In the cutthroat world of shipping, Singapore has cemented its role as a global maritime powerhouse thanks to a deal signed between its port operator PSA and Japan’s largest ocean carrier.
PSA entered into a joint venture with Ocean Network Express (ONE) last month to operate four mega container berths in Singapore, making the country the primary port of call for ONE’s services.
The deal was the final piece of the puzzle in drawing all of the world’s three major container shipping alliances – which together account for more than three quarters of the world’s container trade – to the island nation.
More significantly, it has put the Port of Singapore ahead of its nearest competitors in Asia. For Malaysia’s Port Klang, in particular, the partnership between PSA – the country’s port operator – and ONE comes “as a blow”, said shipping consultancy Alphaliner’s chief analyst Tan Hua Joo, who is based in Singapore.
“Port Klang is the main loser as the move limits their ability to draw away Singapore’s customers, now that all three of the global shipping alliances are tied to PSA through various joint-venture arrangements,” he said.
A shipping alliance is a group of container-shipping companies that have joined forces to cover various trade routes at a global level, generating cost and operational efficiencies. The world’s biggest alliances are 2M Alliance, Ocean Alliance, and THE Alliance, to which ONE belongs.
Tan explained that the joint venture will moor ONE’s shipping volumes to Singapore, effectively removing the immediate threat of THE Alliance moving to Port Klang, an idea that had been mooted in the last two years.
The PSA-ONE joint venture is slated to begin operations in the first half of next year, once industry regulators give their go-ahead. It will be able to handle four million standard-sized containers a year – the equivalent of total annual throughput at some of the smaller ports in other parts of the world.
“In terms of alliance longevity, we should not expect a lot of additional merger and acquisition activity between the larger lines that would be disruptive,” said Andy Lane, Singapore-based partner of CTI Consultancy.
“Most of the competing hubs are also pretty well utilised, which means they have limited spare capacity in which to grow their market shares. So Singapore appears to be in a very strong position for the next five or so years.”
The Port of Singapore currently holds the title as the world’s top transshipment port – an intermediate stop for cargo on its way to another destination – and the second-busiest port globally, after Shanghai.
Even at a time of geopolitical uncertainty and rising trade barriers, PSA handled 36.6 million Twenty-foot Equivalent Units (TEUs) worth of cargo last year, up 8.7 per cent from the year before.
Shanghai’s container volume grew 4 per cent to hit a record of 42 million TEUs in 2018. But unlike Singapore, which functions as a transshipment hub, Shanghai primarily serves as China’s gateway port to the world.
But in the shipping business, nothing is smooth sailing for long. Being in the transshipment industry means being subjected to various market forces, such as oil prices, the trend of larger vessels, changing alliances, and uncertainties in the global economy.
And then there is the ever-present risk of port competition – which Ocean Shipping Consultants director Jason Chiang, based in Singapore, believes is one to watch in the coming years.
This comes as more regional ports develop capabilities to handle larger ships. The Cai Mep Thi Vai port complex in south Vietnam, for instance, which is built specifically for ultra-large container vessels, has seen exceptional growth, with volumes up by 21 per cent in the first 10 months of 2018.
Expansion works are also under way at Jakarta’s Kalibaru port, while Malaysia is planning to build a 200 billion ringgit (US$48.6 million) mega deep water port and maritime city project on Carey Island, although the government is assessing the feasibility of the project.
“With ports like Cai Mep and Kalibaru, shipping lines would have less need to tranship in Singapore and go direct,” Chiang noted. “It’s already happening, in fact. More carriers are opting to make direct calls.”
He cited data showing that within the Strait of Malacca, the level of transshipment incidence – the share of container transshipment traffic as part of the total volume handled by ports – had fallen from 91.5 per cent in 2010 to 73.4 per cent in 2016, as a result of increased direct calls.
Lane from CTI Consultancy, on the other hand, is more optimistic. He points to the gradually contracting gap between supply and demand in global container capacity, as well as the International Maritime Organisation’s sulphur cap, which is likely to drive fuel costs higher – and in turn, transshipment demand – when it takes effect in 2020.
“Singapore has the scale and capacity to absorb peaks in transshipment demand. Some of this capacity has been generated as a direct result of increased productivity in recent years, and this can probably be further ramped up to create more,” he said.
In an industry where volatility is a constant, that ability to boost productivity and cost-efficiency with technology could well be the critical factor for Singapore in maintaining its edge.
Hong Kong in recent years has dropped out of the top spot as a global container port, having ceded volumes to mainland ports that are increasingly automated.
The port moved 20,770 TEUs of freight in 2017 and was ranked fifth internationally, behind Shanghai, Singapore, Shenzhen and Ningbo-Zhoushan.
Singapore, for its part, is not getting complacent. Last November, just before the PSA-ONE deal was announced, China’s Cosco Shipping Ports launched two new berths at its own joint venture container terminal with PSA, strengthening its total capacity from 3 million TEUs to 5 million TEUs.
The new berths, like the existing three, will be supported by automated yard technology to drive productivity and service quality.
Far west of the island, work is progressing on the upcoming Tuas Port, set to be a new multibillion-dollar home for all Singapore’s container activities. The mega port, when completed in 2040, will allow the Lion City to handle up to 65 million standard-sized containers, up from some 40 million today.
It will run on smart technologies, automation and data analytics, including driverless vehicles and automated yard cranes, which are being tested at Singapore’s Pasir Panjang Terminals.
“The Tuas that we’ll operate must be different from the port that we run now,” said PSA International group chief executive Tan Chong Meng in a recent local news report. “Tuas, for us, is an opportunity to reset.” ■