On the rebound

For operators of international container ports in South East Asia, 2009 was a strangely unbalanced year. A disastrous first half morphed into an improving third quarter and a decidedly busy fourth.

The rebound later in the year came as retailers in key markets began restocking depleted inventories in the build-up to the Christmas period, a process that carried right through to Chinese New Year in mid-February.

With new container shipping capacity entering service and laid-up tonnage being reactivated, as April dawned freight rates had fallen below the $2,000/per teu all-in levels seen in February on the Asia-Europe trade, but exporters were struggling to secure container slots into the US west coast as annual contract negotiations between shippers and lines got underway. Most analysts were predicting strong demand right through the first half of the year.

Martin Christiansen, chief executive for the Asia Pacific region at APM Terminals, which manages a string of terminals covering much of Asia, said the company saw volumes pick up from the fourth quarter of 2009 and was “cautiously optimistic” for the rest of 2010, adding that global uncertainties meant that there was still some downside and growth would probably be at slower rates than in the past.

While much of the demand rebirth focussed on China, terminal operators in South East Asia also benefitted from the recovery of the international container trade.

At PSA Singapore Terminals, the container demand trends of the last 16 months translated into total throughput last year of 25.14m teu, a year-on-year decline of 13.1%. But a strong end to 2009 was followed by a startling recovery in 2010. In February, Singapore’s container volumes were up 18% year-on-year from the low base of 2009, the fourth straight monthly year-on-year rise.

Hong Kong, the region’s other container giant, saw volumes rise by 17% year-on-year in January to 1.89m teu. Further growth is expected over the course of 2010 after the port’s container volumes shrank by 14.33% last year to 20.98m teu.

In the coming years, South East Asia’s leading ports should be aided both by a fundamental shift in global container growth trends, and by the willingness of the 10 member states of the Association of the Southeast Asian Nations (Asean) to embrace free trade, not least with China and each other.

One leading analyst contacted by Port Strategy predicted that with worldwide container volumes already back to 2008 levels in early 2010, annual global growth rates would rapidly return to pre-crisis levels of 10%-12% per annum, but this expansion would become more focussed on Asia.

“A lot of sellers during the downturn tried to diversify,” he says. “It’s understandable when big US retailers just pulled entire orders. They want to protect themselves in the future and part of that is finding new markets in the Asia Pacific.

“We’ll see more growth on lanes linking Asian centres and the Middle East. This is bad news for lines because the margins are lower here, but good news for ports as volumes will rise.

“Further liberalisation of customs and trade regulations will speed this process.”

Indeed, the shift is already apparent. Hong Kong-based line OOCL now relies on its intra-Asia and Australasia services for over 40% of its annual container volumes, while Singapore’s NOL reported that APL, its liner subsidiary, saw a significant shift in its volume mix last year with the Asia/Middle East segment contributing 39% of total volumes over the course of the year, compared with 35% in 2008.

The region might not boast the heady economic growth rates found in China or India, but last year Asean’s five key economies – Thailand, Indonesia, the Philippines, Malaysia and Vietnam - did steer clear of collective recession as economic output expanded by a collective 1.3%, according to figures from the World Bank. This year the figure will rise to around 4.7% before reaching 5.3% in 2011.

Mr Christiansen points to Vietnam and Indonesia as emerging markets which would grow for the foreseeable future, potentially at double digit rates.

Later this year, APM will open a new facility in Cai Mep in Vietnam and he says the company would consider any terminal opportunities that arose in either SE Asia or elsewhere in the Asia Pacific.

In Malaysia, the outlook is also positive. Port Klang handled 7.3m teu in 2009, a contraction of 8.3% compared with a year earlier. However, NCB Holdings now expects to register growth of 10%-15% this year at Northport, its facility at the country’s largest gateway. Last year, Northport handled 2.86m teu, down 5% year-on-year, of which almost 40% was transhipment cargo.

NCB plans to start expanding Berth 8a by 300 metres later this year with work due to be completed in late 2011. The plan was shelved last year at the height of the global economic meltdown, but NCB says that lower raw material and constructions costs and throughput growth in the first quarter of 24% year-on-year have revived its viability.

Port reform in Indonesia might give investment there a boost later this year as well. At present port operators must strike an agreement with one of the state-owned Pelindo companies which operate a monopoly of ports and port-related services in Indonesia to gain a foothold in South East Asia’s largest economy. The Shipping and Port Act passed in May 2008 was intended to remove this requirement by breaking up the monopoly, but explanatory decrees explaining how the Act will be implemented have still not been published.

“I expect a clear policy statement to be issued in July that should provide strong guidance on the way forward,” David Wignall, a Singapore-based consultant, tells Port Strategy. “It will not provide the full clarity required to finalise the very biggest projects, but should release many to go forward.”

Ed Abesamis, executive vice president of International Container Terminal Services (ICTSI) which operates a facility at the Indonesian port of Makassar, says the company would like to expand its operations in the country but will wait until further clarification of the Act. “It’s a very large country with lots of islands and domestic cargo and imports and exports, so there are a lot of opportunities,” he says. “But we need to know first how foreign companies will be treated under the implementing rules which will hopefully be published this year.”

The delayed reforms have not prevented Hutchison Port Holdings (HPH) from moving forward with investments in Jakarta International Container Terminal (JICT) at Tanjung Priok Port.

HPH saw its group port revenue contract by 16% to HK$33.4bn (US$4.3bn) in 2009 with throughput at its Hong Kong terminal and ports in Asia (excluding Hong Kong and mainland China) down 10% and 7%, respectively.

Even so, financing of $160m has now been allocated to boost capacity at JICT by 1m tonnes. The investment will be used to purchase four additional quay cranes, 18 rubber-tyred gantry cranes, 30 head trucks and chassis, while 21 hectares of additional container yard will also be constructed.

ICTSI is investing at its flagship operation at Manila International Container Terminal in the Philippines. A 300 metre berth is now under construction at MICT with two quay cranes due to be added. The first phase will be finished in the third quarter of this year and the full project is now slated to be completed in 2012.

ICTSI’s performance over the last year and a half tracked that of the South East Asian region overall. Total revenues decreased by 9% to $421.7 million in 2009 and net income fell 15% compared with a year earlier to $54.9m, despite volumes climbing by 7% year-on-year in the final quarter of 2009.

“This year our terminals in South East Asia are doing much better,” says Mr Abesamis. “The domestic traffic is good, and we are also seeing more international demand.

“We’re hoping for a good year.”