Lion City port losing its roar

In 2005, the port of Singapore reclaimed its title as the busiest container port in the world for the second time in 12 years after witnessing an 8.7% increase in throughput. By handling 23.2m teu, Singapore edged ahead of its closest rival Hong Kong by just 400,000 teu, but the title was hard-won as the port also fought back from serious competition from neighbouring port Tanjung Pelepas.

As a transhipment port Singapore has gained much from the rise and rise of India and China. It has benefited from the lack of port infrastructure in India and its strategic position when it comes to Asia-Europe trade from China.

The success in volume terms has been reflected in the operator’s financial results despite it having to offer a range of incentives to ward off competition from hungry Malaysian rivals. Terminal operator PSA International reported a net profit of S$1.06bn (US$655m), a 21% increase. Of that, Singapore was said to contribute the bulk of the profits by contributing 49% of group turnover. But all this has come at a cost, at least to the firm’s pride.

For many years, PSA has staunchly stuck by a common user only policy. Such resolution began to waver some years ago as it began to lose some of the world’s biggest shipping lines (Maersk and Evergreen chief among them) to neighbouring port Tanjung Pelepas. The break with tradition first came in 2003, when China Ocean Shipping Co entered into a joint venture with PSA to operate a two-berth terminal at Pasir Panjang.

At the end of 2005, PSA took the plunge again by entering into a similar joint venture agreement with Mediterranean Shipping Co to operate a three-berth container terminal. MSC-PSA Asia Terminal will operate three berths at Pasir Panjang Terminal, which will have an annual capacity of 2m teu. While development costs per berth are estimated to be between S$200m-S$250m, this would put a price tag on the joint venture of around S$700m. However, terminal values have soared through 2005 and the first half of 2006, and the true value is yet to be realised.

Talking about realisation of assets, one of the biggest surprises this year was PSA International’s purchase of 20% of Hutchison Whampoa’s port assets for US$4.4bn. Having been frustrated by DP World in the fight over P&O’s port assets, PSA has now effectively changed the global port landscape with its latest acquisition. The firm had to borrow US$1bn and issue bonds for the balance.

Meanwhile, the signs are there that the port’s number one position will be short-lived. Container handling growth stalled in the first six months of this year to just 3.7%. The port handled 11.8m teu in the first half of the year, slowing significantly from the double-digit growth it had experienced as recently as 2004. While growth remains positive at Singapore’s main terminal – chalking up 4.2% and recording 11.39m teu – activity has stalled at the city state’s other terminal operator’s facility, Jurong Port, which showed first half volumes down 7.2% at 412,000 teu. In June, throughput fell 22.4% to 59,000 teu.

But Hong Kong is having its own troubles with a distinct lack of competitiveness, in relation to its counterparts in southern China.

Meanwhile the third largest port in Shanghai, which registered over 18m teu in 2005 after growth of around 20%, looks set to take the number one mantle in 2007, if not 2006.

The Singapore government is fighting a rearguard action in as much as it is rolling out tax incentives for every sector of the industry. And it is true that the companies they are seeking to attract are arriving in their droves. But this will not bring more boxes.

PSA is itself instrumental in assisting the move away from feeder traffic from the rest of the region as it joins others in developing deep berth ports in China and even Vietnam. Only increased intra-Asia trade will quell the slowing of containers to the Lion City.