Singapore port: Containing the competition

The Economist 31 Jul 11;

FOR all its posh banks, fancy lawyers and lucrative casinos, it is the port that remains the bedrock of Singapore’s extraordinary prosperity. Founded as a trading station by the British in the early 19th century at the crossroads of Far East-European trade, the tiny city-state has become accustomed to ruling the waves as a maritime hub—and as many as 180,000 jobs in the maritime industry depend on it out of a population of just 5m.

So it came as a jolt earlier this year when it was revealed that Singapore had been knocked off its perch as the world’s busiest container port by Shanghai. In 2010 the Chinese city dealt with 29.07m TEUs (twenty-foot equivalent units, the standard measure of container traffic), to Singapore’s 28.43m. Given China’s rapid economic growth over the past decade it was only a matter of time before Shanghai overtook Singapore. Indeed, if the Chinese economy continues expanding at its current lick it is almost certain that several other Chinese ports, including Ningbo, Shenzhen and Guangzhou will overtake Singapore as well during the next decade or so. Already, more than half of the world’s top ten container ports are Chinese, relegating the Europeans and Americans to the lower leagues.

However, it is not only the Chinese that the Singaporeans have to worry about. Everyone else in the region is racing to grab a slice of the impressive predicted increases in maritime trade with China and other bits of Asia. Deep-water ports are in fashion, and many are being built specifically to end the necessity of taking the long route to China around the southern tip of peninsular Malaysia. Thus Thailand’s biggest construction company, Italian-Thai, is starting work on a $8.6 billion port at Dawei in southern Myanmar, complete with industrial parks and a special enterprise zone. Pipelines from there will take oil and gas over a relatively short distance up to China. Magampura port at Hambantota in Sri Lanka will also take away traffic from Singapore.

Given all the new competition, one might expect the Singaporeans to be throwing themselves off the nearest wharf in despair. Not a bit of it. In fact, they are quietly confident that their business model will see them through to the other side of the current port-building craze.

For a start, the Singapore port operator, PSA, likes to point out that although Shanghai’s overhauling of Singapore looks impressive, it conceals the fact that the two ports are quite different in how they operate. Shanghai is overwhelmingly a “through port”, where raw materials come in to be assembled or manufactured and then leave as televisions or rubber ducks. Singapore, in contrast, is a trans-shipment port, where containers arrive to be transferred to other vessels to continue their onward voyage.

Singapore remains the largest trans-shipment port in the world, and that is unlikely to be challenged by the rise of the Chinese ports, or even Dawei, which will operate largely like Shanghai. And whereas the Chinese ports will be linked almost solely to the fortunes of the Chinese economy, Singapore will, of course, have a much better spread of risk.

The world's biggest petrol station
Moreover, Singapore is unlikely to be surpassed for a while in terms of the ancillary services that it can offer. It is still, for instance, the world’s biggest petrol station, with bunker sales of 40.9 billion tonnes in 2010; it has some of the best ship-repair yards too. It will soon be able to offer a lot more space as well. The PSA wants to grab its own share of the new Asian trade, and to that end is building a vast extension on reclaimed land. This could lift capacity to 50m TEUs a year.

Nonetheless, the Singaporean authorities are aware that with the increasing competition it will no longer be enough to rely on volume alone. To keep its nose ahead, therefore, Singapore is also investing in the soft power of maritime supremacy as much as the hard power of metal boxes. The city is becoming a centre of maritime architecture and green maritime technology to complement its lead in terms of the legal and financial aspects of maritime technology. Maersk, for instance, the world’s biggest container operator, might have moved most of its regional container operations to the cheaper Tanjung Pelepas. But it has set up its biggest ship design office in Singapore, from where its “global stowage centre” directs the movements of all its containers throughout the world. Like some of Germany's Mittelstand companies, Singapore's port operators are determined to survive the onslaught of new competitors by staying one step ahead of them.