GLOBAL VIEWS o u t h E a s t A s i a

Shadowy prospects

SOUTH EAST ASIA

INTRODUCTION

Ma r c h / A p r i l 2 0 0 9 41

How the dramatic effects of the downturn will play out across differentcountries in SE Asia remains far from clear, reports Jacintha Stephens

CONTENTS

41INTRODUCTION

45INDONESIA

Singapore-based NOL, parent of boxline APL,is something of a bellwether among shipoperators in Southeast Asia. Imagine thenthe consternation when in February it

reported an 84% drop in profits for 2008, imminentlay-up of 15 ships and the deferral of newbuildings.NOL ceo Ron Widdows did not mince his words. ‘Theseverity of the collapse in global trade over recentmonths is without precedent,’ he said.

Widdows is well-placed to comment. Singaporeremains the world’s busiest container port, withPSA Singapore Terminals the world’s busiesttranshipment hub, handling around one fifth of allcontainers transhipped worldwide. Throughput for2008 as a whole was up 7%, to 29m teu, but asPSA Int’l group ceo Eddie Teh admitted, by year-end ‘global trade worldwide had slowed to crawl.’

But the full effects of the unfolding economicdrama on different countries in the region are stillfar from clear. Like in a traditional ‘wayang kulit’ orshadow puppet play, there are powerful forces –seen and unseen – at work shaking the establishedorder that as yet are visible only in silhouette.

Rattling the regional maritime industry to its coreis the downward spiral of demand for Asian exportsfrom major economies, thereby collapsing tradevolumes in the Asia-US and Asia-Europe routes. Addto this other developments such as the lack of

Chinese iron ore demand and the plunging new carmarket, and you get a rapid erosion of sentiment. Butexactly which Southeast Asian countries will be worstaffected and why remains open to debate.

Singapore’s economy being the most open inSoutheast Asia meant it was the first to be affected,believes Capt. Lim Yuon Fatt, head of the ShippingBusiness section at Singapore Maritime. Not helpingmatters is the fact its domestic market is so small, andthe republic’s maritime sector is heavily serviceorientated. ‘If there's less cargo, then there is lessdemand for ships and ports services,’ he says.

Maritime Institute of Malaysia (Mima) researchfellow Nazery Khalid maintains that Malaysia hasless cause for worry since its economy ‘is morediversified and has more depth and breadth. Likemany other Southeast Asian nations it can still relyon local cargo generated by economic activities inthe hinterland and demand from a fairly large localdomestic markets,’ he says.

Others believe Malaysia will potentially be theworst hit of all countries in South East Asia onaccount of commodity price collapse combinedwith a higher dependence on exports. ‘This couldmean a double whammy for Malaysia,’ saysmaritime industry consultant David Wignall.

Indonesia, by contrast, should prove fairlyresistant to external problems because the low cost

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43THAILAND / ReCAAP

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48MALAYSIA

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base of its exports will provide a cushion againstthe worst impact of the global recession, believesWignall. He sees ‘reform within the countryproviding opportunities from its own internalmarket,’ and even goes even goes as far as tosuggest that ‘perhaps this is the crisis whereIndonesia comes to its rightful position as the leadeconomy in the region.’

Elsewhere in Southeast Asia, Thailand willsuffer from a downturn in shipping volumes ‘nottoo badly,’ he feels. In Vietnam, a slump incontainer exports is of concern at present but isexpected to be short-lived. Rather Wignall feelsthe real concern may be the number ofcontainer port developments underway and thepotential for terminal overcapacity. ‘The Vietnameconomy has a comparative cost advantage andthe continued easing of Government control onthe economy is perhaps more important in thelonger term than the impact of the global slowdown,’ he says.

To some shipping company heads in the region,such as Khalid Hashim, of Thai dry bulk operatorPrecious Shipping (see box above), China continuesto hold the key. He points out that national steelmills have responded to China's reduction in steeldemand – estimated to account for 50% of globaliron ore trade last year – by planning to cutproduction by 20-30% in 2009.

‘This cutback will feel like a kick in the face forthe freight market during 2009,’ he says. ‘Our onlyhope is that the recently announced Chinesegovernment stimulus plan of $586bn to be spenton infrastructure and other developments during

2009, would help lessen this blow.’ Analysts saythe dry bulk outlook has since improved frombleak to cautious.

John Lu, chairman of the Asia Shippers’ Council,believes that ports like Singapore dealing mainly infinished-product cargo are hit harder than thoseinvolved in the bulk cargo trade. ‘Bulk cargo tradehas been more stable than finished products,’ hesays, meaning countries with a more mixed portthroughput portfolio – like Malaysia, Indonesia,Thailand and the Philippines – will be less impactedby the recession.

However, Lu also predicts Singapore's maritimeindustry will become stronger and have more of anedge in the long term, given how pro-active itsgovernment in continuing to boost infrastructure,efficiency and IT during this time of slower growth,for its longer term competitiveness. He warns thatgovernments in the region which are not stableand/or do not have the resources, may not be ableto similarly build up their maritime sector.

Similarly for multinational maritime companiesoperating in the region there is ‘opportunity inadversity.’ Bengt Ekstrand, GAC’s regional directorfor Asia Pacific, tells Seatrade that Singapore andthe wider region remain a very important marketfor the company, and ‘all going well, you will seethe GAC flag planted in a few more Asian countriesin the not too distant future.’

And as Nazery says, no bear market lastsforever. ‘This storm, like many others over thedecades, will pass, and the shipping markets andmaritime sector (in South East Asia) will thenrecover - fast.’ �

SOUTH EAST ASIA

THAILAND / ReCAAP

ReCAAP

As piracy issues in theGulf of Aden, and morerecently off Nigeria,

preoccupy the maritimecommunity, the RegionalCooperation Agreement onCombating Piracy and ArmedRobbery against Ships in Asia(ReCAAP) continues itsvaluable work.

ReCAAP informs that thenumber of reported incidents ofpiracy and armed robberyagainst ships in Asia totalled 96- 83 actual and 13 attempted -last year. Severity of the attackswas far less than in the 2004-2007 period, and the situationwas notably improved off theport of Chittagong, Bangladesh,and in ports and anchorages ofIndonesia, reports ReCAAP.

In the Straits of Singaporeand Malacca, where the piracysituation reached a nadir in2004 prompting thecoordinated naval patrols bythe littoral states and thefounding of ReCAAP, anincrease in the amount ofattacks on tugboats was noted.Similar attacks also took placeoff Pulau Tioman, Malaysia. Ingeneral tankers were moreaffected last year thanpreviously, ReCAAP also noted.

Meanwhile, the Federationof ASEAN ShipownerAssociations (FASA) has joinedthe international shippingcommunity in calling forgovernments to commit toincreased numbers of deployedwarships in the Gulf of Aden.

Singapore announced thisFebruary that it would commita naval ship and twohelicopters from the Republicof Singapore Navy (RSN) tojoin in the US-led CombinedMaritime Forces coalition tocombat piracy. The Royal ThaiNavy is also understood to bemonitoring the situation. Andthe Malaysian MaritimeAcademy (Alam) is developinga new course on piracymanagement to better equipits cadets in the case of attack.

PRECIOUS SHIPPING RETAINS VALUES IN BULK DOWNTURN

Khalid M Hashim, founder and md of Thai-based handysize dry cargo specialist PreciousShipping Limited (PSL), believes that by

avoiding certain ‘cardinal sins’ of ship owning hiscompany has been able to buck the downtrend.

PSL adopted the cautious strategy ofnot buying any assets or extendingcredit lines during the ‘crazy boom time.’Instead it sold 10 ships in 2007 ‘at thepeak’ of the cycle, and locked in chartersfor more than 30% of its forward four-year book at rates that Hashim describesas ‘extremely robust compared to thecurrent spot market rates’.

The company is one of the biggestplayers in the handysize sector having 1.5% of theworld fleet capacity, with its existing 44 ships and18 ships on order. Net pre-tax profit for Q4 2008,after the dry bulk market had tanked, was a‘fantastic’ $35.02m, Hashim points out, averaging avery respectable $16,325 per ship per day.

For the dry bulk sector as a whole, Hashim saysthe next 12 months are looking bleak, hardlysurprising after the sudden fall-off of nearly 95% in

its benchmark BDI index from an all time high to atwo-decade low. In such circumstances you mustexpect a ‘raft of bankruptcies and host ofrenegotiations,’ he says.

But for PSL it is rather a time of opportunity, asthe company in the market forsecond-hand purchases. At end 2008the PSL fleet totalling 1.13m dwt hadan average ship age of around 21years. ‘The company will continue tobe on the lookout for the rightopportunities for additional fleetrenewal,’ says Hashim, ‘as we wouldlike to achieve an annual fleetstrength of between 50 and 70 ships

within the next few years.’Specifically, PSC is looking to replace 25 ships

from the current fleet with younger and largertonnage within the next two years. ‘The existingfinancially stressed conditions are the opportunitythat we had been patiently waiting for,’ saysHashim, ‘and if implemented successfully, willensure the long-term profitability of the companyover the next two to three decades.‘

� Khalid Hashim

Steady progress

SOUTH EAST ASIA

INDONESIA

Ma r c h / A p r i l 2 0 0 9 45

Jaka Singgih, md of Bumi Laut Group, says,‘Indonesia is very familiar with problems –both natural and man-made,’ says. Hebelieves that after coming through the

economic crisis of 1998 and the 2004 tsunami, thecountry is now better equipped than before toweather the current global economic storm.

Singgih (pictured), who is also amember of parliament of the Republic ofIndonesia, describes the country’sshipping industry as being at a majorturning point with a the renewed focuson cabotage laws, which have long beenin place but never really been enforced. InMay 2008 the Government issued a newshipping law affirming theimplementation of cabotage to restrictforeign flagged ships from carrying certain types ofcargo within the Indonesian archipelago – with itsthousands of islands and extensive coastline.

Indonesian investment in shipping – as gauged bythe size of the national flag fleet – as well as cargovolumes have both been on the rise of late, reportedOentoro Surya, president of PT Arpeni Pratama OceanLine and chairman of the Indonesian NationalShipowners’ Association (INSA), speaking at theMaritime Indonesia event last November. The nationalfleet rose from about 6,000 ships in 2005 to morethan 7,800 in 2008, while the portion of domesticmaritime trade carried by Indonesian vesselsincreased from 55% in 2005 to 65% in 2007.

According to Oentoro, Indonesian shipownerssee application of the cabotage law as helping tomitigate the impact of global shipping turbulenceas it empowers national shipping and allows forbetter financing.

Significantly, Indonesia may be about to go intoelection mode, when the government is expected tospend to improve the business climate, which mayexplain why the government is predicting a 2009growth rate of 6.2%, down slightly from 6.4% in 2008.

Cabotage laws are expected to boost national

shipping, agree overseas players installed in Indonesiasuch as Singapore-listed Marco Polo Marine, a tugand barge operator and repairer. Ceo Sean Lee says2009 will be a more ‘challenging’ year than 2008,when the company’s net profit rose 33% to S$11m,and that the company’s main focus will shirt towardsship repair as that sector is ‘quite healthy’ at present.

Marco Polo’s first drydock is already inplace on Batam Island, a growing shipservices base lying just off Singapore, andlater this year another drydock and ajetty will be completed.

Operating out of Indonesia has notalways been ‘straightforward’ for acompany like Marco Polo, concedesLee, but on the whole has been a‘positive’ experience.

Singgih believes that while the Indonesiangovernment has a roadmap for the country’seconomic development, things are not moving fastenough for the shipping industry to really develop. Hementions poor port infrastructure, congestion, lowproductivity and bureaucracy as all posing obstacles.To fully tap the opportunities that are out there theIndonesian shipping sector must embrace foreignparticipation and collaboration, he says, and moveaway from an inward-looking mindset and relianceon a protected market. Hence his decision to chair thenewly formed Indonesian Shipping Association

Turning to his own Bumi Laut Group, whichowns, manages and operates some 30 ships,Singgih says business is strong throughout theshipping agency, chartering, tramping of bulkcargoes and energy transportation business units.He tells Seatrade that the group has plans toextend the reach of it shipmanagement andshipbroking operations into third-party business.Logistics, inland support services and marine andoffshore businesses will also all be priority growthsectors, he says, with the group’s experience andskills, honed over three generations, allowing it tonavigate through the current ‘choppy seas’. �

BERLIAN LAJUTANKERS

Berlian Laju Tankers (BLT)is one of Indonesia’slargest and most rapidly

expanding maritime players. Itcurrently operates 61 chemicaltankers, 14 oil tankers, 12 gascarriers (including one LNGcarrier) and one FPSO, with anaverage age of 9.3 years. Thecompany took delivery of 10new tankers and one second-hand lpg carrier in 2008.

President commissionerHadi Surya points out thatmore than 90% of groupbusiness is derived from crosstrades, with Indonesian state oiland gas company Pertaminacontributing only about 6% - aproportion that may change asthe cabotage laws kick in andPertamina’s current 75%reliance on foreign hulls iswound down. Otherwise nosingle client represents morethan 5% of total business, hesays, which serves to spreadand minimise risk.

BLT has been listed inSingapore since 2006, andreported a net profit of $161mfor the FY to end September.Acquisition of ChembulkTankers in 2007 contributed tothe improved result, and thecompany now lays claim tobeing the world’s second largestowner/operator of IMO Type IIchemical tankers. It currentlyhas another 17 vessels on orderof which 12 are chemicaltankers with IMO Type II/IIIclassification and stainless steelcargo tanks and another fivegas tankers, all for deliverybetween 2009 and 2012.

Indonesia is plotting a course that will see its national shipping industrydevelop in sustainable fashion, aided by stricter cabotage requirements

� Jaka Singgih

� Hadi Surya

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Malaysian shipping in general, and ports in particular, are reassessingprevious plans for growth in light of the current slowdown in trade

The jury is still out on how the Malaysianshipping industry will cope with theeconomic downturn but ‘already someplayers are reeling from falling demand

for their services,’ says Maritime Institute ofMalaysia (Mima) research fellow Nazery Khalid.‘Even the mighty have not been spared.’

Case in point is Malaysia's leading internationalshipping line, MISC Bhd, which recently cancelledorders for new chemical tankers placed with aKorean yard in the wake of gloomy prospect in thechemical tanker trade. It also scrapped a RM3.2bnbid to takeover oil services company RamuniaHoldings Bhd in November 2008.

While MISC’s container operations – especiallyon badly hit Asia-Europe services – have likewisebeen affected, these represent a smaller proportionof overall business than the energy trades. In itscore business of LNG, where the company ownsone of the world's largest LNG fleets of nearly 30tankers, prospects still look good.

But arguably the biggest question markhanging over Malaysian shipping concerns thegovernment’s ambitious target for national portsto triple their current throughput handlingcapability by 2020 and in particular to attract moremain container lines to call Malaysia. The currentslump in trade between Asia and Europe/US makesthis seem a very tall order, although intra-Asiatranshipment traffic is reported to be holding upfairly well at present.

The Ministry of Transport, which oversees theMaritime sector, is currently embroiled in aninvestigation of its ‘soft loan’ funding for Port Klang'sFree Trade Zone (PKFZ), which effectively had to bebailed after Jebel Ali Free Zone exited the project.

Port of Tanjung Pelepas (PTP), the country'smain transhipment hub, managed to marginallygrow traffic 1% last year to 5.6m, largely thanks to‘local’ hinterland throughput up by more than 40%or 94,000teu from the 2007 level of 218,000teu.Main liner customers are Maersk, Evergreen, MISCand most recently Hapag Lloyd.

New ceo Capt. Ismail Hashim explains that as amajor transhipment port, PTP is very muchdependent on international trade. ‘It is importantfor us to weather the crisis in an effective mannerso that we can emerge as a stronger, more resilientport when the economy picks up,’ he tells Seatrade.The coming year will therefore be a highlychallenging for both PTP and the liner industry, hesays, as both will have ‘to manage costs, even asthey still explore opportunities to increasethroughput volume’.

PTP is currently developing berths 11 and 12,which will provide another 720mtr of wharf spaceto the south of Berth 10, bringing the totalquayside length to nearly 4.4km.’ Both berths,which will be equipped with the world’s largest andlatest dual hoist cranes, are due for completion thisyear, followed by backlot with space for 40,000teu.Total investment will be about RM750m.

Ensuing plans for berths 13 and 14 have beenput on hold, however, pending more favourableeconomic conditions.

Port Klang last year handled 7.97m teu, a rise of12% year-on-year, through its two facilitiesNorthport and Westports.

Northport posted the lower increase of only 7%due to its greater exposure to import and exportcargo handling. Growth is expected to further slowthis year.

SOUTH EAST ASIA

MALAYSIA

Revised targets

‘We can emerge as astronger, moreresilient port when theeconomy picks up.’

Capt. Ismail Hashimceo, PTP

� Port of Tanjung Pelepas

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Westports recorded a stronger performance,growing volumes 15% to 4.97m teu last year.Executive chairman Tan Sri G. Gnanalingam isbeing realistic, however, in setting the 2009 targetback down at 4.5m teu, deferring the attempt to‘beat the 5m teu mark’ until 2010. He also derivesunderstandable pride from the port having snaffledtwo world records for productivity, in one caseworking on a new vessel belonging to mainWestports client CMA CGM.

Gnanalingam's son and Wesports executivedirector, Ruben Emir Gnanalingam, has gone onrecord advising stakeholders and staff ‘not be over-alarmed by the bleak outlook predicted for Malaysia’s

economy in 2009’. Heassured them that thecompany has taken everystep possible to make surethey are ready for theeconomic crisis. ‘Lookingforward, in 2009, we willbe embarking on plans toconsolidate our business interms of processes, skills ofour employees andimprovement initiativescompany wide in arelatively quieter period.’

He assured employees that ‘there will be noretrenchment or reduction in our workforce exceptfor the non-performers’.

The maritime sector will remain critical toMalaysia's development, as 95% of the country’sinternational trade is seaborne and all its oil andgas resources lie offshore, believes Mima’s Nazeri.He predicts the current economic turmoil willresult in the survival of the fittest and make theindustry less fragmented. ‘Players in the industrywho grit their teeth and weather the currentstorm will be rewarded for their resolve andpatience once the global economy and tradevolumes rebound.’ �

SOUTH EAST ASIA

MALAYSIA

BOMINFLOT HP AD

� Port Klang

� Tan Sri G. Gnanalingam,Westports chairman