The world’s largest shipping companies recently consolidated their global alliances from four networks to three, which will result in more cargo being shipped to transshipment ports—intermediary stops where cargo is loaded on different vessels for shipment to their destination—and fewer point-to-point services. The three alliances—2M, Ocean, and THE—will control approximately 75% of global container capacity, according to Flexport, and they will channel most of their shipments to those hub ports in which they have partnerships.
- This consolidation is expected to eliminate as many as 150 direct port-to-port service routes and reduce the frequency of service on another 135, according to Fairplay, a leading maritime industry news source.
- In Southeast Asia, the Port of Singapore should benefit from this consolidation. The port is the world’s largest transshipment port and is the preferred port in Southeast Asia for Ocean and THE alliances, according to the South China Morning Post and Fairplay.
- Meanwhile, Port Klang, Malaysia’s largest port and the twelfth busiest in the world in 2015, according to Seatrade Maritime News, is expected to lose 10% of its annual throughput as a result of the shift in alliances, according to JOC.com.
Countries in Southeast Asia Expanding Port Infrastructure
The decline in direct service comes at a time countries throughout Southeast Asia are building and upgrading ports to improve infrastructure and increase economic growth. Indonesia, a nation of over 17,000 islands, is at the forefront of the region’s port construction.
- Jakarta is embarking on numerous large port projects nationwide, to include a deep sea port on the Strait of Malacca that is co-developed with the Rotterdam Port Authority and a deep sea port in West Java that is coordinated with Tokyo, according to Forbes Indonesia and The Jakarta Post. The government also is expanding and upgrading Tanjung Priok Port, the country’s largest port, in an effort to make it a major international transshipment hub, according to the Jakarta Post.
- Kuala Lumpur and Beijing are developing a port on peninsular Malaysia’s east coast as part of Beijing’s “One Belt One Road” initiative. Manila, with support from Seoul, will begin construction later this year on a port in Cebu that will double its capacity, according to The Philippine Star.
Regional Firms can Fill Service Void and Enhance Value Propositions to Generate Increased Revenue
Decreased service from large shipping companies coupled with an increase in ports throughout Southeast Asia will create opportunities for regional shipping firms in Southeast Asia to provide frequent point-to-point service in the region. These firms can create value propositions that engender stronger demand and enable them to charge higher prices.
- Direct shipping reduces the travel time needed for transport, which should permit regional shipping firms to charge higher fees. These companies also would be better positioned to provide guaranteed delivery dates—no intermediary stops would make them less susceptible to delays—which could further increase revenues, based on analysis from McKinsey & Company.
- Point-to-point service allows vessels to operate at lower speeds, thus saving fuel. Also, non-hub ports with contemporary capabilities should facilitate quicker entry into port and provide faster loading and unloading times, resulting in decreased costs for the shipping company and allowing it to return to sea more quickly.
- Moreover, intra-Asia trade should increase as these countries continue to pursue trade agreements, such as the Regional Comprehensive Economic Partnership and, possibly, an amended Trans-Pacific Partnership. In April, representatives from the Association of Southeast Asian Nations committed to achieving a “highly integrated” community by 2025, according to Business World, a Philippine business publication.
A few publically traded container shipping companies in Southeast Asia—most firms are private—possibly are positioned to leverage the direct regional shipping opportunities not serviced by the world’s largest companies. Alliances between these smaller firms might enable them to more effectively and efficiently meet this demand.
- Samudera Shipping Line Ltd. is a Singapore-based company that provides end-to-end logistics, including container shipping, to destinations throughout Southeast Asia, the Indian Subcontinent, and the Far East. The firm trades on the Singapore Securities Exchange under the code S56 and the Indonesian Stock Exchange under the symbol SMDR.
- Regional Container Lines is a Thailand-based company that offers container shipping services throughout Asia, Oceania, and the Middle East. The company trades on the Stock Exchange of Thailand under the symbol RCL.
- Lorenzo Shipping Corporation is a Philippines-based container shipping firm that, currently, only serves Philippine ports. The company trades on the Philippine Stock Exchange under the symbol LSC.
Ratio Analysis and Five-year Percent Return for Samudera Shipping Ltd. (Singapore), Samudera Indonesia, Regional Container Lines, and Lorenzo Shipping Corporation
|Samudera (Singapore)||Samudera (Indonesia)||Regional Container Lines||Lorenzo Shipping|
|Net Income, 2016||(5,304,000) USD||10,634,943 USD||(1,375,896,137) THB||(365,301,455) PHP|