May 13, 2002

'If we can't add value and offer a superior product at a lower cost, we'll have to lose.'

A Shot Across Singapore's Bow
By Eric Ellis

Mohamed Sidik Shaik Osman points to the mile-and-a-half stretch of new wharves, their cranes glinting in Malaysia's tropical sun. "Just three years ago all this was mangrove," the chief executive of the Port of Tanjung Pelepas says. "Now look at it. Impressive?"

Indeed it is. A half-hour's sailing time to the south, however, Singapore is not so much impressed as aggravated by Malaysia's $1 billion, state-of-the-art container port. Since opening in 1999, Pelepas has gone from nothing to handling two million container units last year, while Singapore's volume has shrunk from 15.9 million to 15.2 million. As Singapore struggles through its worst recession in 40 years, the erosion of its historical franchise as Southeast Asia's shipping fulcrum is hitting its pocketbook-and its confidence.

Singapore's container port is Asia's second busiest (after Hong Kong), and it is crucial to the country's economy. Last year the government-owned, near-monopoly port operator, PSA Corp., generated revenues of $1.3 billion. Add in other cargo-related businesses, and the port accounted for roughly 3.5% of GDP.

Pelepas is unawed. Last year the Malaysian upstart lured away Maersk Sealand, the Singapore port's biggest customer, by promising the Danes a 30% stake and a dedicated wharf that land-starved Singapore could not offer. Then in April, Taiwan-based Evergreen Marine said it would shift its operations from Singapore to Pelepas.

Costs at the Malaysian port are as much as 50% lower, and the Taiwanese giant figures it can save $6 million a year. "In this harsh economic climate," says Evergreen spokeswoman Elysia Chen, "we have no choice but to pursue cheaper alternatives."

Now China's Cosco wants Singapore to match the rebates it offered Evergreen to stay. Japan's K-Line is renewing its contract with PSA, but only for a year. "With the right pricing at Pelepas, the efficiency levels high, and the potentials tremendous, many shipping lines will be enticed to call there," says Yoshikazu Minagawa, K-Line's director of corporate planning in Tokyo.

Also at risk is Singapore's plan to privatize the port. After profits fell 9% last year, to $398 million (a drop almost equal to the lost Maersk business), the government shelved its public offering.

Singapore's Minister of Trade and Industry, George Yeo, is putting on a brave face. "We have to compete," he says. "If we can't add value and offer a superior product at a lower cost, we'll have to lose." Singapore can't win a price war, so it is pointing to its network of 30 major shipping lines, compared with Pelepas' two, and its technological excellence.

At Singapore's new Pasir Panjang facility, a lone stevedore manipulating a computer-controlled crane can unload and load a 3,000-container vessel overnight. But shippers say cost is key.

And Pelepas has abundant land, allowing it to offer shippers their own wharves-meaning no expensive time in offshore anchorages waiting for berths.

More than port revenue is at stake. German carmaker BMW is building its Asian parts center next to Pelepas, while siting its IT services at Malaysia's MultiMedia Supercorridor, two hours away on a new freeway. It hopes to fly urgent orders from nearby Senai airport, which, like Pelepas, is being developed by Syed Mokhtar Al-Bukhary, who has close ties to Malaysian Prime Minister Mahathir Mohamad.

Singapore Prime Minister Goh Chok Tong recently floated the possibility that shippers will be allowed to own stakes in PSA, countering Pelepas' deal with Maersk. Osman, himself a former Mahathir aide, says that rather than fighting, Singapore should see Pelepas as a partner. But that's easy to say while he's stealing Singapore's crown jewels.