June 3, 2002

Asian rivalry turns into a ship fight

Malaysia is tearing at the very soul of Singapore, Eric Ellis reports from Tanjung Pelepas

SHIPPING is the soul of Singapore. Nature and capitalism gave the island state a unique location, at the southernmost tip of continental Asia where ships stop before turning north for markets in Europe and Asia.
Little wonder Singapore's port is the world's second busiest - after Hong Kong and about the same size as Rotterdam. About 80 per cent of its business is container transhipment, which accounts for about 3-4 per cent of the wealthy city state's economy.
So when a hi-tech upstart set up shop just half an hour away, it's more than just competition. It could be the difference between recovery and another year of recession.
That's the problem facing the government-owned Port of Singapore's historic franchise. Just 30 minutes' sailing time north of Singapore, Malaysia is building one of the world's most sophisticated port complexes, Tanjung Pelepas, on a deep-water inlet off the Straits of Malacca, the region's busiest shipping lane.
Boasting plenty of land (which tiny Singapore can't match), and handling charges that are as little as half that of Singapore, Pelepas has boomed.
In just two years, it has cherry-picked two of Singapore's biggest customers: Denmark's giant Maersk Sealand and Taiwanese behemoth Evergreen Marine. Among those in Pelepas's sights now are the Anglo-Dutch P&O Nedlloyd, Japan's K Line and China's Cosco.
Shipping dominates Singapore's economy. US Embassy economists in Singapore reckon the port authority directly adds as much as 4 per cent to the economy, plus another 2 to 3 per cent in indirect services. And Pelepas's attacks come as Singapore is mired in a technology-led recession, its deepest in 40 years, from which it is struggling to emerge.
Pelepas chief executive Mohamed Sidik Shaik Osman is on a roll. A former aide of feisty Prime Minister Mahathir Mohamed, he enthuses about the $US1 billion ($1.7 billion) facility, with its 2.5km of wharves. He is not alone in his enthusiasm. Regional industry stalwarts like P&O Nedlloyd's Asian general manager, Paul Hoogwaerts, describe the facility as "beautiful".
"Just three years ago, all this was mangrove swamps," says Osman. Now there are plans to extend Pelepas another 10km south down the Johor coast - cheekily, to the bridge that connects Malaysia to Singapore. Pelepas offers shippers their own wharves, unlike Singapore's timeshare-style contracts.
"They should not see us as enemies," says Osman. "We should be partners."
For its part, the Singapore Government has been keen to privatise the port authority, one of Singapore Inc's bellwethers. But with the authority's profits off some 9 per cent in calendar 2001, to $398 million, and a continuing gloomy outlook this year as Pelepas picks off targets, an IPO is on hold for now.
Nonetheless, Singapore's port authority is no pushover. It still shifts almost 16 million containers a year, compared with Pelepas's three million - albeit rising fast. Chairman Yeo Ning Hong says he won't compete against Malaysia on price, but he can on efficiency.
The authority's new Pasir Panjang facility, for instance, can turn around a 3000-container vessel overnight - with just one stevedore working a computer. And it's building stakes in 13 international ports on the European-Asian trade routes to hedge the loss of business at home.
Last week, it announced big discounts on port charges, and invited foreign shippers to invest in what was once a jealously guarded "Singaporeans only" strategic asset.
Analysts say this could be the beginning of a massive state privatisation bonanza to kick-start the wider South-East Asian economy.
But the trickle away from Singapore has already started. German car maker BMW is building its Asian regional spare parts centre next to Pelepas, while flying urgent orders from nearby Senai airport (controlled by the reclusive, Pelepas-connected businessman Syed Mokhtar Al-Bukhary, who is a close friend of Mahathir).
The best result is that Asia will boom again, and the duelling ports will both make money. But with each side firing competitive salvos across the other's bows, it's hard to see South-East Asia's port warriors suing for peace soon.