The battle of Transshipment Hubs: PSA vs. PTP

Table of Content

List offigures and tables

1. Introduction

2. Latest status between the two ports
2.1 Facilities and connectivity
2.2 Development of container throughput and future expansion

3. Conclusion

List ofreferences

List of figures and tables

Figure 1: Location of PSA and PTP

Figure 2: Development of container throughput PSA vs. PTP in TEU

Figure 3: Annual growth rates in container throughput PSA vs. PTP (in %)

Table 1: Comparison of infra- and superstructure between PSA and PTP

Table 2: Future expansion plans of both ports

1. Introduction

This assignment reviews the latest status between the Port of Singapore (PSA) and the Port of Tanjung Pelepas (PTP). In November 1999, PTP was officially opened and declared its goal of challenging PSA to become East Asia's leading transshipment hub. Up to then, PSA was the dominant transshipment hub, thus enjoying a monopoly in this business of Southeast Asia. Both ports are located along the Straits of Malacca. As they are situated on the main east-west corridors where more than 50,000 vessels traverse annually, it is an ideal strategic location for container transshipment ports, bunkering facilities and shipyards (Leong and Chen 2004 a) and thus qualify both ports as hubs (Tongzon 2007 a). The distance between the two ports is only 40 kilometres which is shown in Figure 1.

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Figure 1: Location of PSA and PTP

(adapted from Bing 2014)

To its credit, PTP had a unique set of advantages over PSA as it permitted dedicated terminals to single carriers and had access to lower labour costs and land leases (Leong and Chen 2004 a, Bangsberg 2004). The estimated costs of PTP were about 30-40% lower compared to PSA, which were passed back to the customers. Therefore, PTP became cost-leader and started to challenge PSA by competing for transshipment cargo (Leong and Chen 2004 a). This competition cannot only be defined as an inter-port competition on a regional level but also as a competition between different port ranges as both ports are mainly located along the same coastline and largely cover the same hinterland (Meersman et al. 2010).

2. Latest status between the two ports

This chapter evaluates qualitative and quantitative factors in order to compare PSA and PTP.

2.1 Facilities and connectivity

PSA was established in 1964; thus, having a history of business activities and experience in port operations that is 35 years longer compared to PTP (Leong and Chen 2004 a). Therefore, the infra- and superstructure of PSA is well-developed and outperform PTP in most of the categories that are illustrated in Table 1.

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Table 1: Comparison of infra- and superstructure between PSA and PTP

(adapted from Huang et al. 2008, PSA International 2014 a and PTP Sdn Bhd. 2014 a)

This comparison emphasises the importance of both ports in transshipment operations. However, it also shows the superior ranking of PSA. Around 21% of the capacity of PSA represents all of the capacity of PTP. Moreover, most of PTP's resources represent only one fourth of the facilities PSA can provide. Compared to PTP, PSA is able to gain a competitive advantage through offering an extensive network to their customers. With an average of 140,000 vessel calls per annum and 63 daily sailings to more than 600 ports in 123 countries worldwide, it serves about 200 shipping lines (The Maritime and Port Authority of Singapore 2014, PSA International 2014 b). PTP instead offers weaker port connectivity due to a customer base of 26 shipping lines resulting in significantly lower amounts of ship calls (PTP Sdn Bhd. 2014 b). These are the reasons why PSA was ranked 2nd largest container port in the world while PTP was ranked 19th in 2012 (World Shipping Council 2013). However, it is still the mission of PSA "to be the port operator of choice in the world's gateway hubs" (PSA International 2014 c).

Infra- and superstructures of ports are of paramount interest to ensure effective and efficient port operations. However, Christopher (2011) discussed that the competitive environment will change involving new complexities and concerns for management. Nowadays, companies are more likely to gain a competitive advantage through customer service instead of particular product features. According to Christopher (2011), the shortening of product lifecycles and diminishing customer loyalty lead to an increasing time-based competition, which is also an important factor in maritime logistics (Notteboom 2006). In order to reduce time-to-market, port operators need to provide greater connectivity and ever shorter vessel turnaround times. Hence, connectivity and fast transit times are prerequisites of transshipment hubs and often more important than costs, occurring in strategic decisions of shipping lines where to locate a hub (Leong and Chen 2004 b).

2.2 Development of container throughput and future expansion

Port operations nowadays include not only loading and unloading of vessels but also value-added services (Nam and Song 2012). However, container traffic usually represents the main business. Port operating is a strategically crucial part in the maritime logistics system besides freight forwarding and shipping. If it is not incorporated properly to the entire logistics process, additional costs, delays and accidents may often be inevitable. This further affects the processing of other successive work and the delivery of goods to final customers in time; thus, the overall performance of logistics (Lee et al. 2012).

Specific metrics to evaluate port performance are traffic and container throughput. Both metrics differ significantly due to an increasing complexity of liner service network configurations (Ducruet and Notteboom 2012). Traffic measures the amount of containers transported via sea whereas container throughput refers to the amount of container handling operations in ports, i.e. loading or discharging. Figure 2 shows the development of container throughput in TEU between 1995 and 2012 and evaluates the scale of competition between PSA and PTP.

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Figure 2: Development of container throughput PSA vs. PTP in TEU

(adapted from United Nations Conference on Trade and Development 2013)

The graph underlines the dominance and importance of PSA as a major transshipment hub. By handling approximately 75% more containers than PTP in 2012, PSA is the most important transshipment hub in terms of absolute container throughput. However, the graph further reveals a sharp increase of PTP's container throughput since the port was officially opened and port operations were started in 1999. The acquisition of Maersk in August 2000 and Evergreen in October 2001 as strategic partners, leveraged the development of PTP (Leong and Chen 2004 a). Maersk further enabled PTP to expand their port operations knowledge. They benefitted from a demand-driven strategy by utilising the expertise of the company's port operations arm, APM Terminals, whilst at the same time generating cargo and ship calls from the shipping arm (Leong 2007).Simultaneously, both acquisitions led to a decrease of almost two million TEU per annum for PSA (Leong and Chen 2004 a).

Figure 3 illustrates the annual growth rates of PSA and PTP and emphasises the rapid growth of PTP's throughput. PTP's overall initial growth of about 500% from 1999 to 2001 is not shown in the figure. As both rates are almost always in a positive area, this indicates a growth in worldwide container trade. However, the development of PSA's growth rate underlines its suffering from negative growth due to the acquisition of Maersk and Evergreen by PTP. The global economic crisis in 2008/2009 had an impact on both ports. The overall development of PTP's growth rate indicated an amplified growth gap between the two ports up to 2011. This development reflects the ambition of PTP to expand further and shows that the port remains a threat to PSA by competing for customers.

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Figure 3: Annual growth rates in container throughput PSA vs. PTP (in %)

(adapted from United Nations Conference on Trade and Development 2013)

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