City Terminals - those at Tanjong Pagar, Keppel and Brani - will move to Tuas after the lease for their land expires in 2027.

"This consolidation will increase efficiency through greater economies of scale and provide the opportunity to introduce new technology and processes to meet the future challenges of container shipping," said Mr Lam Yi Young, chief executive of the Maritime and Port Authority of Singapore, which is the statutory board overseeing the sector.

The plan is for Tuas Port to be able to handle up to 65 million standard-sized containers every year - more than double the 31.6 million containers handled last year.

The Government is sourcing for novel ideas to design Tuas Port. It launched a global contest with a US$1 million (S$1.24 million) top prize to design a new-age container port last year, with winners expected to be announced this year.

Regional competition

WHILE the land issue can be solved by careful planning and innovation, competition poses a larger challenge as the ball may not be in Singapore's court.

The Republic's main business is in trans-shipment - meaning the vast majority of cargo arriving here is promptly loaded onto another ship to be moved elsewhere.

The other main trans-shipment hubs in the region are Hong Kong and Johor's Port of Tanjung Pelepas (PTP).

As if these are not enough, other countries are also not sitting idly by.

Ports in South Korea and China have been looking to catch up, and Indonesia is starting on a new trans-shipment port in Tanjung Sauh, an island between Batam and Bintan. This is set to challenge Singapore, as PTP has done.

Overseas ports may offer lower rates than Singapore, and some have succeeded in luring shipping lines over. For instance, PTP attracted Maersk and Evergreen Marine Corp - the second largest shipping firm - to move much of their operations there from 2000 to 2002.

The moves worried Singapore's economic planners for a while, but they are now comforted that Singapore's volumes have remained ahead of most of its regional competitors', PTP included.

Threats will exist in the longer term if other cities replicate Singapore's maritime eco-system, but the consensus is the Republic's lunch should be safe in the short to medium term if it continues to raise productivity while maintaining a pro-business environment.

After all, developing a hub like Singapore's will take many years. In recent years, Singapore has also managed to fend off competition by a mix of planning and good fortune.

In terms of planning, the Government has managed to grow a "maritime cluster" including ship financing, shipbroking, legal and technical services, research capabilities and manpower development, so that all the business needs of firms can be satisfied.

This complements the wide network of shipping lines that call here - a "hub effect" that allows firms to easily transfer cargo to another company's ship to be moved elsewhere. This has given Singapore's port an edge over South-east Asian competitors such as Malaysia's PTP.

Good luck comes in the form of Singapore's location which has provided an advantage over its other main competitor Hong Kong, which is grappling in recent years with China's slowing growth. South-east Asia and South Asia are seeing more business and production work, which is benefiting Singapore.

"There's more manufacturing being done in Vietnam and in Bangladesh for items like textiles," said Mr Andrew Chiang, regional head of Asia for shipping, offshore and logistics at DNB Bank. "As these countries have less developed ports they usually use the port in Singapore (to ship the goods farther away)."

The result is that Singapore's container-handling numbers last year grew more than those of any regional competitor.

Singapore's figures grew 5.7 per cent to 31.6 million containers - more than PTP's 2.9 per cent - while Hong Kong's port volumes actually contracted by 5.3 per cent.

The world's top container handling port is Shanghai but it is more of an end-destination port for moving goods in and out of China. This means it is not a direct competitor to Singapore's trans-shipment operations, but Singapore still managed to close the gap on it last year.

Shanghai's volumes grew 2.5 per cent, less than Singapore's 5.7 per cent.

"It is easy to copy some measures like financial incentives, but harder for others," said Mr Chiang. "If viewed as a package, the competition is hard pressed to replicate Singapore's success."

The challenges of land and competition may appear daunting but the country should overcome them - in the medium term at least - through foresight, continued careful planning, and a good dose of luck.

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