May 2016 Ports of the Month
Singapore: Staying Strong
As it has done many times in its history, Singapore, the world’s largest transhipment hub, is turning a dire business environment into an opportunity to prepare for an eventual upturn.
To be sure, the small Asian city-state is feeling the impact of the downturn in the container shipping sector. In 2015, its port moved 8.7% fewer containers, recording its first annual decline in container throughput since 2009. But it is looking beyond these tough times and focusing on staying ahead of the competition.
“Our port will continue to be a key anchor for the maritime sector and during this period we have to think and act in countercyclical terms in a number of ways,” Maritime and Port Authority Singapore chief executive Andrew Tan says. “I do not think that we should overreact by reducing the capacity of our port. It is important that we maintain our competitive advantage by promoting greater efficiency and higher productivity to enhance services to shipping lines in the long term.”
To buttress that point, work has started on the next-generation port at Tuas on the western coast of the island, Mr Tan tells Containerisation International. The Tuas terminal, which will use a new generation of technologies to increase efficiency and productivity, will have the capacity to handle up to 65m teu, making it the world’s largest container terminal at a single location.
At the start of 2016, Singapore Transport Minister Khaw Boon Wan announced that to help shipping lines cope with the difficult environment, an additional 10% concession on port dues for container vessels would be introduced from January 15 and for a period of one year, on top of existing concessions.
The concessions are expected to translate to more than S$17m ($12.3m) in annual savings for container lines. “The 10% reduction on container port dues and the extension of incremental concessionary rates for offshore support vessels are extremely welcome steps. It is not their job to subsidise us in a major way but it is recognition by them of the difficulties that the industry is in and is very much appreciated,” Singapore Shipping Association president Esben Poulsson says.
The business of moving containers across the globe is in the midst of unprecedented change as the glut of vessels persists, exacerbated by weaker global trade, continue to pressure freight rates lower. Shipping lines have been cutting costs and a number are selling assets and pursuing alliances to reduce costs and optimise resources.
The overall slump in Asia-Europe volumes, rebalancing of volumes across shipping alliances agreements and an increase in direct sailings due to lower bunker prices were cited for the drop in container and cargo throughput last year. While the excess of vessels and shipping alliances are beyond its control, Singapore is unfazed and is on its toes, asking itself how it can stay in the game and keep competition at bay. Singapore port operator PSA is still looking to complete its S$3.5bn ($2.5bn) Pasir Panjang terminal expansion next year. All container handling facilities will eventually be located at the new generation port in Tuas with the capacity of handling 65m teu yearly from the current 40m teu.
The port operator expects that by 2030, it will reach the 1bn teu cumulative mark after being the first port in the world to cumulatively handle 500m teu in 2014.
By 2027, the container terminals in the city next to Shenton Way and on Pulau Brani will be vacated. The terminals in Pasir Panjang will follow suit by 2040. PSA Group chief executive Tan Chong Meng looks at the Tuas project as “a blank canvas upon which we can perfect ourselves to gather the best of our current practices” and to find solutions to the challenges that the future port industry will be grappling with. The entire Tuas development project, he says, will take a couple of decades to put in place.
Beyond building on current best practices, Mr Tan said that PSA seeks to “challenge our assumptions and push for game changers, especially in fast-mutating areas such as security and information flow and planning.” New technologies capable of detecting and tracking people, vehicles and containers may have to be tapped as traditional threats are being replaced by new ones.
PSA’s Mr Tan expects that the prevalence of mega-ships and alliances in the future will bring an exponential increase in the scale and complexity of port operations.
To address this, he believes that better information flow and planning between ports and shipping lines will be required. Container stowage planning, for instance, is an area which can be improved on given that at present it is largely done in a sequential back-and-forth iterations between the planners from the shipping lines and ports.
Planning screens that are simultaneously assessed and link planners from the shipping lines and ports, aided with appropriate algorithms and artificial intelligence could be a future possibility, Mr Tan said. Analysts and industry executives agree that for Singapore to keep its hub status, it needs to address the double whammy of rising competition and costs. Rivals such as Malaysia’s Port Klang and Colombo port are expanding their capacities to handle mega-vessels. “Retaining customers is a daunting task when competitors have lower cost input at a time when their clients are extremely cost-sensitive,” Victor Wai, research analyst at Drewry Maritime says. “To stay ahead of the competition, it is appropriate to expand capacity in Singapore despite the cyclical trade downturn.”
As container shipping lines can switch transhipment ports with short notice and transhipment costs are not passed on to shippers, such costs have to be kept low. To ensure that Singapore retains its lead in the business, handling costs and trade connectivity are key factors, Mr Wai said. “Containment of costs is one of the main threats to competitive positioning of any port,” says former APL executive David Appleton, now principal and owner of Focus Maritime consultancy. “On a cost neutral basis, history shows that carriers normally opt for traditional and well-established ports. This is not just about handling rates.”
For shipping lines, maintaining schedule integrity is a continual goal, while for terminals, balancing berth utilisation with operating flexibility can be a challenge and escalating ship size does not help, Mr Appleton adds.
Singapore’s geographical advantage, port productivity and connectivity with the rest of the world are not easily surpassed by regional ports, Mr Wai says. PSA Singapore has links to over 600 ports globally while Westports Malaysia connects with more than 300 ports worldwide.
In January, MPA and PSA came up with “a suite of help measures” to help container lines, which for the port operator entails working with its customers to enhance vessel productivity at the port and optimise network planning activities such as service deployments and phasing in and out of vessels. The goal is to help cut customers’ operational costs.
MPA added that the Singapore port operator is also actively engaging with container lines that wish to establish a long-term strategic presence in the port of Singapore. No other details, however, were disclosed by both MPA and PSA. Singapore-based Neptune Orient Lines, whose ships operate under the APL brand, believes the S$3.4bn ($2.4bn) acquisition by French carrier CMA CGM of NOL will bolster the city-state’s shipping hub status. The acquisition announced in December last year is expected to close in August 2016 following regulatory approvals.
“There might be sentiments against the change of ownership but in terms of economic impact, the transaction is positive for all of us,” NOL chief executive Ng Yat Chung says. APL is the biggest container shipping company in Southeast Asia by fleet size.
“The change of ownership of NOL will not impact Singapore’s continuing journey to be a premier maritime hub and in fact CMA CGM is willing to reinforce that role,” Mr Ng said. “They have committed additional volumes to Singapore.” CMA CGM vice-chairman Rodolphe Saadé says that “it will make a great deal sense to have double-hubbing in Southeast Asia”.
The volumes of the combined entities will allow increasing business in Singapore and keeping a strong presence in Port Klang.
Singapore has done well in its journey to become a maritime nation but is not without its challenges.
“Other countries and cities aspire to become important maritime clusters; cost is a challenge,” Rene Piil Pedersen, group representative for Singapore/Asia Pacific at Maersk Group says. “Singapore has to address the question of how to make its value proposition as an international maritime cluster remain attractive in the face of a slowing economy and a challenging oil environment,” Mr Pedersen adds.
What makes Singapore Work?
Singapore offers a strong business proposition for ship and rig owners and its attractiveness stems from having a competitive taxation system for shipping and offshore along with the ease of doing business and access to a cluster of services, Maersk Group’s Mr Pedersen says.
Moreover, the government executes a consistent, long-term and transparent shipping policy led by an efficient maritime administration, Mr Pedersen adds. There is rule of law, a strong anticorruption policy and finally, access to both local and international talent base. Outside Denmark, Singapore is the only place where Maersk is represented with all its major business units including Maersk Line, Mr Pedersen points out. The Maersk fleet flying the Singapore flag is at a record high with 137 vessels and rigs registered in Singapore, he adds.
While security and ease of doing business favour Singapore as a regional hub, anticipating physical constraints of vessel size and ensuring the maximum operating flexibility and efficiency are key attributes, Mr Appleton says. “It all begins with geographic location and is subsequently supported by vision and strategy. This has been the hallmark of Singapore across the piste, and is also true of its approach to the maritime industry,” Mr Appleton adds. “Sustainability comes from investment and response to market needs; often recognising a need even before the customer does so.”
Beyond the hub port
Singapore is also developing the other facets of an international maritime centre beyond the hub port. It has taken concrete steps to build a more sustainable shipping sector in the long term, MPA’s Mr Tan says, pointing out, among others, the Green Ship programme that encourages Singapore flagged ships to reduce carbon dioxide and sulphur emissions.
Singapore will do its part to support the so-called Blue Economy, given that it is a port city with a long maritime heritage, Mr Tan says, adding that an integrated approach is needed to promote the sound governance of ocean resources.
Singapore is also seeking to be a LNG bunker-ready port when LNG becomes more viable as an alternate fuel. The MPA has awarded two LNG bunker supplier licenses and launched the world’s first national standards for bunker mass flow metering recently.
In 2015, Singapore remained the world’s top bunkering port with a 6.5% increase in volume of bunkers sold and vessel arrival tonnage rose 5.6%. Mr Tan said the MPA has been actively expanding knowledge-based sectors such as shipbroking, shipping finance and marine insurance as well as growing the Singapore Registry of Ships, which is positioned as a quality ship registry. At present, Singapore has over 20 major shipbroking companies with significant operations covering charter broking, sale and purchase broking and research and consultancy in Singapore.
In other related developments, the Singapore Exchange is seeking to buy the Baltic Exchange, the 272-year-old London-based provider of information on global shipping costs. Many are watching whether Southeast Asia’s biggest bourse operator will succeed in its bid to acquire such an iconic shipping institution, a move which some say shifts shipping’s centre of gravity to the east. This year marks the 44th year since the birth of containerisation in Singapore. The city state has come a long way from welcoming its very first container ship on June 23, 1972 at the then newly-built Tanjong Pagar container port, the first in Southeast Asia.
While Singapore has harnessed its natural advantage of a deep-water harbour and strategic location along the major shipping routes, its continued efforts toward a well-developed port infrastructure, backed by efficient marine services, serve to remind us of the saying – “the harder you work, the luckier you get”.