A domino waiting to fall

Many Southeast Asian facilities are blessed with rising economies, but they are finding there are a number of issues they have to grapple with in order to turn a game of catch-up into an advantage.

At the moment, the majority of Southeast Asian ports - discounting the handful of big players like Singapore and Hong Kong - are really feeder-sized operations. Against this is a rapidly changing set of expectations: while it’s true that US and European-based companies are still moving into the region, the old truism of ‘go east, go cheap’ is not the only incentive - it’s now just as much about growing a presence in a rising economy as relieving cost pressures.

In Indonesia, as David Wignall of David Wignall Associates points out, the pull has already changed direction: “The fact that it is being driven by an average economic growth of over 6% means much of the infrastructure is creaking."

Obviously there’s room for development. “With deeper, bigger ports you could be seeing less cargo being transhipped via Singapore and more direct calls. It would, in places like Indonesia, reduce prices and this again would boost the economy.” In other words, it sounds as if it’s a domino just waiting to fall – but the domino might just have a little glue on the bottom.

A lot of the difficulty lies with the planning: generally, there hasn’t been much. It’s partly the nature of the area: historically, autonomous or semi-autonomous city-states meant that cities and ports have grown up entwined with each other, eventually fighting for space with inevitable pressures on logistics. Alistair Mackie of Holman Fenwick Willan explains: “It’s not like China where you have a centrally coordinated plan so it’s unsurprising most places don’t have the infrastructure to cope with the huge influx of trade. It’s not as if they will have a megaport with a four lane highway just waiting to be rolled out.”

However, it is not just the land, the politics too can be less than straightforward. “In Indonesia, for example, there’s a ‘sensitive’ period of around two years before an election where, typically, less happens,” he says, adding that it’s a product of running a large democracy in a very diverse culture.”Despite this, the trade will grow, and there are huge opportunities to be had,” he concludes.

Land issues are something that Vietnam’s Ho Chi Minh City port has wrestled with, winning to the extent that the port is now at a good distance and the ships are not going into the city but are at a number of new terminals down river.

However, it has other problems: container handling near Ho Chi Minh City has now moved into oversupply while dredging of the approach channels to some of the very expensive new terminals is lagging behind: "At the moment, the ships are not as big as originally planned for," says Mr Wignall, "although this will probably eventually sort itself out." But he goes on to point out that the whole region will soon have to deal with larger ships cascading from the other trades. Interestingly, much the same as has been seen in Europe, but, unlike Europe, it will often have to cope without the base-line of a mature economy with its developed investment pathways behind it.

Vietnam is pushing a number of projects to completion by 2015, including the Lach Huyen International Gateway Port in northern Hai Phong and the Cai Mep-Thi Vai Deepwater Port in southern Ba Ria-Vung Tau Province. It’s also trying to engage overseas investment for the Van Phong International Transhipment Port project in central Khanh Hoa Province - and it has just carved out Vietnamese Dong600tr ($29bn) for logistics development to support its ambitions of pulling the country into the ‘middle income’ belt by 2020.

However, as with many developments in the area, there are ongoing coordination issues. For example, troubles with the Cai Mep to Thi Vai inter-port road project and connections with National Highway 51. These range from community compensation and ground clearance, to issues with infrastructure and design changes around the Vam Gui bridge. To top it all, it seems that mud from the construction has been dumped in the way of shipping, causing problems to navigation.

With an air of banging heads together, the deputy chairman of BRVT People’s Committee Tran Ngoc Thoi has hauled the different organisations – the Department of Transport, the district people’s committees, the Department of the Environment and the shipyard – into a meeting, ordering them to cooperate and get ready for work during the next dry season. But a general lack of harmony isn’t that unusual. Mr Mackie says: “The region generally suffers from coordination challenges between the regional bodies and central government – and you need coordination to avoid issues such as parallel transhipment developments.”

Further, Cai Mep has other troubles that come down to a lack of leadership as there is no proper, statutory, responsible body that acts to regulate the ports. “This means that there are too many stakeholders, and not enough clarity,” he says. Unlike HCMC, Cai Mep didn’t order the ships out of the heart of town. “Because they still have the terminals right inside the city, most of the shippers and carriers are simply queuing to get into these central berths. This has meant that two terminals on the outside have just run out of steam as they simply can’t compete with the city centre,” says Mr Mackie.

Vietnam’s overall strategy does seem lacking: of its 15 coastal economic zones most aren’t particularly successful and certain areas such as Hai Phong and Cai Mep would probably benefit from a more immediate, intense focus rather than the present ‘spray’ effect with many such zones being developed in competition with each other. Compared with the development of Shenzhen in China and Inchon in South Korea, some people have pointed out that while Vietnam can still offer very cheap labour, there’s a lack of education and management hierarchy.

Large scale politics also has a part to play. The Thai-backed port project in Tavoy, Myanmar, is trying to collect its supporters and will benefit from the relaxing of the West’s ‘no-go’ attitude that came about from the delivery of free elections. “There will be a flood of people coming in almost overnight to exploit Myanmar,” predicts Mr Mackie, but again the infrastructure will need to develop fast to cope with the influx.

It’s not as if they aren’t trying: the Dawei development in the southern Tenasserim region is being billed by its promoters as a new fulcrum for trade, avoiding Singapore and cutting four to five days off import and export calendars. If completed according to current plans, the facility will measure 250 sq km and comprise deep-water harbour facilities, an oil refinery and possibly the world’s biggest industrial estate - all linked by road to Thailand's capital Bangkok, with transport infrastructure running alongside oil and gas pipelines.

To give it the necessary ‘leg-up’, a Special Dawei Economic Zone Law promises tax breaks for foreign investment as well as a fast-lane for permits, along with a promise from the government not to attempt to nationalise industries established inside.

But will it really have the pulling power it is aiming for? “I doubt whether it will really be able to take on the really big operations,” says Mr Mackie. “Places like Singapore have huge efficiencies of scale, and they are probably cheaper to use than you’d think. In contrast, places like Dawei are starting from closer to zero – even if it’s drawing in a lot of investment.”

David Wignall is more downbeat about the whole projection, and comments that he doubts the basic premise of Dawei’s development. He says: “In fact, most of Thailand’s exports go through Laem Chabang – not Singapore - which is a modern and effective port. A port that receives calls from some of the biggest container ships afloat.” He goes on to add that despite its billing as an economic and commercial dream, “you drive much further by road to save perhaps two days at sea and even then only going west to Europe”.

Despite this, large politics might have an input. Mr Wignall explains: “China is a factor in Myanmar and a lot of Chinese investment is noticeable in the port sector. This is one area where Chinese influence is perhaps of concern to others - in particular the US and India.”

So, reading between somewhat blurry lines, there might be reasons for both countries to try to address the balance by input to Dawei.

But in many places, China is being welcomed with open arms. Kuantan port in Malaysia is just one that may benefit from this tagging on to the larger country's coat tails. A large Chinese industrial development located near Qinzhou Free Port is to give Malaysian goods convenient access to southwest China, particularly Kunming, the largest city of Yunnan province. The other end of the string, Malaysia's Prime Minister Najib Tun Razak has pointed out, is Kuantan, and he took the opportunity presented by the Qinzhou opening to outline his plans for a 'sister' development on a 600 ha site to the Chinese prime minister Wen Jiabao: presumably the idea is to woo a large slice of Chinese input as well as other Malaysian consortia.

As to the Chinese prime minister's response, it seems he has given his consent "in principle", although the matter remains to be followed up, and you can bet there will be some hard bargains driven.