DONT MENTION THE R WORD

Over the past year PSA International has been associated with a number of port deals but so far it has failed to secure any. The 30-year concession to build and operate six new berths at Thailand’s Laem Chang went to Hutchison Port Holdings (HPH) with the winning bid of 62 billion Baht and the 1.3m TEU container terminal at India’s Jawaharlal Nehru Port was secured by a Maersk-Concor consortium which quoted the highest revenue share of 35.5%.

Instead PSA made a strategic exit from Pipavav Port in Gujarat with the sale of its 22.5% stake to APM Terminals and other investors, reducing its interest in India to the 300,000TEU Tuticorin Container Terminal which it operates jointly with local partner SICAL.

While these developments have not crimped its growth, as the PSA, the second largest port operator in the world after HPH, is still expanding in strong double-digits, it is just not growing as fast as its rivals in international port operation stakes. But it is a dynamic situation and the scale could be easily tipped in its favour if it were to succeed in swinging the CSX World Terminals’ deal. PSA is one of four short-listed contenders for CSXWT which has operations in Shanghai, Tianjin, Hong Kong, Vladivostok and South America with rights in Qingdao and Busan.

The role of its parent company Temasek Holdings also has to be taken into consideration. Ever since Temasek, the investment arm of the Singapore government, made a bid for Neptune Orient Lines (NOL) at S$2.80 a piece in September, and eventually secured 69% interest, few expect Temasek to be a hands-off shareholder in spite of its public statements.

There is ongoing speculation of a reorganisation in Temasek’s port and shipping portfolio, which includes NOL, PSA and SembCorp Logistics. In a country where the government’s imprint is found on almost everything that goes on, a seemingly unrelated development is feeding into this reorganisation theme. After four years, and many million dollars the poorer, Singapore Press Holdings and MediaCorp decided in September to stem their losses by merging their television and free newspaper operations, as Singapore was considered too small to support two competing news organisations.

What shape the rationalisation in shipping and port will take is a matter of speculation. There are periodic rumours about a possible NOL-PSA Corp tie up, developing something akin to Maersk SealandAPM Terminals, with NOL being the anchor client for PSA’s expanding network of ports which currently stands at 17 projects in 11 countries.

The two existing port operations – PSA and Jurong Port – could also be merged, though their shareholding would have to be sorted out. PSA is owned by Temasek while Jurong comes under state-owned industrial developer JTC Corporation, which developed Jurong as a multi-purpose port to support Singapore’s largest industrial estate.

The possibility was raised by Prime Minister Lee Hsien Loong in Parliament in March while he was deputy premier and finance minister.

Said Lee: “We have to accept that ?limited competition or even sometimes a single operator is the best arrangement, and find other ways to prevent the companies from exploiting their position or becoming inefficient and uncompetitive.

“The container port business is such an industry. In this case, the relevant market extends beyond Singapore. Today transhipment is an international business. Within our neighbourhood alone, Tanjong Pelapas, Port Klang and Laem Chabang, are all vying to replace PSA as the hub port for Southeast Asia. Competition in the port industry is not really domestic but takes place on a regional or even global stage.”

While Lee did not use the R word, the government has given the green light for PSA to expand its container terminal facilities at Pasir Panjang “to strengthen its competitive position in the international arena”, while denying Jurong from doing the same.

Port rationalisation would have added meaning today as PSA is suffering from a capacity shortfall after an unexpectedly robust 15% increase at its Singapore terminal in the first nine months, while Jurong has a surfeit of capacity. Even with a sterling 200% increase, Jurong will handle less than half its design capacity of 1.4 million TEUs. PSA’s new berths – of which five are under construction and another 10 scheduled for construction in seven years – will be phased in from 2005.

The recent 3rd Asia Logistics Awards organised by Lloyd’s FTB Asia offers a gentle reminder of what is at stake. PSA was beaten by its small rival PTP for the Container Terminal of the Year Award, its first loss in an award presentation in years. Watch this space.