Less competition, more connectivity
South East Asia’s ports need to look beyond boxes to better serve customers. Mike King reports
As protectionist populism gains increasing traction in Europe and the US, threatening the trade deals and political institutions that have enabled globalisation in the post-World War II decades, trade stakeholders in South East Asia look on in genuine bemusement. Member states of the ASEAN Economic Community (AEC) look to the European Union and NAFTA for inspiration - for the most part, debates about AEC trade and connectivity strictly focus on how to build better bonds, not whether doing so is a good idea or not.
But even as AEC member states work together to find new ways of linking their economies by sea and land, their ports and leading terminals compete ferociously to attract traffic and shipping services.
Nowhere is the competitive thrust of the region’s ports more evident than in the Strait of Malacca where the rivalry between Malaysia and Singapore for container transhipment traffic remains intense. Singapore’s PSA-operated facilities saw a slight decline in traffic last year but, after handling some 31m teu, the city-state remains the region’s largest transhipment hub. Efforts to relocate all container handling to a new mega-port at Tuas with some 65m teu capacity are ongoing with the new facility expected to handle all of PSA’s Singapore cargo by 2027.
In Malaysia, Port Klang and Tanjung Pelepas vie with Singapore and each other for transhipment traffic. Port Klang is eager to build a new $44bn, 30m teu capacity port complex on Pulau Carey, but more ports are in the construction pipeline, not least the $7.3bn Malacca Gateway Project for containers and bulk and the $3bn expansion of Kuala Linggi port.
Aden Wong, senior consultant at Drewry tells Port Strategy that the proximity of Singapore Tanjung Pelepas and Port Klang to main East-West trade routes and regional feeder markets would mean they will remain the key ports in the liner transhipment market in the near term, although he forecasts that they will come under severe competitive pressure in the decade ahead. “The proposed Malacca Gateway may enter the fray, although it would be penalised for its lack of size and connectivity in the early years,” he says. “Emerging deep water ports like Cai Mep and Kalibaru in Indonesia are likely to draw more direct calls, but are unlikely to compete in the transhipment space.”
A risky affair
The realignment of container alliances and networks coupled with the consolidation seen among the lines would also be factors in port transhipment success. “Future cargo gains and losses for each transhipment hub will become chunkier, making the competition for transhipment cargo a riskier affair,” says Mr Wong. “This could pose a higher barrier of entry for potential new entrants.”
Malaysian port building plans draw heavily on Chinese investments which some analysts ascribe to geopolitical ambitions, the theory being that as China pushes forward with its ‘One Belt, One Road’ policies which seek to create new Silk Road connections to the West on land and at sea, Malaysia is far more sympathetic to Chinese policy than West-leaning Singapore. How this plays out with Chinese shipping companies remains to be seen. In the container business at least, port call and hubs decisions will be made by lines as part of new alliance structures which will flesh out their new network requirements in the coming months. China Cosco is signed up to The Ocean Alliance which also includes CMA CGM, OOCL and Evergreen. At present the four carriers spread their transhipment operations around Port Klang, Singapore and Tanjung Pelepas. Could Chinese investments and government policy influence liner transhipment hub strategy in future?
“The Chinese are investing everywhere and Chinese lines use Singapore now, but whether they move in future to Malaysia no one knows,” says Truong Bui, project manager, Roland Berger Strategy Consultants. “Alliances are changing so fast so decision-making on ports will be more complex than before.”
Mr Bui adds that with so much new container capacity planned, port operators on the Malacca Strait should be careful to avoid a price war. “Singapore is obviously confident it needs the new capacity, and Klang also needs more capacity to handle the bigger ships,” he says. “I think Malaysia and Singapore will remain the biggest transhipment hubs in the region but they have to be careful they don’t build too fast and create oversupply. How they manage this will be interesting.”
Profits, not volumes
Mr Wong argues that the battle for transhipment traffic could, for some ports, be counter-productive. He says ambitious and expanding ports would instead be better focussing on gateway services aimed at multiple cargoes and domestic shippers, a strategy that if successful would also lend itself to attracting more direct liner services.
“The port is essentially a business,” he explains. “Profits, not volumes, matter. Most ports in the region would be better served to focus on handling and growing their gateway cargo, instead of over-providing to compete for lower-margin transhipment boxes.
“This is especially true when the natural conditions to become a transhipment hub do not entirely exist in the ports to begin with.”
His point is echoed by Dr Jonathan Beard, head of transportation and logistics at Arcadis. He warns that Manila’s attempts to rival Singapore and Malaysia for transhipment status would require intense investments in capacity which might, given the shifting and consolidating nature of liner alliances, not pay off. “Around the region there have been many efforts at trying to attract this type of transhipment business, but it’s a difficult market and very capital intensive,” he says.
“People get overly focussed on big container ports. Many would be better instead focusing on being more efficient gateways. In parts of Indonesia, for example, they could also look beyond boxes to their many other cargoes such as palm oil, petroleum and range of products and serve their importers and exporters better.”
He also argues that to further AEC maritime connectivity across shipping trades, governments should look to further liberalise cabotage, reduce trade barriers – tariff and non-tariff – and cut or remove restrictions on foreign participation in terminal port development and operations.
KEEPING PACE WITH EVER-STRONGER INTRA-ASIA TRADE
Roland Berger Strategy Consultants' Truong Bui claims the quality of ASEAN ports in general is currently far below the world average and has not kept pace with strong throughput growth within the region. He says that Indonesia and the Philippines both needed to improve their national maritime strategies, reduce costs and make overall improvements to the efficiency of their ports and hinterland connections.
Investment in Vietnam’s ports is proceeding rapidly with new ports in the north looking to attract direct East-West liner service calls, he adds, while the port of Cai Mep – long under-utilised despite huge investments by a slew of global port operators – is now finding some traction with lines as they deploy larger vessels.
“Cai Mep has been underused in recent years, but there has been signs of improvement,” he says. “The new alliances as they realign networks, should create new opportunities for terminals in Cai Mep and elsewhere in Vietnam to attract more services.”
Indonesia is still pushing forward with its investments in ports, although the New Priok/Kalibaru development near the country’s leading gateway of Tanjung Priok continues to suffer from delays related to the tender process for CT2 and CT3.
Regional demand also remains robust. Freight rates on the intra-Asia trade remained depressed through much of 2016 but a surge in shipments in the final quarter gave lines an end of year boost. “Intra-Asia rates actually picked up quite well towards the end of 2016 and this continued in January,” says Tim Wickmann, chief executive of MCC Transport, AP Møller-Maersk’s intra-Asia operator. “February was obviously not good because of Chinese New Year, but we are already completely full again and will thus focus on increasing the rates further.”
Mr Bui adds: “Demand is strong on the world’s biggest trade, and will continue to grow. The intra-Asia trade will get bigger and stronger and that’s why port development in the region is so intense. It’s to service the main trades but also intra-Asia trades.”
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