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| September 2, 2000 | atimes.com | ||
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Southeast Asia
A new era in Asian shipping CHAPTER 1: MAERSK MAKES WAVES Introduction The relocation of Maersk Sealand's transshipment hub operations from Singapore to Malaysia can be viewed in the context of increasing globalization, and the very nature of the container shipping industry. As major customers of the lines have globalized, their need for global sourcing has meant that carriers are increasingly being asked to supply their services on a truly world-wide basis, just like any other supplier. Manufacturers, as they too have globalized, have become less particular as to which port they prefer. Critical aspects of the door-door contract are more important, and these factors principally include price, transit time and service quality levels. Thus, the global liner shipping company has to be mobile and responsive to customer needs. As global customers continually put pressure on carriers to lower their costs, carriers are forced to seek out the lowest cost options for themselves. Shipping customers are notorious for selecting carriers based primarily on price and, given negligible switching costs to another line, they are always ready to switch to obtain lower rates. Industry analysts say that nearly three quarters of all shippers consider changing carriers at least every six months, and that 45 percent consider changing monthly. These two pressures - the globalization of the customers and their promiscuous switching of lines in search of the bottom line - place almost unbearable pressure on the carriers to reduce costs. This is not easy in the industry. It is highly fragmented, with over 500 active ocean carriers involving 2,500 vessels and 350 ports. Not one of the top 10 international carriers has more than nine percent of world vessel capacity, while new and existing carriers can enter trades and markets with ease. The high fixed costs of the industry and the lack of service differentiation among lines has resulted in recent years in declining rates and very low profitability. One way of squeezing costs is through carrier cooperation. Alliances and other forms of operational cooperation enable carriers to reduce operating costs and increase their service offerings while maintaining competition. Consequently, many container lines have formed alliances to share and coordinate vessel operations. The current era of alliances began in 1994, when American President Lines, Mitsui OSK Line, Orient Overseas Container Line and Nedlloyd Lines formed the Global Alliance. This was followed by the Grand Alliance (NYK Line, Hapag-Lloyd, Neptune Orient Line, and P&O Line) and Hanjin/Tricon (Hanjin Container Line, DSR-Senator, and Cho Yang Line). The Maersk/Sealand vessel sharing agreement was transformed into a worldwide alliance, and an unnamed alliance between "K" Line, Cosco, and Yang Ming Line is the fifth major alliance. Although alliance members continue to market their services against one another despite sharing vessel capacity, they offer customers increased service frequency. Estimates of the overall benefits of alliance membership range from US$30 to US$100 per container handled. Most large ocean carriers originally belonged to "conferences" that collectively discussed rates and published tariffs. Starting in the 1970s, however, the strength of conferences began to fade. Consequently, a movement toward conference dissolution was accelerated by the Ocean Shipping Reform Act of 1998 (OSRA). In the early 1990s, conferences were first paralleled, then superseded by "stabilization agreements" which have now evolved into "discussion agreements". The role and power of discussion agreements in practice has been far more limited than that of the conferences at their peak, and OSRA has further restricted their functions with regard to rates and service contracts. As the use of individual service contracts has expanded, discussion agreements have issued "Voluntary Service Guidelines" as a mechanism for encouraging a uniform way of doing business, updating adjustment factors for rates, and suggesting a common language for contracts. In other words, it's a jungle out there - and lines have to cut whatever bargains they can. World trade outlook The United Nations Conference on Trade and Development (Unctad) has forecast that global seaborne trade will increase by 3.5 percent in 2000, a rate of increase well above the estimated 2.2 percent rise achieved in 1999. Total volume of goods loaded is forecast to increase from 5.173 billion tonnes in 1999 to 5.355 billion tonnes this year. 99.6 percent of all transported goods are shipped by sea. The agency's forecast is based on the expectation of a buoyant United States economy and a "respectable" rate of growth in the European Union. It is also based on the expectation that the Asian economies would continue on their path to recovery. The 3.5 percent growth in seaborne exports forecast for this year is a big improvement over the estimated increase of 2.2 percent for the year 1999. The volume of goods loaded in 1998 also grew by 2.2 percent. As in recent years, the increase in the volume of seaborne trade will result from a growth in dry cargo - cargo that is not liquid and normally does not require temperature control. The volume of dry cargo to be loaded this year globally is projected to increase by 5.1 percent, up from the estimated 2.3 percent increase of 1999. Unctad expects developing countries to have a 50.6 percent share of total cargo loaded in 2000. Of this category, countries from Asia will account for slightly more than half the volume of shipments. Similarly, containerization is expected to grow. According to consultants Drewry, the carriage of boxed cargo will grow by 5.8 percent in 2000 and by 7.1 percent in 2001. Drewry estimates that global port volumes, excluding empty boxes and transshipment moves, amounted to 60.9 million teu, or 542 million tons of containerized cargo. Out of the total general cargo market, this puts the container industry up to 53.7 percent, a rise of over 1.5 percent on 1998. Sick of Singapore? The basic considerations of a liner choosing a port are the quality of service, costs, nature of tariffs, the adequacy of port facilities and the overall efficiency of the port, together with industrial relation practices. After five months of negotiations, in August Maersk Sealand, which has a reputation as one of the most aggressive players in the global liner market, decided that Malaysia's spanking new southern port, Tanjung Pelepas (PTP) in Johor fitted the bill. The Danish shipping giant confirmed the move of its hubbing/transshipment operations from Singapore to PTP, having purchased a 30 percent stake in PTP from PTP's holding company, Seaport Terminal Sdn Bhd. Maersk Sealand is the third largest terminal operator globally after Port of Singapore Authority and Hutchison of Hong Kong. Seaport Terminal will retain 70 percent. Under the Foreign Investment Committee of Malaysia (the government body responsible for overseeing mergers and acquisitions) PTP has to retain a majority stake of at least 51 percent. In May last year, Seaport Terminal tried to sell the 30 percent stake to Johor Port, which runs Malaysia's second-largest port at Pasir Gudang, for US$57.4 million. Seaport Terminal had earlier bought back a 40 percent stake in PTP from Khazanah Nasional, the Malaysian government's investment arm. Khazanah brought 40 percent in PTP from Seaport Terminal in August 1998. The Maersk Sealand shift, which will be completed by December, is the biggest single move in the port industry in Southeast Asia, and it will guarantee PTP an annual volume of two million teus in 2001, as well as serve as a catalyst to attract other major carriers. This figure does not factor in the volumes by additional feeder lines that are now in negotiations with PTP for Southeast Asian and South Asian routes. No other port in the world has ever achieved two million teus in such a short period. Earlier in the year, leading European container handler Eurogate, a 50:50 joint venture between BLG Bremer Lagerhaus and Eurokai, visited PTP during a promotional tour of Asia. It has not ruled out some sort of involvement in PTP. PTP will become one of the largest ports on Maersk Sealand's global network with all its mainline vessels currently calling at Singapore, except West Australia and New Zealand services, calling at the Malaysian port. Maersk's current Malaysian base is the Westport section of Port Klang, which serves nearby Kuala Lumpur. Maersk Sealand, which has three subsidiary companies in Malaysia - Maersk Logistics Sdn Bhd, Maersk Distribution Sdn Bhd and Maersk Malaysia Sdn Bhd - is believed to have incorporated a local company, PTP Port Services Sdn Bhd, to undertake its operations at PTP. (c) Asia Times Online CHAPTER 2: RIPPLE EFFECTS |
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