Vulnerable Singapore reflects a picture of inactivity

Kevin Brown
Financial Times

From the palm-fringed beaches of Singapore’s east coast, it is possible to see the islands of Indonesia across the narrow strait that separates the two countries.

These days, though, the view is obscured by hundreds of ships lying at anchor, some of them part of the estimated 10 per cent of the world container fleet idled due to lack of business. At the ultra-modern Pasir Panjang container terminal, stacks of empty containers piled up behind protective fencing tell a similar story.

Singapore, the world’s largest container port by throughput, looks likely to suffer a bigger fall in traffic than many other ports this year, in spite of a slight uptick in traffic in provisional figures for October.

The port’s two terminal operators suffered a 16.5 per cent fall in throughput to 21,255,900 twenty-foot equivalent units (teu) in the 10 months to the end of October.

Throughput moved up considerably in October to 2,314,300 teu from 2,145,400 in September, potentially signalling a recovery, but remained well below last October’s total of 2,522,000 teu.

As a global transshipment hub for traffic between Asia, Europe and the US west coast, Singapore is highly vulnerable to a decline in world trade on the scale caused by the global financial crisis – 85 per cent of the port’s container throughput is transshipment traffic.

The fall in Singapore volumes is much steeper than the predicted 10.3 per cent drop in global traffic this year, marking a serious reverse for PSA, which runs five of the port’s six container terminals and accounts for about 97 per cent of its container throughput.

PSA, which also runs ports in Europe, the Middle East, South Asia and Latin America, has responded with vigorous cost cutting, including the second round of pay cuts for senior executives in six years.

Remuneration has been cut by up to 6 per cent, with an average reduction of about 2.5 per cent and the biggest cuts imposed mainly on senior managers. This follows an average reduction about 15 per cent during a reorganisation in 2003, when some senior staff lost up to 25 per cent.

PSA’s Singapore wage bill has also been subsidised by a government jobs credit scheme, which contributed up to 12 per cent of the salary costs of eligible workers, and the company has laid off 2,000 foreign workers – about a sixth of the local total.

PSA is understood to have offered discounts to some shipping lines using its Singapore terminals, however, the company has largely resisted such demands, preferring to relax throughput requirements, under which the prices paid by lines are related to the amount of containers they are contractually obliged to deliver. This has allowed many lines to keep their costs per container at pre-crisis levels while moving fewer boxes through the port.

It has also extended credit terms for many lines, typically from 30 to 60 days, easing demands on cash flow in a way that can be reversed quickly once business picks up.

In addition to these short-term measures, the company has delayed some terminal projects, in line with a warning by Eddie Teh, the group chief executive, earlier this year that “all measures are being taken to conserve cash in an illiquid credit market”.

Mr Teh, who does not give interviews, said in the 2008 annual report: “All terminal projects in the pipeline which are at various stages of planning and contractual discussions have been deferred and will be reviewed and monitored against the backdrop of shrinking global trade.”

Most of the affected projects appear to be in PSA’s international operations rather than in Singapore. However, completion of the second phase of the Pasir Panjang terminal is understood to have been delayed from an original target date of the end of 2008.

About 85 per cent of the port’s container throughput is transshipment traffic – boxes brought to the port by one ship and then loaded on to another for final delivery elsewhere – which amplifies the impact of a downturn in traffic because it affects both inward and outward flows.

Transshipment has been growing as a proportion of seaborne trade because it allows ship owners to cut costs by using bigger ships for the bulk of the journey. This trend has helped Singapore, but it also leaves the port potentially vulnerable to price cutting demands from lines that can threaten to move to other hubs.

That happened in 2000 when PSA lost the container business of Maersk Line, one of the world’s biggest box carriers, which switched to the new port of Tanjung Pelepas in southern Malaysia. Taiwan’s Evergreen Marine followed suit in 2002.

The loss of the two big lines did not stop Singapore overtaking Hong Kong as the world’s biggest container port by throughput in 2005. But Tanjung Pelepas is expanding and remains a potentially potent competitor, even though analysts say Singapore’s huge scale offers a network of links to other ports that Tanjung Pelepas cannot match.…nclick_check=1

%d bloggers like this: