Why Malaysian ports are losing out to Singapore
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KUALA LUMPUR, Sept 14 — Five major global shipping firms ditched Port Klang for Singapore in April as a result of an-industry wide shakeup meant to sustain a struggling container liner business bogged by the global economic slowdown.
By shifting operations to the Port of Singapore, the companies now operating under the newly formed Ocean Alliance effectively took with them over a third of Port Klang’s income or roughly around two million worth of imported conventional containers (carrying goods) that otherwise would have passed through its terminals before getting shipped to other major ports in the world.
This process, called transhipment, accounts for almost 30 per cent of Port Klang’s total income; transhipment volumes account for 40 and 20 per cent of total revenue for its two main terminals, Westports and Northports, respectively.
So what prompted the companies, some of which have operated from Malaysia for more than a decade, to pack up and move away from Malaysia’s top port?
Shipping Association of Malaysia chairman Ooi Lean Hin spoke to Malay Mail Online recently to explain some of the crucial reasons that led to the exodus, and why he believe Malaysian ports will play second fiddle to Singapore for some time.
Sluggish global trade have forced surviving shipping companies to employ drastic cost cutting measures that included mergers under new alliances meant to streamline operations and increase efficiency.
Cost wise, Singapore’s location at the mouth of the Malacca Strait makes the it relatively cheaper for companies to operate from even as its strong currency makes terminal processing rates more expensive than Malaysia.
Ooi explained it would make more sense for shipping companies to call at Singapore’s ports since smaller feeder ships from ports from around the region can travel roughly 600km less to load or unload goods from larger vessels parked there.
“While Port Klang may be in the Malacca Strait, geographically it is not as strategic as Singapore,” the SAM chairman said when asked if Port Klang had what it takes to compete with Singapore.
“This is where we lose out because from a feeder perspective you end up having to travel a little bit more so even if say Singapore costs more than (Port Klang due to higher currency).”
Malaysian ports had leveraged on a cheaper ringgit and lower rates to compete with Singapore, but last year PSA reduced the fees it charges container lines by 10 per cent in a move to counter the drop in transhipment volumes, some of which were taken away by Port Klang.
Online maritime magazine Joc.com reported that the move would save carriers up US$11.9 million (RM49.9 million) and would shore up shore up traffic that fell 8.7 per cent year-over-year in 2015.
Furthermore, shipping companies now have more reasons to bypass Port Klang as the the modernisation of smaller ports in the region’s major cities like Jakarta and Ho Chi Minh City have made it feasible for large vessels to make direct calls — sending goods straight to the smaller ports instead of offloading them onto smaller feeder vessels at transhipment hubs.
In fact, the advent of maritime technology and ports had affected volumes for even Singapore, but Port Klang will come out the worst of the two as shipping companies would naturally gravitate towards its southern neighbour due to its strategic location, and as a reliable and established transhipment hub.
PSA Terminal is currently the second largest container port in the world next to Shanghai, handling up to 30.9 million twenty-foot equivalent units (TEUs) in 2015 alone, more than two of Malaysia’s biggest ports — Port Klang and Port of Tanjung Pelepas — combined, according to World Shipping Council.
Transhipment volume comprised 80 per cent of total TEU volumes processed annually.
The port of Singapore is also one of the most advanced. According to a World Bank column, the republic’s Next Generation Port 2030 plan will enable its port to process the equivalent of 65 million standard shipping containers to make it the largest integrated facility in the world.
The country is also continually pumping money into research and is in the midst of exploring cutting edge technology like driverless automated guided vehicles or smart sensors to detect shipping anomalies like piracy.
Automation is crucial to save money and time and Hong Kong’s fall from grace as one the world’s top port serves as a good example.
South China Morning Post (SCMP) reported in June that the former British island had ceded much of its business to the increasingly automated mainland Chinese ports.
“Automation level in China’s major ports is higher than Hong Kong and I believe the quick development of technology helps further automation in mainland ports,” the paper quoted Lothair Lam, vice president of Parakou Shipping Ltd, as saying.
Labour manual simply means more money. Among its closest competitors, Hong Kong was reported to charge the highest terminal handling fees due to labour costs, SCMP said citing data from the Hong Kong Shippers’ Association.
That is not to say that the Malaysian government has not invested in automation for its ports. Port Technology, a magazine on shipping technology trends, reported in January that Westports and Northports’ growth last year could be attributed to “ to efficient and productive terminal operators, strong support of its shipping and logistics community and the port’s supply driven facilities, in addition to “advanced, state-of-the-art cargo handling equipment”.
Port Klang registered a 10.8 per cent growth in 2016 with a total of 13,169,577 TEUs in container handling compared to 2015. The Port Klang Authority's Northport facility handled 3,223,544 TEUs while its Westports facility handled 9,946,033 TEUs.
Corporate dynamics also played a crucial role in prompting the Ocean Alliance, led by CMA CGM, France’s biggest and the world’s third largest shipping company, to favour Singapore.
Ooi, who is also vice-chairman of Evergreen Line (Malaysia), one of the shipping companies to join the Ocean Alliance, explained that the exodus was triggered as a consequence of CMA CGM’s purchase of Singapore’s main shipping line, APL, at the time the seventh biggest shipping company in the world.
“When they took over APL, which is under the NOL and the Temasek Group, there was a condition to maintain the APL volumes in Singapore..to assume the dedicated berth arrangement they had with PSA,” the SAM chairman said.
“So CMA CGM was a major player in Port Klang, but they had to honour the agreement and one of the condition out of the agreement was to operate out of Singapore..of course also with other added benefits of the berth arrangements that included profiting from the joint venture,” he added.
NOL or Neptune Orient Liner was owned by Singapore’s investment arm Temasek Holdings. Up to 2016, NOL had incurred losses for four straight years. It was a key factor that led to Temasek’s decision to sell NOL, although the sale came with the condition that APL had to be run from Singapore via a joint venture with NOL.
The acquisition of NOL effectively catapulted CMA CGM to third place in the container liner companies global ranking, increasing its share of the world’s shipping sector to one fifth, according to the company’s statement issued last year.
To consolidate its position further, the French company plotted the formation of a consortium with three other shipping companies — China Cosco, Evergreen Line and the Orient Overseas Container Line — carving out among them the largest market share on the trans-Pacific (40 per cent) and Asia-Europe (35 per cent) maritime trade, according to maritime magazine Joc.com.
The alliance’s decision to shun Port Klang was also a result of the partnership between China Ocean Shipping Company or Cosco and PSA. Cosco, which became China Cosco after completing one of the industry’s most complex mergers with former rivals, runs Singapore’s Pasir Panjang terminal together with PSA.
The Chinese conglomerate is also in the process of buying its smaller rivals, Orient Overseas, which explained why the smaller rival had agreed to join the Ocean Alliance and move to Singapore as it anticipates a takeover that could push China Cosco to overtake CMA CGM, according to a Bloomberg report.
Ooi argued that Port Klang will have to settle as the region’s secondary transhipment hub for now. Despite positive growth last year, the port located some 100km from the capital city is unlikely to see the same kind of boom from now on.
“I don’t think you can project the same kind of growth,” he said. “There will be volumes of course. The shift is not total. We (Evergreen Line) still have cargo here. Just that Port Klang would have to deal with lower transhipment throughputs”.
Port Klang is still expected to profit from transhipment volume from Asian countries, the SAM chief explained. The European calls, however, will decrease by half.
Naturally, the news of the shift has raised concerns over Putrajaya’s plan to build new harbours and rail links along the Strait of Malacca. It had also raised eyebrows over China’s commitment since even two of the country’s main shipping companies had opted to operate from Singapore.
Chinese money is involved in at least three new projects worth about RM155 billion: the Melaka Gateway deep sea port worth RM49 billion, the massive Carey Island project beside the main Port Klang valued at RM100 billion (it now has an Indian partner after the Chinese backed down), and improvements in the smaller Kuantan Port, which the government predicted would benefit from the East Coast Railway development.
Economists and industry analysts have long questioned the viability of the new ports. With Port Klang now operating below capacity, there have been concerns that the two new ports could add to existing “white elephants” projects.
“The shipping industry had actually told the government that the two projects would be wasteful and instead resources should go to improving Port Klang and PTP,” an experienced shipping captain said told Malay Mail Online.
“But it appears they are more concerned with political expediency,” he added.
Despite growing calls for the government review them, Transport Minister Datuk Seri Liow Tiong Lai has insisted that there is demand for bigger ports. Just last week, the MCA president said Westports, the operator most hit by the Ocean Alliance’s shift to Singapore, will increase its capacity.
“Every port we build serves a different purpose. We build based on the needs of the nation. As of now, Kuantan port is doing well and the Melaka Gateway is coming up. We look forward to the development of Carey Island too,” he told English daily The Star.