Kwai Chung in for sea change as PSA navigates in

PUBLISHED : Friday, 03 December, 2004, 12:00am
UPDATED : Friday, 03 December, 2004, 12:00am

The entry of PSA International into Hong Kong's port scene is unlikely to have an immediate visible impact on terminal charges or business relationships, but over time it will drive volume growth and help stem the erosion of our South China market share.

While the deal for 57 per cent of Asia Container Terminals (ACT) remains unsigned - NWS Holdings and CSX still have the option to match PSA's $2.6 billion offer - all indications are it will stand, giving the state-owned operator majority control of two berths at CT8 West in Kwai Chung.

It won't give PSA anywhere near equal footing with the port's dominant players, but the inclusion of the world's No2 port operator will bring a sea change in the competitive environment on Kwai Chung's historically cosy waterfront, ripples from which eventually may be felt in Shenzhen.

No one should expect a price war to break out the day PSA opens for business.

The premium it paid for ACT - more than triple a book price established in 2001 - will give PSA little incentive to start undercutting the market to attract business.

As the upstart David against the duopoly's Goliath it would be foolhardy to do so and, unlike other ACT shareholders past and present, it has plenty of commercial relationships with shipping lines to leverage to fill its berths.

Besides, just ask CSX what happens when the giants feel threatened by David.

About a year ago, senior executives from Hutchison perceived a commercial threat on the horizon when CSX, as the single largest shareholder in ACT, acquired management control of the two berths at CT8 West.

At the time, Hutchison had contracts with two of the four shipping lines in Asia's biggest shipping consortium - Japan's K-Line and Taiwan's Yangming - and saw CSX's control of CT8 West as a potential threat to the carrier's future at Hongkong International Terminals (HIT).

CSX relied on a third partner in the consortium, South Korea's Hanjin Shipping, for half of its business at CT3. The fourth partner, China's Cosco, moved its boxes over the adjacent berth at CT8 East, jointly owned by its sister firm Cosco Pacific and Hutchison.

Senior Hutchison officials felt there was significant danger of K-Line and Yangming defecting to join their alliance partners at CT8's three berths, so they made an aggressive - and successful - play for Hanjin, a move that hastened the sale of a crippled CSX's global port assets.

It would be ironic if that move, which ultimately led to PSA getting a stake in the port, now came back to haunt Hutchison.

The natural assumption is that PSA will leverage its common shareholding with NOL Group's American President Lines (APL) - they are both controlled by Temasek Holdings, the Singapore government's investment arm.

But APL, the No2 carrier on the transpacific trades by volume, is at the front end of a long-term contract with Hutchison, which assures it and its alliance partners up to five of HIT's 14 berths on short demand.

PSA's two berths, dedicated or not, are unlikely to lure the consortium away from Hutchison's grasp.

Opportunity for the newcomer is more likely to lie in Shenzhen, at the Hutchison-operated port of Yantian.

Despite Hutchison's efforts to alleviate Yantian's congestion problems, carriers still complain about the lack of operational flexibility caused by congestion at China's best natural deepwater port south of Ningbo.

'[Yantian's] berth windows are really clogging up and, with all the ships coming on stream in the next few years, that is likely to become even more prevalent,' a carrier executive said. 'They try, but basically there isn't anything more they can do to help us out there.'

With South China's container trade projected to grow at five million boxes a year for the next five years, PSA will have no shortage of opportunity to fill its new wharves.

Since it will soon be the only Kwai Chung operator that does not own a stake in Shenzhen's deep-sea ports, one can imagine its efforts to block the cross-border exodus of cargo will be a little more energetic than the others.

PSA will need more berths to bring the kind of competition that would lower the cost for shipping lines calling at the port. But that, also, may not be far off.

Another berth, CT3, is up for grabs in the CSX global ports sell-off - a deal that will be done before Christmas.

And now that PSA is a paid-up member of Hong Kong's port community, Below Deck can imagine it will be very difficult for Hong Kong Inc to persuade the government to keep it out of the bidding for CT10.