Turbulence ahead

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For a litmus paper test of the health of the Southeast Asian ports industry – and probably beyond – “watch what happens to Singapore”, says Jason Chiang of Ocean Shipping Consultants.

And while you are at it, keep an eye on Vietnam for the next six months. “That will tell you a lot,” he says: it’s blossoming – but it’s vulnerable to shock.

Singapore’s volumes plunged by a staggering 9.6% in 2015 and while its activities are 85% transhipment, not all of this fall is down to shifting cargo: it appears there’s slump in gateway traffic too according to Mr Chiang. Ominously, the drop is even more severe than the fall in transhipment volumes, a much more serious signal.

With good reason Mr Chiang says: “Whether Singapore’s volumes keep declining or recover will be an indication of whether the region as a whole will start to grow again… or not.” He points out that the only other big falls this behemoth saw were in 2000 and 2009, this last heralding what PSA’s former chief executive Eddie Teh described as “unprecedented hardship and challenges for the port and shipping industries”.

This is in contrast with forecasts that South East Asia is ready to flower: “If you compare it with China which has twice the land but four times the economy, you’d come to the conclusion that that the region has the potential to double,” says Mr Chiang. However, the predicted 5.6% growth rate is deceptive as progress across the region has been variable, and some is starting from a very low base, so frankly it has a long way to go. Sadly, the drivers that promised launching it up this steep development ramp have started to evaporate.

Firstly, says Mr Chiang, there’s the global slowdown: the US, EU and China hold the key to around 60% of the world trade and none of them are playing ball right now.

Further, declining commodity prices have hit exporting regions such as Indonesia hard. “The biggest drag is actually from China: it used to take coal and other raw materials from Southeast Asia, but the slowdown in Chinese infrastructure has resulted in the decline of iron ore and coal trade, even crude oil prices have come down.” Certainly the fall in oil has impacted places like Brunei which though small and generally well-off has had to scale back some of its infrastructure projects.

Lastly, there’s been an associated depreciation in the local currencies such as Indonesia’s rupiah and Malaysia’s ringgit, “which happens when foreign interest takes flight”, says Mr Chiang.

Against the tide

Having said this there are some areas that are pushing against the flow: a ray of light has been shed by activities in Eastern Java, Indonesia says Mark Yong of BMT Asia Pacific.

While Jakarta predictably pulls the focus, the growth rate at the far east of the long sprawling island shouldn’t be ignored, especially as it’s overtaken that of the congested capital where limited land is stifling development. Surabaya port is stepping into a gateway role: backed up by President Jokowi’s promised upgrades it is looking at support from a 3,000 ha Java Integrated Industrial and Ports Estate project. “It’s doing well, even attracting direct calls now,” says Dr Yong.

Not all Jokowi’s initiatives are immediately benefiting Indonesian ports – some seem to be helping neighbours instead: Dr Yong explains that in an attempt to encourage domestic processing a moratorium has been put on the shipping out of ores from Indonesia, cutting down the area’s bauxite supply. “As a result, exports of raw materials has taken off in Malaysia and the volumes at Kuantan have gone crazy,” says Dr Yong. “However the problem has been environmental pollution: the waters around the port have turned red from bauxite dust – and there’s now a temporary ban while they try to find a solution.

Finally, what about that watchful eye on Vietnam? After all, this is doing surprisingly well having picked up the garment trade that’s moved out of China, pushed by rising wages. Therefore while David Wignall of Seaport Consultants Asia says “there’s still overcapacity – make no mistake”, both Cai Mep and Ho Chi Minh have a couple of nearly-full terminals, a change from the empty wastes of the last few years – and its getting back its direct calls.

However, the reason for taking a long, hard look at what happens next is that textiles and clothing tend to be the first rung on the industrialisation ladder and pretty fast at reacting to external conditions: both these things make it a useful indicator of economic activity. Therefore anything that disturbs Vietnam’s resurgence could mean troubles ahead for the rest.

Still top dog

But the prowess of Singapore should not be discounted; it still offers a solid case for transhipment cargo. And the idea that transhipment location is purely a ‘price comparison’ is largely nonsense, according to Mr Wignall. “When you actually analyse where the lines go and why they stay… it’s not just down to costs: if that was true Singapore would be dead in the water because they charge so much more than competitors.” He believes it’s the draw of scale and a ‘one-stop-shop’ for bunkering, maintenance, supplies and so on: “It’s a big cluster, occupying a unique situation.”

With this in mind it’s interesting that the Maritime and Port Authority of Singapore (MPA), looked beyond the global economy and shake up in alliances to put some of the drop in Singapore’s overall throughput down to “an increase in direct sailings due to lower bunker prices”.

So, what’s the balance? Will transhipment traffic suffer with stable gateway traffic winning out because of lower fuel costs? Mr Wignall suspects not: “Gateway volumes are doing OK in some places – but transhipment is actually growing faster than gateway traffic, driven by the bigger ships. If you look at Maersk, which started with its transhipment strategy early, you can see that it makes a significant contribution to driving down costs – and I think that given the present economics other lines will have to follow suit and make it an even greater part of their own strategy.”

MAKING UP AND BREAKING UP

“There’s been turbulence in the alliances,” says David Wignall of Seaport Consultants Asia. In fact there’s been so much pairing and breaking up of container shipping alliances it’s looking like a teenager’s party.

Driven together by the chilling winds of overcapacity and overheads, Cosco absorbed CSCL and merged with China Shipping, CMA CGM started to acquire NOL (all four belonging to other alliances) and now it seems that China Cosco Shipping and CMA CGM might be staying warm by getting into bed with OOCL, Evergreen Line and Islamic Republic of Iran Shipping Lines (IRSL), between them having a pull of 3m teu, more than matching the dominant MSC-Maersk 2M alliance.

This of course “causes the larger transhipment facilities to sweat”, says BMT’s Mark Yong as it could mean changes in home ports so a few could stand to gain or lose substantial amounts of cargo.

It’s already added to the problems faced by the biggest transhipment hub of them all: Singapore has seen a sharp fall with volumes migrating to Tanjung Pelepas and Port Klang. Now there’s speculation that CMA-CGM could also pull NOL’s cargo away. Despite this, Mr Wignall has his own ideas: “I don’t necessarily believe the NOL acquisition will have the effect that people expect… I believe that CMA-CGM might be looking at a dual hub strategy, Singapore and Port Klang together with Klang finally taking the smaller share,” he says. But he adds it may take a year or two to shake out.

He says it’s possible that in searching for those economies of scale, the alliances’ Malacca Strait transhipment has started to constrain flexibility. He says: “Not many terminals are designed to handle such volumes and certainly not add substantial volumes quickly… this makes significant switches of port strategy difficult.” He adds that one result may be ‘dual hubs’ involving smaller specific volumes.

Jason Chiang of RHDV points to the 2M story as a precursor: MSC used to be homed in Singapore, Maersk in Tanjung Pelapas, but now the 2M alliance schedules all its Asia–Europe services via Tanjung Pelapas, while all the Asia to Mediterranean journeys go through Singapore.

He admits this dual hub theory could all fall apart with Singapore’s spectacular new developments: by 2020 the $3.5bn Pasir Panjang expansion will take PSA Singapore’s draft to 18m, able to accommodate fully laden big box ships and raise the port total to 50m teu: the huge new Tuas construction will bring that up to 65m teu. Mr Wignall points out that while there’s no real urgency for the project “it does provide them with the opportunity to steal large-scale volumes away from the likes of Westport at Klang and PTP – Tanjung Pelapas… both handled about 8m or 9m teu last year but given all this excess Singapore could take that in a single bite – something no one else can do”. While this ‘bite’ might not be swallowed all at once, he says a few facilities might see a very substantial attrition – potentially impacting some by 15% or 20% over a period of a year or so.

CURVE BALL FOR THE STRAIT

According to BMT’s Mark Yong “the big story” that could fundamentally change the regions’ dynamics comes from beyond the shifting alliances.

While the three existing megahubs are all on the Malacca Strait – Singapore, Tanjung Pelapas and Port Klang – two new ports further east have the potential to rock the status quo.

PT New Priok Container Terminal One (NPCT1) – a joint venture between Indonesia’s largest port operator IPC, Mitsui, NYK Line and PSA – is the first big development Jakarta’s seen for a long time says David Wignall of Seaport Consultants Asia., adding the new $300m terminal represents a step change for the area.

He explains that instead of 3,000 or 3,500 teu feeders, NPCT1 will have a quay length of 850m and a 16m draught allowing it to take 18,000 and 20,000 teu ships as well as giving it an annual capacity of around 1.5m teu. “While it’s not due to open until later this year people are already talking about direct calls… CMA CGM might be bringing in their 18,000 teu ships and so this would be a major change, especially since it hasn’t seen much of this kind of thing over the last 10 to 15 years,” he says: “It might give some competition to the existing terminals in old Priok port – but we are looking at the nature of the services calling in the next two or three years and it could mean cutting out transhipment at Singapore or Klang.”

The other port in the story is in Malaysia: Sepanggar Bay is almost on the northern point of Borneo and across the big divide between the peninsula and the island. The proposed extension, according to Dr Yong, could exert some quite natural transhipment pull. He adds that having a big port here might bend cargo routes as its geographical location is set directly south “as crow flies” from a number of Chinese ports as well as the eastern Philippines: “This could make it very attractive for box lines,” he says, adding, “at the moment ports in East Malaysia can only attract certain size vessels, but transhipment will drive volumes.”

Mr Wignall points out that overall, Malaysia “is doing better than people expected”. This includes both Port Klang and Penang – which is picking up export cargo from Southern Thailand which has been suffering from “confusion and lack of policy”. The jury is out about how effectively the military coup that took over Thailand last year will carry forward ambitious plans to expand railways, highways and other core infrastructure (including maintenance at the port of Laem Chabang, Bangkok) by splurging around 1.8tr baht ($50.8bn) by 2022, although Dr Yong says that “at least they seem to be on the right track when it comes to focusing on the infrastructure… something that previous governments failed to do”.
Source: Port Strategy

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