Strategies and Conditions Strategies and Conditions for a Regional Hub Port in for a Regional Hub Port in

AsiaAsia

“Globalization has been made possible by the progressive dismantling of barriers to trade and

capital mobility, fundamental technologies advances, steadily declining cost of transport, communication and computing. Its integrative logic seen inexorable,

its momentum irresistible.”-

Kofi Annan,2000

IntroductionIntroduction

• We have seen hub ports emerge, successful ones and also many countries trying to be a hub.

• During this presentation, I will try and explain how this trend surfaced and what are the factors that drive the need for a hub, and how does a port emerge as a hub.

• The presentation will briefly include

• World Container Trade

• Lines response

Hub & spoke

Co-operation, mergers and acquisitions

Vessel sizes

• Impact to ports

• Ports – responding to the demand

• Developing a transshipment hub – The PTP story

70

80

90

100

110

120

130

140

2002 2003 2004 2005 2006

Mill. T

EU

Source: Drewry Shipping Consultants, Container Market Quarterly

10.3%

13.5%

15.5%

14.3%

40

50

60

70

80

90

100

110

2004 2005 2006 2007

Mill

. TE

U

Source: BRS Alphaliner, including options and plans, July 2005

Container Trade OutlookContainer Trade Outlook

Container Trade

Supply Outlook

Over the last couple of decades, organic growth has been influenced by globalisation. Globalisation drives trade growth and therefore the container trade.

Recent examples of globalisation include :-

Regional FTAs – Creating economic blocs which enable limited free flow of trade; thereby increasing the ‘spokes’ in the wheel

Bilateral FTAs

Vietnam’s entry into WTO – Creation of a new market giant ?

These points result in creation of new shipping routes; thus influencing hubs and spokes

How do the lines respond ? How do the lines respond ? Hub & spoke concept

Emergence of main hubs and secondary hubs

Lines participation and investment in terminals to ensure capacity

Capacity expansion to cater for demand through

Merger & Acquisition – Maersk & PONL, Hapag Lloyd/CP ships

Alliance and Service Cooperation i.e New World Alliance, Grand Alliance & CKYH (Cosco, K-Line, Yang Ming & Hanjin)

Building larger vessels

Integration - Lines getting involved in supply chain and value added logistics services – i.e distribution and warehousing, logistics i.e NYK – Tasco, Maersk – Maersk Logistics etc

Year Acquirer Target 1996 CMA CGM 1997 Hanjin DSR-Senator 1998 Evergreen Lyod Triestino 1998 Hamburg Sud Allianca 1999 A.P. Moller Safmarine 1999 Hamburg Sud Transroll Nav S.A 1999 A.P. Moller Sea-Land 2000 CSAV Norasia 2002 Hamburg Sud Ellerman Services to Med/India 2003 Hamburg Sud Kien Hung Shipping Co. 2005 A.P. Moller Royal PONL 2005 CMA-CGM Bollore (Delmas) 2005 TUI/Hapag Lyod CP Ships

Carrier MergersCarrier Mergers AUGUST 2005 TOTAL SHIPS ON ORDER GRAND TOTAL

Ships TEU Av TEU % charter Ships TEU Av TEU Ships TEU Av TEU

(1) Maersk Line 537 1471932 2741 55 123 657050 5342 660 2128982 32261 Maersk Sealand 375 987630 2634 50 92 472552 5136 467 1460182 31272 MSC 259 684807 2644 32 46 317688 6906 305 1002495 32873 P&O Nedlloyd 162 484302 2990 65 31 184498 5952 193 668800 3465

(3) New CMA CGM 226 451932 2000 66 71 336290 4736 297 788222 26544 Evergreen 150 444180 2961 25 36 187960 5221 186 632140 33995 CMA-CGM 178 395087 2220 69 71 336290 4736 249 731377 2937

(5) New Hapag-Lloyd 132 378131 2865 39 17 107900 6347 149 486031 32626 APL 95 315116 3317 60 12 54080 4507 107 369196 34507 Cosco 130 301497 2319 21 22 177300 8059 152 478797 31508 Hanjin 74 297227 4017 75 11 76840 6985 85 374067 44019 NYK 107 280483 2621 48 31 185710 5991 138 466193 3378

10 CSCL (China Shipping) 76 276888 3643 55 37 227470 6148 113 504358 446311 OOCL 62 234061 3775 36 16 90540 5659 78 324601 416212 CSAV 84 225768 2688 97 18 88840 4936 102 314608 308413 K-Line 72 217442 3020 55 11 73380 6671 83 290822 350414 MOL 71 202270 2849 47 22 140150 6370 93 342420 368215 Zim 84 199840 2379 47 13 66000 5077 97 265840 274116 Hapag-Lloyd 52 193089 3713 36 8 69650 8706 60 262739 437917 CP Ships 80 185042 2313 42 9 38250 4250 89 223292 250918 Yang Ming 68 181822 2674 33 28 125250 4473 96 307072 319919 Hamburg-Sud 84 177605 2114 63 23 87990 3826 107 265595 248220 Hyundai 40 150289 3757 67 20 124400 6220 60 274689 4578

Top 20 Total 2529 6886377 2723 0 628 3461128 5511 3157 10347505 3278

24 Delmas 48 56845 1184 48 0 0 0 48 56845 1184

(Source: MDS August)

Capacity Expansion by the LinesCapacity Expansion by the Lines

What do lines face when What do lines face when responding to the increasing but responding to the increasing but

unpredictable demand ? unpredictable demand ?

Cyclical freight rates as a result of supply and demand

Rising bunker cost

Increase in terminal cost due to rising CPI

Increase in charter rates due to cyclical demand

Imbalance of trade – cost of repositioning impacts the lines “bottom line”

Increase in operational cost due to security measures investment

http://octane.nmt.edu/gotech/Marketplace/Prices.aspx

S.E. Asia Region – Major portsS.E. Asia Region – Major ports

PSA Corp

23 million TEUs

PTP

4.77 million TEUs

Johor Port

877,000 TEUs

Tanjung Priok

3.18 million TEUs

Thai Ports

BKK : 1.32mnLCB : 3.62mnTotal: 4.94mn

Port Klang

6 million TEUs

Indonesia

SUB : 1.7mn

SRG : 0.24mn

MES : 0.28mn

TOTAL: 2.22mn

AUSTRALIA

5.18 million TEUS

New Zealand1.70 million TEUs

Philippines3.17 million TEUS

Ho Chi Minh Port2.3 million TEUS

Cambodia0.21 million TEUS

Myanmar

165,702TEUs

• Most of these ports are vying for hub status.

• How many can there be in S.E. Asia ?

• I cannot answer this question, but will share my views on some of the pre-requisites

Ports’ response to demandPorts’ response to demand

Building of mega ports – larger capacity, deeper draft and larger ports equipment. Ports with super post panamax cranes and minimum of 15 metres draft became the norm

Improve terminal performance and productivity – increase the benchmark to 31-32 moves per crane per hour

Strategic cost management

Development of Free Trade Zone/Economic Zone within the terminal to cater for logistics and distribution requirements

Links to global operators became more commonplace – APMT, HPH, DP World, PSA Corp.

Global Port Operators Terminals – PSA, DP World, HPH, APMT

Building a regional hub – Building a regional hub – prerequisitesprerequisites

Hubs need the following as a minimum : -

Strategic Location i.e. with minimum deviation from the main trade lanes, and enabling feedering from the ‘spokes’

Large capacity – These ports must be supply driven, and hence government support or a entrepreneurial drive is must

Operational excellence – high productivity and fast turn around time

Equipment to cater the next generation of vessels

Free trade zone/Economic zone development

Operational flexibility – This cannot be undermined. The changing nature of trade results in lines needing flexibility. Ports that cannot or refuse to adapt will face consequences in the future

Timeline - The journey

Location

Strategic Location

Largest Start up Container Terminal

Equipment & Infrastructure

Developing a Transshipment Developing a Transshipment hub- the PTP storyhub- the PTP story

Ultimate LocationIntersection of International trade lanes & minimum deviation

Natural FactorsSheltered bay & no tide restriction

Terminal Draft of 15-19 meters

PTP enjoyed a strategic locationPTP enjoyed a strategic location

Hinterland AccessibilityA greenfield, but access to Johor market (900,000 teu) and Singapore market was possible via excellent highways.

Rail connection to Southern Thailand, northern Malaysia

Largest Start-up Container TerminalLargest Start-up Container Terminal

Facilities3,600m linear quay (10 berths x 360m)154,000 TEU capacity container yard3,300 Reefer points 8 million TEU capacity

Equipment27 super-post panamax cranes

14 with 18 rows outreach 13 with 22 rows outreach & twin pick

72 Rubber Tyred Gantry cranesIntegrated IT system

Ancillary FacilitiesContainer repair & maintenanceOn-dock depotBunkering & other marine servicesInspection BaysOperations Support Center

ConclusionConclusion

As an example, PTP was told by ‘experts’ that we had a fatal flaw, and would be a white elephant. I was told in year 1999.

Today despite the early cynicsm, we are a hub port

My conclusion is simple – There is no one that can accurately predict the changing nature of the trade. As long as you have the fundamentals, isn’t the rest just about branding and marketing ?