October 19, 2016
Southeast Asia, one of the world’s fastest-growing economic regions, spans major maritime trade routes, and a pressing need for port development brings new opportunities for businesses.
With a population of over 620 million and a combined GDP of $2.6 trillion, the ten countries of the Association of Southeast Asian Nations or ASEAN – Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam – are fast becoming a major economic force and a driver of global growth. In fact, if the area were a single country, it would already be the world's seventh-largest economic power.
Globally, ASEAN’s relevance rests on trade – especially marine transport and international shipping – as demonstrated by its numerous ports. Apart from landlocked Laos, all Southeast Asian states rightly consider themselves maritime nations. The region sits in a strategic location along major global trade routes. Ever since the spice trade during the Age of Exploration and throughout colonial times, Southeast Asia has been a hub for sea-based trade between the Far East and Western and Middle Eastern markets.
The continuing development of the ports’ industry in Southeast Asia, including the growth of trade, presents the region’s maritime industry with opportunities, as well as challenges.
Trade puts pressure on ports
What’s interesting about ports and shipping is that they act as a mirror of sorts of global economic activity and a guide to larger shifts in trade patterns.
As such, the past decades of development in Southeast Asian ports is linked to the unmistakable shift in the balance of global economic power towards Asia, with the rise of China and India, and growth of intra-regional trade in Southeast, East and North Asia. Between 2007 and 2013, for instance, container trade volumes within Asia nearly doubled, according to Clarksons Research, a provider of global shipping and offshore market intelligence.
ASEAN countries have also experienced high growth rates throughout the 2000s, becoming a major global hub of manufacturing and trade, as well as one of the fastest-rising consumer markets in the world. According to the ASEAN Trade Statistics Database, trade volumes throughout and within Southeast Asia have increased rapidly throughout the 2000s (excluding a slump following the 2008 financial crisis).
While several container hub ports in the region are among the top twenty in the world, the Port of Singapore being the world’s second busiest, development has lagged behind demand in other parts of the region.
For many countries in the ASEAN, large investments in ports and other supporting infrastructure are needed to fulfill the promise of economic growth. According to an estimate by HSBC, Indonesia needs to spend more than $1 trillion and the Philippines almost $400 billion in infrastructure by the year 2030. The ports in both countries have been especially plagued by congestion and delays.
Globalization has also put other types of pressure on port development. The regional competition between ports has tightened, and shipping lines have sought efficiency gains through increased consolidation and ever-expanding ship sizes, which require ports to augment their capacity, equipment and infrastructure.
These trends have resulted in a need to build new ports and upgrade existing ones.
Megaprojects contrasted by uneven progress
To meet the growing needs of trans-Asiatic trade in the past decade, and to accommodate the trend of larger vessels, many Southeast Asian countries have declared ambitious port projects.
“Today, the shipping industry is a truly global business and increasingly consolidated. Ports in Southeast Asia have to keep up with the changing demands to stay in business,” says Kimmo Nyman, Sales Director, Port Cranes, Asia-Pacific Region at Konecranes.
For instance, the port of Singapore, the Goliath of the region, is looking to double its capacity by 2030. And Malaysia’s nearby Port Klang and Port of Tanjung Pelepas are catching up with their own upgrades. Indonesia is also investing heavily into port expansions around Jakarta and Surabaya, while officials in Thailand and the Philippines have also announced aggressive development plans for their sea and river ports.
However, development in the ASEAN region remains uneven because the countries have strikingly diverse economies. For example, richly-populated Indonesia represents almost 40 percent of the region’s economic output, while Myanmar, emerging from decades of isolation, is still a frontier market trying to rebuild. GDP per capita in Singapore surpasses that of Cambodia by more than 50 times. The vast differences are reflected in the level of port development in the ASEAN region.
“PSA International, formerly Port of Singapore Authority, is in its own league, and larger Malaysian ports stand out as highly advanced in terms of port infrastructure and technology,” says Nyman. “The rest of the region follows behind, and we see a lot of opportunity for development in Indonesia and the Philippines. As island countries, their entire logistics’ chains are based on ship transport, and the need for investments in a host of ports is evident.”
In contrast to congested ports in other parts of the region, Vietnamese ports have suffered from overcapacity. While a number of ports opened along the Vietnamese coastline during the past ten years, traffic volumes have failed to grow according to optimistic estimates, leaving ports with too much handling capacity and too few clients.
Tough global environment
Despite the need for new and improved ports, the recent slowdown of the Chinese economy and lackluster global trade growth has hampered development in the ASEAN. While shipbuilders, container lines, and port operators made great gains during China’s rise and the global resources boom, they are now facing a much tougher market as imports and exports are decreasing. The Port of Singapore, for example, saw its volumes fall by over 9% in 2015, the first major decline in six years.
“Right now, it’s a challenging period for the entire ecosystem including shippers, container lines and ports. With uncertainty in Europe and Chinese demand dropping significantly, there just is not much money sloshing around in the global economy,” says Rory Doyle, Managing Director at Transport Events Management, based in Malaysia, which owns and operates business-to-business trade events for the container ports, shipping and logistics industries in the emerging markets. In addition, a slowdown in trade volumes and a tougher investment market threaten to hold up port and infrastructure development.
Fortunately, however, the future, doesn’t appear entirely bleak.
“A lot of countries are still pressing ahead with port development projects they started two to three years ago,” Doyle says. “Despite the economic slowdown, these developments cannot be shelved for too long; as populations in these countries expand, they need to develop to support growth.”
Many also hold positive hopes for the deeper integration of the ASEAN, which could support the region’s growth through increased internal trade. Last year, the association established the Asian Economic Community (AEC), which seeks to move Southeast Asia towards a globally competitive single market with a free flow of goods, services, labor and capital across the member states.
Price-driven and personal markets
According to the Journal of Commerce, the biggest opportunities in Southeast Asian port development now lie in establishing the smaller port segments rather than upgrading the existing mega-ports of the region.
Nyman believes the trick to success in Southeast Asia for companies such as Konecranes involves being able to meet a variety of client needs in the region’s ports. While automation is trending in larger international hubs, many middle-sized and small ports or inland container depots are focused on productivity gains for lower costs.
“In Indonesia, we have sold some of the latest, state-of-art automated technology,” Nyman says. “But as a whole, the markets in Southeast Asia tend to still be very price-driven. Clients are not as willing to pay for technology they do not consider a necessity.”
He says Konecranes’ strategy of segment-based offering, including competitively priced, innovative products such as the BOXHUNTER RTG crane, is well equipped to serve the varied ASEAN market.
In the last five years, to improve its presence in the emerging Southeast Asian markets, Konecranes has been busy building local organizations in the ASEAN countries.
“Our brand is known and respected in the region, but we saw the need to establish stronger local relationships to support our business. Being available on their turf and in their language makes a big difference,” Nyman says.
“Especially in this part of the world, people do business with people, and good personal relations are paramount,” Doyle confirms.
On the path of growth and new opportunities for business
Despite the recent slump in the growth of container volumes, Nyman and Doyle both believe the port landscape in Southeast Asia holds future potential.
“I am cautiously optimistic that in the next two to three years, Southeast Asia will weather the storm and investments into ports will increase,” Doyle says.
Nyman also believes larger demographic and economic shifts will continue to put the countries of ASEAN on a path of growth.
“If you just look at the demographic profiles of these countries, you see a lot of potential. They are young, richly populated countries with rising economies and growing middle classes,” Nyman says. “More and more of these people will have the means to consume, which translates into container volumes and the need for new and more efficient ports.”
Text: Mari Suonto