Southeast Asia Transshipment Hubs to Compete Fiercely in 2017

Southeast Asia’s port scene is incredibly dynamic, and 2017 will be a year of significant changes with big implications for shippers as structural adjustments in the liner shipping sector and the region’s economic make-up continue.

The changing market could result in lower terminal handling charges for shippers as container terminals in the region fight to undercut each other on pricing in a bid to secure the volumes of the new vessel-sharing alliances that begin operation in April. These new container line groupings, and the ample capacity already in the region and new capacity set to come online in the future, are creating a hyper-competitive environment that will evolve throughout the coming year.

Southeast Asia is at the moment probably the busiest for port development globally, with no less than five major projects underway on the shores of the strategic Malacca Strait. In addition to Singapore’s massive Tuas development, there are ongoing capacity expansion projects at Malaysia’s two main international ports of Tanjung Pelepas and Port Klang. China also has two large projects in the works as it seeks to create alternative ports on the strategic waterway to help secure its trade, energy, and other needs.

“There is a lot going on in Singapore and Malaysia right now, particularly on the Strait of Malacca,” Jonathan Beard, the head of transport and logistics consulting in Asia with Arcadis told JOC.com.

“In Singapore, the older terms of the leases are expiring so it made sense to relocate the port at this time. Typically, the government is taking a long-term view that this is the last time it will redevelop the port, and [is] also demonstrating to lines and alliances a serious commitment to capacity. The developments at PTP and Klang are largely driven by the key customers — Maersk Line in the case of the former and CMA CGM in the case of the latter.”

Port Klang’s Westports is a facility that will be impacted more than most by service and network adjustments by loss-making container lines as competition for business among regional transshipment hubs heats up.

The PSA International’s announcement of a joint venture with CMA CGM to operate four container berths and provide long-term services to the French-headquartered line and its alliance partners will almost certainly have an impact on the Malaysian facility.

CMA CGM accounts for around one-third of total throughput at Westports and more than 20 percent of revenue, and there is concern that the equity stake offered by PSA could see the line shift some of its transshipment business from the Malaysian port to Singapore.

As a long-term strategic effort by Singapore to lock in business in an environment of bigger alliances and a more consolidated industry, this is a story to watch in 2017.

Adding heavily to the dynamism of port activity in Southeast Asia, China at the end of 2016 announced it was investing $1.9 billion to build a new port on the Malacca Strait. From a capacity and commercial perspective, the need for an entirely new development on the busy waterway is dubious, and the move is a strong example of how geopolitics can overshadow market and commercial forces in port development.

The Melaka Gateway port is in fact one of several projects China is undertaking with the goal of decreasing risk related to its energy and trade shipments through the strait. China is also investing in Tanjung Sauh Port on Indonesia’s Batam Island, located at the mouth of the strait, close to Singapore. Despite the ample container capacity on offer in the region, this is planned as a container-focused facility and its first phase is to offer 4 million twenty-foot-equivalent units of capacity.

Other facilities under development in Malaysia include the Chinese-invested Kuantan Port on the east side of peninsular Malaysia facing the South China Sea; and Samalaju Industrial Port, also on the South China Sea, with a focus on dry bulk business.

Elsewhere in Southeast Asia, port congestion will remain a risk in 2017, and measures to offset it can be seen in port sector activity in countries such as Myanmar, Indonesia, and the Philippines.

Although less severe than previous years, congestion did not go away in 2016, with Yangon offering up the most serious and highest profile case.

Handling more than 90 percent of Myanmar’s total trade, a combination of unprecedented growth in trade volumes and infrastructure projects, poor exiting port facilities, inefficient handling processes, and the limited draft of the port resulted in heavy sea and landside delays in the second quarter of the year.

As part of efforts to ensure the problem is minimized this year, a new Japanese-funded automated customs clearance system was launched. The $40 million Myanmar Automated Cargo Clearance System, or MACCS, aims to speed up the flow of goods by automating a number of processes. MACCS will also support requirements relating to the Association of Southeast Asian Nations Single Window program, which intends to integrate the national single-windows of member states to facilitate trade.

Funded by the Japan International Cooperation Agency, MACCS is based on the technology of Japan’s Nippon Automated Cargo and Port Consolidated System and its Customs Intelligence Database System. The system is an example of how foreign funds, processes, and technologies are increasingly influencing the nature of business Southeast Asian ports.

Beating congestion will also be a focus in Indonesia this year as the country works on a commitment by the administration of president Joko Widodo to reduce lengthy cargo dwell times. Efforts so far have only yielded positive results at the country’s primary gateway of Tanjung Priok in Jakarta, where dwell times are down to between 3.7 and 4.2 days, from more than one week a year ago.

The focus has now turned to major ports in other parts of the country, such as Belawan on the northeast coast of Sumatra and Tanjung Perak in Java, where dwell times are still an unacceptable eight days.

The main factors driving change in Southeast Asia’s ports are:

  • Structural changes in the industry, particularly consolidation and the formation of larger and more powerful alliances
  • Continuing influx of mega-ships and consequent requirement for upgrades to infrastructure and equipment
  • Long-term planning on the part of Singapore to rebuild its port for the last time; its demonstration of capacity commitment to lines and alliances, and methods employed to lock in big alliance customers
  • Expansion of export manufacturing sectors in the region, particularly Vietnam and Myanmar
  • Japan’s geopolitical, security, and economic objectives, including building influence and protecting its manufacturing operations in Vietnam and Myanmar
  • Port development in markets where there is a significant lack of infrastructure, particularly in eastern Indonesia and parts of the Philippines
  • China’s geopolitical, security, and economic goals including ensuring alternatives to existing ports on the strategic Malacca Strait and increasing its presence in the South China Sea

What to watch for in 2017:

  • Locking in of alliance traffic and volumes by larger facilities such as Singapore and possibly Colombo, and the impact of this on other transshipment hubs in the region
  • The likelihood of smaller gateway ports getting less direct calls but more feeder traffic as the larger alliances prefer to serve them through bigger hubs that offer greater levels of box exchange
  • Growing China influence in the South China Sea and ongoing but slow development of facilities there and on the strategic Malacca Strait
  • More projects in Indonesia and the Philippines and a gradual improvement in the environment for foreign investment
  • Congestion remains a risk, particularly in Myanmar, Indonesia, and the Philippines.

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This article is reproduced with permission from the Journal of Commerce. Visit www.joc.com.

Contact Turloch Mooney at turloch.mooney@ihsmarkit.com and follow him on Twitter: @TurlochMooney. A version of this story also appeared on IHS Fairplay, a sister product of JOC.com within IHS Markit.

 

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