Strategies and Conditions for a Regional Hub Port in Asia

“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

Introduction 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

Source: Drewry Shipping Consultants, Container Market Quarterly Source: BRS Alphaliner, including options and plans, July 2005 Container 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 ? 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

Carrier Mergers Capacity Expansion by the Lines

What do lines face when responding to the increasing but 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

S.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 : 1.32mn LCB : 3.62mn Total: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 Zealand 1.70 million TEUs Philippines 3.17 million TEUS Ho Chi Minh Port 2.3 million TEUS Cambodia 0.21 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 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 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 – prerequisites 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 hub- the PTP story

The Building of A Transshipment Hub PTP was incorporated as a private company on 28 December 1994 under the name Johor West Port Sdn Bhd PTP was granted a 60-year concession on 24 March 1995, renewable after March 2055 PTP was officially opened by the Prime Minister on 13 March 2000 AP Moller Group (Maersk) acquires 30% interest in PTP in August 2000 and enters into terminal management agreement Evergreen Marine Corporation signs as second main liner on 1 April 2002 Commencement of Phase 2 port expansion in 4Q 2002 PTP Breaks 4m TEU mark for 2004 PTP sets world record 340 moves per hour PTP receives ISO 9001:2000 certification PTP ranked no 16 in the World PTP Signs Flextronics, Ciba Vision and JST as tenants at Pelepas Free Zone Project Overview - To Establish Malaysian World Class Transshipment port in South East Asia - To Compete with the best in the world – PSA of Singapore - To stop Malaysia cargo leakage to neighboring port - To complement the newly development of Southern Johore Economic Region

Ultimate Location Intersection of International trade lanes & minimum deviation Natural Factors Sheltered bay & no tide restriction Terminal Draft of meters PTP enjoyed a strategic location Hinterland Accessibility A 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 Terminal Facilities 3,600m linear quay (10 berths x 360m) 154,000 TEU capacity container yard 3,300 Reefer points 8 million TEU capacity Equipment 27 super-post panamax cranes 14 with 18 rows outreach 13 with 22 rows outreach & twin pick 72 Rubber Tyred Gantry cranes Integrated IT system Ancillary Facilities Container repair & maintenance On-dock depot Bunkering & other marine services Inspection Bays Operations Support Center

Conclusion  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  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 ?