Wall Street Journal
April 6, 2002
By S. JAYASANKARAN
See also: Dire straits as rivals cut up rough over ports
SINGAPORE'S ports business is under siege.
The structure of Singapore's state-owned PSA Corp, which involves relatively high costs in exchange for high efficiency, "is falling down," says Alan Greene, a credit analyst with Barclays Capital in Singapore. "There's simply too much overhead cost there."
Taiwan's largest shipper, Evergreen Marine Corp., announced it had signed a terminal-service agreement with the Malaysian port of Tanjung Pelepas. The announcement didn't give details about the deal's value or the planned container volumes, but a senior Malaysian shipping executive said at least 90 percent of Evergreen's annual business with PSA -- around 1.2 million 20-foot equivalent units, or TEUs, the standard unit of measurement in the container trade -- would shift to Malaysia from Singapore in August.
The deal sounded familiar. In late 2000, Tanjung Pelepas's 30 percent shareholder Denmark's Maersk Sealand International, the world's largest shipping line, made a similar move. That added two million TEUs annually to Tanjung Pelepas's throughput, making it the world's fastest-growing port for 2001. With Evergreen's exit, analysts estimate Singapore will have lost 15 percent of its business to the Malaysian port, whose costs are 30 percent to 40 percent lower.
The Singapore port says Evergreen's departure won't have "a significant impact" on PSA's financial results and will, instead, be more than buttressed by its growing customer base in 13 port projects in eight countries world-wide, although many of those projects are start-ups. PSA recorded a 9 percent decline in net profit for 2001, to S$732 million (US$397.4 million), which was mainly attributable to the Maersk shift.
Analysts such as Mr Greene of Barclays Capital say PSA should shift its model away from being a pure port operator with an emphasis on efficiency, innovation and information technology. "PTP [Tanjung Pelepas] and others have shown port operations isn't a rocket science," he says. "Eventually, everything boils down to cost."
Indeed, many analysts have argued PSA should merge with Neptune Orient Lines Ltd., Singapore's national shipper. Neptune Orient is the port's biggest customer while both have a common shareholder in Temasek Holdings, the Singapore government investment arm. "Ultimately, PSA should aim for the Maersk-type model, a huge shipping line with port operations on the side," says a senior analyst with a Singapore securities house. "And it should allow the big private shipping lines to invest in it. Otherwise Malaysia will keep poaching business away little by little."
Kuala Lumpur will certainly be enthused about Evergreen's move. For one thing, the two countries are locked in a dispute about a Singaporean land-reclamation project Kuala Lumpur charges could jeopardize the shipping business from Malaysian ports by narrowing the waterway between the two countries.
The news also marks significant progress in Malaysia's attempts to regain control of its trade channels. As the world's 17th largest trading nation, Malaysia exports and imports goods worth more than M$300 billion ($78.9 billion) annually, and more than 90 percent of that is moved by sea. But with goods required to go through the inefficient Malaysian ports, by the early 1990s more than three million TEUs were being shipped through Singapore.