03 Apr 2015
Be careful where you place your bets in Southeast Asia, warns Stevie Knight Everything is boiling in the Southeast Asian port market: however, while some developments are solid others could turn out to be an overheated bubble. Take Myanmar for example. People are waking up to the fact that Myanmar holds a long strip of Southeast Asia’s eastern coast and port developments there could provide a shortcut to Thailand, Cambodia, Laos, Vietnam and even China, leading to a brace of port projects trying to topple Yangon Port from its position as Myanmar’s main gateway. These are being guided by different interests that are trying to get in early.
For example, Dawei, and its proposed industrial complex includes highway links to Bangkok and Thailand's eastern seaboard. Unsurprisingly, it has Thai backing along with Japan’s recently pledged help. Further north, Kyaukpyu is being developed with the Chinese as it holds the business end of a $2.5bn oil and gas pipeline that runs all the way into China’s remote Yunnan province and is looking at its own special economic zone. But the fact is, says Jason Chiang of Drewry, “the different countries don’t really have equal agendas, so while Dawei would be good for Thai cargo, I can’t see as much would be gained by Myanmar.” He adds: “Things like hotel prices have doubled or tripled in Dawei; everyone is taking a stake and at the moment there’s nothing there to warrant it.” In other words, over-interest too early in the game might cripple development.
Mark Yong of BMT Asia Pacific adds a few salient words of warning: “Beware the gold rush."
Neighbourly relations Other countries present different challenges and there are marked contrasts between neighbours. Dr Yong points out: “Indonesia has ten times the population of Malaysia but roughly a tenth of its infrastructure." So, a truck run from the main port of Tanjung Priok at Jakarta to the dryport at Cikarang takes about five hours, while a similar journey in Malaysia takes around two. Further, Indonesia has quite a way to go on port efficiency and though Tanjung Priok has got its dwell times down from eight days to six, Dr Yong says this is still five times longer than Singapore. Geography might have partly been responsible for Indonesia’s slow start: it’s an archipelago with thousands of islands, fracturing not just supply chains but lines of authority and leaving cargo from nearby Darwin, Australia to run all the way into East Java before coming out again to places like Kupang. But now Indonesia is keen to make up ground – and it’s interesting that despite haemorrhaging logistics costs which account for nearly a quarter of its GDP, it’s now got a burgeoning middle class along with a 5% to 7% growth rate.
Fuelled by a recent bond release schedule and a new ‘reform agenda’ from president Joko Widodo (Jokowi), Indonesia’s ports are looking exciting, says Dr Yong. “Jokowi sees the ports as drivers, not merely receivers, of the economy.” So Jokowi is going for change in a big way: under the Sea Toll programme, as many as two dozen ports have been mooted, a dozen of them commercially viable, enough to get private support leaving the administration free to concentrate on facilities which don’t have such an advantage. Spread: dominated by archipelagos and islands, Indonesian port infrastructure is central to growth.
Congestion relief Beyond the headline grabbing $1.2bn multipurpose Kuala Tanjung in North Sumatra and the expansion of Tanjung Priok itself with the New Priok (or Kalibaru project) which will more than triple capacity, there’s Cilamaya in Karawang, 65km away, also aiming to relieve congestion at Tanjung Priok. This has been subject to change with the new government recently moving away from funding it with Japanese backing, leaving private enterprise to take on anything over and above civil works. Other worthy projects include Surabaya right down on the other extremity of Indonesia’s ‘arc’ in East Java and the greenfield site of West Kalimantan which is on the bigger landmass of Borneo.
This proposed port has natural depth “which stops you having to pour money into the water”, says Dr Yong. Like most of the others, it’s planned to be a multipurpose port dealing with bulk such as the nation’s palm oil exports, as well as a good-sized container handling element. More, its hinterland is backed by a number of jetties that will assist its connectivity. “It’s also supported by the leadership of a dynamic state-owned port group,” he says, “so it’s where I’d be placing a bet." But that’s just it: right now it is a bet and according to some sources the programme seems to be changing almost daily as everyone vies for their own interests: something which could descend into a massive bun fight.
According to both Mr Chiang and Dr Yong, the one thing that’s needed is focus, with a firm grip to make sure investment reaches to the right areas - at the right time. Further, plans have been mooted to streamline the administration, consolidating its four port clusters under one authority. There are doubters about the wholesale nature of the administration reforms, some wondering about the effectiveness of a single authority to oversee more than 600 ports of varying sizes. However, it’s hard to uproot allegiances, and Dr Yong says that the biggest challenge “is going to be one of mindset”, pointing out these four regions include two with major ports, and IPC (formerly Pelindo II) and Pelindo III. Mr Chiang adds, “it would work, as long as each entity is able to align their interests."
Malaysian moves By contrast Malaysia has a firmer, more established footing although it isn’t past drama: recent shockwaves were felt from changing allegiances. Last year’s stampede for shares in Westports Holdings, part-owned by billionaire Li Ka-Shing’s HPH and main operator at Port Klang, was followed by a steep fall when it seemed the P3 alliance might bypass the port, only for it to perk up again when that was denied, giving way to the Ocean 3 alliance which will use Port Klang as a base, explains Mr Chiang. The port does have further potential and recent rumours point to a third development alongside the present Westport and Northport operations. Considering all the regional interest this might be on the cards soon, despite statements to the effect that it’s not an immediate prospect. But the Malaysian government has been thinking about its ports as ways to mould the country’s entire ecosystem and it is getting imaginative.
For example, Samalaju Port, near Bintulu in East Malaysia, has cheap energy from a series of newly constructed hydroelectric dams. This, the authorities realised, gives the port extra leverage in the supply chain, as well as local employment. “You can bring in raw materials, blast them using the economical power available in the area then turn the treated products out again for onward shipping,” says Dr Yong. What’s certain is there will be more development. Malaysia has space and drive to spare, so there’s room for greenfield projects to keep it abreast of the development race that seems to be gripping the region. Both the Philippines and Cambodia present sparse opportunities for private operators as both pair a main urban port with limited sea gateways: however, on investigation they are quite different.
The Philippines’ archipelago has most of its volumes concentrated in Manila; despite a congestion issue that was mostly due to a daytime truck ban last year it’s showing good potential with 4% to 5% increases all round. The political stability of the last four years “has allowed the country to focus on what it does best”, says Mr Chiang, so if there’s an opportunity for private investment to get a foot in the door with an existing terminal, it’s probably a worthwhile venture. On the other hand, despite gaining some manufacturing relocating from Bangladesh after the fallout from bad press surrounding factory conditions, Cambodia remains sadly behind the times. Sihanoukville, it’s only major seaport, remains uncompetitive with significantly higher charges than in neighbouring countries and most of the cargo destined for upriver in Phnom Penh or coming out of the industrial base suffers as a result. However, once again the Chinese have lent money to build terminals hoping that this will lead to something more concrete in the way of cargo flows.
But there is a wildcard to all this: it’s a 44km stretch of land that might completely change the pattern of shipping if a $20bn project gets enough backing: the Kra Canal. This would be a shortcut directly connecting the Indian Ocean to the South China Sea, allowing many ships to avoid the long Malacca Strait entirely. “It would be scary for Singapore,” says Dr Yong, plus Malaysia would also lose out, but it would ease the cost of trade for Myanmar, Vietnam, Laos and Cambodia. This potential 10 year project could get backing from Japan, India or most likely China as it would drop the price of their energy imports but Dr Yong remains doubtful that it will go ahead. So much needs doing to move the region along and changing the game like this is of dubious benefit when there’s so much interest in present projects. Keeping an eye on the building pressure The Southeast Asian port market is beginning to build up a head of steam, but the signals are that it really needs to keep hold of the pressure gauge. “It used to be that if Europe and the US caught a cold, Southeast Asia got flu – however, it’s successfully managed to decouple over the last decade,” says BMT Asia Pacific's Mark Yong. In fact, all but Singapore did quite well out of the last western-driven financial debacle with Indonesia and the Philippines coming out ahead.
Given the rise of intra-Asian flows, it’s not surprising that this developing market is gaining attention. Jan Scheele, consultant and engineer at Namport, explains a few years ago Japan took the lead in aiding port infrastructure through the Japanese International Cooperation Agency (JICA), having a hand in Hai Phong, Cai Lan, Bitung and Kupang port expansion projects among others. However, China is now pulling ahead. The new Chinese Silk Road initiative has a starter pot of $40bn available, with a focus on ports along a maritime route which will extend right through the Malacca Strait to India before going onto the Middle East and Africa. “China is active in getting a foot in the door in ports worldwide,” says Mr Scheele. Having been inspired by Maersk/APMT’s foreign joint ventures in certain, strategic ports, it’s seen a way to put its state-owned engineering and construction companies to good use. “China’s interested in forging stronger links here, that’s clear. On the positive side, it’s rather a nice, even romantic idea, as countries that trade together do inevitably grow closer,” says Dr Yong. But, as others note, big Chinese infrastructure deliveries have an unromantic edge as China can charge high interest rates (something that is giving Sri Lanka cold feet) and it likes to keep an element of control. This can lead to something like colonisation by stealth: the lucrative contracts go to Chinese, not domestic companies, and the regions in question often get flooded by Chinese labourers, which can build up resentment with the locals.
But still, it’s a way for cash-strapped economies to build up the infrastructure they need. However, Dr Yong also points out: “You can’t build a port unless its commercially driven, not politically motivated. Big, sexy plans might attract development money from the Chinese Government - but if everyone does this, there’s simply not enough cargo to go around.” There is a warning in Vietnam’s story and especially Cai Mep “which now lies bleeding”, with a utilisation of only around 25%, he says. It started well: “With so many businesses locating into Vietnam back in around 2007 it made sense at the time to get mainline vessels to call there before crossing the Pacific.” So, what happened? One thing is that there was a high-level decision to move volumes out of the congested Ho Chi Minh area and close it down, but the city’s terminals didn’t play along, developing their own facilities further. Secondly, global box volumes flatlined, which left too many terminals with not enough traffic to feed any of them, leaving a number of box ports scratching out a living on dry bulk and multipurpose cargo. Although the cascade of industry relocating from China might eventually help “sadly, there’s no clear way forward for the time being", says Dr Yong. “This is despite a huge amount of both private and government investment – nearly $2bn went into Cai Mep - and everyone wanting to make it work.” It all goes to show that any boom has to be ridden with care, concentrating interest rather than diluting it
