PSA maintains prices despite loss of business | South China Morning Post
  • Tue
  • Mar 31, 2015
  • Updated: 4:03am

PSA maintains prices despite loss of business

PUBLISHED : Tuesday, 09 April, 2002, 12:00am
UPDATED : Tuesday, 09 April, 2002, 12:00am
 

The Port of Singapore Authority (PSA) will face its fiercest commercial competition this year from a low-cost regional rival without engaging in a price war, according to the authority.


Even though average terminal handling charges at the PSA are 50 per cent more than at Port of Tanjung Pelepas (PTP), the authority said revenue shortfall would be made up by its growing international business volumes.


Although the PSA traditionally was able to justify premium terminal operating charges by offering impressive box-handling efficiencies, analysts said vessel turnaround times were no longer the top concern of customers, nor did they differentiate a port operator from the pack.


Singapore-based ING Barings regional transport analyst Peter Williamson said: 'I've spoken to many shipping lines in the past few weeks about whether cost or efficiency is the priority and they all now say cost every time.


'Efficiency has lost some of its leverage in the present trade environment.'


Taiwan's Evergreen Marine, the world's second-biggest container line, last week followed Maersk Sealand to PTP in Malaysia, confirming the industry's worst-kept secret.


'The [authority] regrets that an agreement could not be reached by both parties,' the PSA said.


The authority has assured the industry the loss of Evergreen's throughput, estimated at 1.6 million teu (20 ft equivalent units) by the Taiwan carrier and 1.2 million by the PSA, will not lead to a decrease in profitability for the group.


It said the group's growing international operations, throughput at which jumped 39 per cent year on year from a relatively low base last month, would compensate for the loss.


However, as the group has relied on its home terminals for more than three-quarters of throughput and an even higher proportion of profit and turnover, one industry executive said it would be hard-pressed to make that projection stick.


The PSA even went as far as to project its home terminals would again eclipse the 17-million-teu mark this year, raising eyebrows in the industry.


However, despite confirmation of Evergreen's departure, there are signs that the Lion City is benefiting from the recent economic rebound in the West.


The PSA handled 1.42 million teu last month, up 6.3 per cent year on year, its best result in 17 months. First-quarter growth reached 8.5 per cent year on year.


Last year was, however, its worst throughput result since 1998, making for a low-base comparison.


Analysts such as Mr Williamson said the renewed growth should be viewed in a global market context.


'Industry-wide, they've all seen higher volume since the beginning of the year,' Mr Williamson said.


With low-cost PTP just 48km from the PSA, Singapore will have to answer growing pressure to reduce terminal charges.


Just days after confirming Evergreen's departure, another report landed in the Straits Times saying South Korea's biggest carrier, Hanjin Shipping, was also considering transferring operations to PTP.


Japanese carrier K Line extended its agreement with the PSA last month but opted for a one-year rather than the customary three-year deal.


K Line executives said that from a convenience point of view, there was no question that Singapore's port was the best option by far.


But the line's inability to gain price concessions from the PSA compelled it to make the shorter deal, leaving options open.


The PSA again said last month that it would not enter a price war with PTP.


One Hong Kong-based analyst said some pricing flexibility would appear available, given its industry-leading profit margins, but any reduction in profit brought about by a price war would further defer the PSA's long-awaited listing.


Mr Williamson said: 'The PSA is in a very tricky situation. Because PTP is so close, the PSA has to develop the mindset [that] there is no monopoly anymore. It will have to introduce some competitive elements.'


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