What will stop Singapore’s ports dominating in Southeast Asia

Photo: William Cho/CC-BY-SA-2.0
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Singapore’s ports have overtaken those of Hong Kong and are now eating into Port Klang’s trade. What is driving the escalation Singaporean shipping industry?

By Oliver Ward

Singapore’s mammoth shipping industry continues to gather momentum as more industry giants moved their operations to the island state earlier this year. In April, Ocean Alliance, the largest consortium in the container shipping industry, announced it was moving operations away from Port Klang in Malaysia, to Singapore.

After United Arab Shipping Company (UASC) merged with Hapag-Lloyd to join Alliance, it also redirected its operations from Malaysia into Singapore.

ASEAN ports have flourished over the last seven years

PSA Terminals in Singapore now handles a fifth of the world’s transshipped containers, making it the second largest container port in the world. It receives more than 33 million twenty-foot equivalent units (TEUs) annually. The only port with a larger annual TEU volume is Shanghai.

In 2010, ASEAN and China signed their free trade agreement (FTA) which drastically modified the ASEAN shipping industry. Goods imported or exported from China needed to go through ASEAN to access the preferred tariffs. The result was companies overlooked Hong Kong as their trading hub to China and relocated to ASEAN. What has emerged, is the largest and fastest growing trade channel anywhere in the world located between China and ASEAN.

Source: World Bank

The move has drastically affected Port Klang

Ocean Alliance and Alliance make up almost half of the global shipping capacity between them, and their transitions to Singapore have greatly damaged Port Klang. The only significant global shipping provider left in Port Klang is APM-Maersk, which has an office in the port.  

Sources: Straits Times, JOC, Today Online

The biggest loss to Malaysia will be in transhipment revenue. Companies like UASC and CMA CGM, who are part of Ocean Alliance, previously stored their cargo in Port Klang before shipping it on. Last year, Malaysian ports handled 39% of the transhipment cargo volume for all of Southeast Asia, accounting for nearly 30% of Port Klang’s total revenue. The loss of significant industry players to Singapore will cause a significant loss in Port Klang’s revenue.

Why is Singapore becoming a shipping powerhouse?

In recent years, Singapore’s annual container throughput has remained consistent and reported volume growth has been marginal. So, why are companies moving to Singapore in their droves now?

Source: MPA Singapore

Malaysian ports have always had the advantage of cheaper rates thanks to lower port tariffs and a cheaper ringgit, but last year PSA reduced its fees by 10% to become more competitive and increase its transhipment revenue. Without the higher costs, many shipping companies are now willing to relocate to Singapore.

The decision for shipping companies to transition to Singapore makes geographical sense. The position of Singapore at the mouth of the Malacca Strait means that many firms will save money on transportation costs. Shipping companies often unload shipments into smaller vessels to access regional ports in Southeast Asia. Geographically, Malaysia’s ports sit further into the Malacca Strait, which means ships have to travel further to unload.

Shipping Association of Malaysia Chairman, Ooi Lean Hin, estimated that in some cases, these smaller ships would travel 600km less by loading and unloading in Singapore.

One business owner also cited the Malaysian working culture as a factor in Port Klang’s decline. “Shipping is a 24-hour game,” adding, “too many holidays are bad for business.”

The development of smaller ports in the region has also contributed to Singapore’s growth. Jakarta and Ho Chi Minh City can now accept large ships into their ports. Given Singapore’s proximity to Jakarta, shipping companies are now more likely to stop at PSA, rather than Malaysia, for their transhipment needs.

Automation is the future of the shipping industry

Singapore’s PSA Terminal is one of the most advanced in the world. Its investment in new technologies like the Computer Integrated Terminal Operations Systems (CITOS) and PORTNET allows authorities to better detect anomalies, minimising theft and piracy, and saving shipping companies money. Singapore is also exploring the introduction of driverless vehicles to further streamline the ports of the future. As levels of automation increase, Singapore’s rates will only become more competitive.

Will Malaysia’s planned expansions threaten Singapore’s dominance?

In August 2017, the Malaysian government began construction on the RM55 billion (US$ 13.1 billion) East Coast Rail Link project which will link Port Klang with Kuantan Port on the South China Sea. Malaysian Prime Minister, Najib Razak hopes this will establish Malaysia as an “alternative trade route” in the region.

There are also plans for an RM800 million (US$191 million) expansion project on Port Klang, part of a wider RM5 billion (US$1.2 billion) project to expand the three largest ports in the country.

But with China financing the projects, the decision to move Ocean Alliance to Singapore raises concerns about Chinese commitment to the project. Chinese state-owned Cosco Shipping is part of Ocean Alliance which moved to Singapore in April. If the Chinese government were serious about bringing these projects to fruition and generating revenue from them, it would not have endorsed the move to Singapore which has been so damaging to the Malaysian shipping industry.

So far, only a project to expand Kuantan Port has received the promised Chinese financial backing. The sustained Chinese commitment to Kuantan is likely only because the Port lies on the South China Sea and could help China further their territorial claims in the region.

Guaranteeing a Singapore dominant future

This year the Singaporean government began construction on the new Tuas mega-port. Due for completion in 2040, the port will have a handling capacity of 65 million TEUs annually and use drones to load vessels.

Innovation is at the core of Singapore’s shipping industry. The International Maritime Centre (IMC) outlined their plans to secure Singapore’s regional shipping dominance for the future in their 2030 vision.

The Advisory Committee Chair, Andreas Sohmen-Pao said, “the successful growth of Singapore’s maritime sector over the past decade has been founded on a clear strategy, effective implementation, and strong alignment between the government and maritime community.”

The 2030 vision hinges on these values. They include increased investment in educating the Singaporean labour force of the future, investment in new and developing technologies and seeking out new ventures with industries like e-commerce and commodity trading.

The adoption of a OneTouch platform to allow suppliers and merchants to reserve places directly on containerships online is one avenue the IMC is exploring.

Singapore’s shipping industry shows no sign of letting up. With clear goals and growth opportunities driving the IMC’s vision for 2030, Singapore looks set to build on these successes and firmly entrenches itself as the beating heart of ASEAN’s shipping industry.