Hub ports and the diseconomics of envy

Indonesia's Batam Island has had long held ambitions to be a transshipment hub Indonesia's Batam Island has had long held ambitions to be a transshipment hub

The paradox of the Straits of Malacca and modern container shipping is that despite the potential high volumes, and while terminal operators are always looking for alternatives to the established main ports of Singapore, Port of Tanjung Pelepas (PTP) and Port Klang, most of the major lines have already anchored themselves at one of the three and are unlikely to move without a sufficiently good reason.

Ocean Shipping Consultants told Seatrade Maritime News that potential sites explored to build a transshipment-focussed container terminal include Batam in Indonesia, and Malacca and Carey Island in Malaysia.

Indonesia’s Coordinating Economics Minister Darmin Nasution recently suggested that Batam could serve as a national logistics centre, given its strategic location. The Port of Tanjung Sauh has been flagged as a potential major transhipment centre to rival Singapore several times before over the past 25 years to little effect.

The most recent was a supposed joint venture between China Merchants and Pelindo II announced in 2013 to develop a container terminal with a 4m teu capacity that has fizzled out. Local media as recently as last year were suggesting various other local parties such as the Lippo Group and Panbil Industrial Estate were interested in developing the port.

The conundrum that has hampered the development of ports such as Tanjong Sauh is their lack of sufficient local hinterland volume. While they look enviously at other established ports nearby and aspire to not only cut the extra costs of going through these ports but also get a slice of the pie for themselves, the realities of container shipping inevitably conspire against them.

As Indonesian state-owned port operator Pelindo II, which has jurisdiction over Batam and currently does not have a transshipment port, strives to enter the transshipment market, it comes up against a host of challenges.

Most of the major lines have already anchored themselves at other major ports in the area. For example, Maersk hubs in PTP, while MSC, Cosco, PIL and CMA-CGM use PSA’s terminals in Singapore. This is an issue that has only been exacerbated by the recent mega-alliances where fewer lines mean there are even fewer clients available for potential transshipment ports

In addition, while Batam has been touted as a potential hub port, there has been little support forthcoming from the government, where Indonesia still maintains some rather antiquated business practices.

“Private sector has to fund everything but give control to Pelindo II (and) commercial ports that handle third party cargo must give more than 51% stake to Pelindo II,” Ocean Shipping Consultants said.

Arcadis Asia head of transportation and logistics Jonathan Beard concurred. “As a general proposition, developing a large greenfield transhipment hub in Southeast Asia is a risky proposition,” he said.

Beard pointed out that capex will be high as there is a need to build to cater for the largest vessels and at scale right from the outset, yields will be low compared to a gateway port and the market is already dominated by three large, well established and very competitive hubs: Port Klang, PTP and Singapore. 

“You also need to consider the alliance structure and which lines/alliances would want to move their hub business,” he added.

Posted 05 February 2018

© Copyright 2019 Seatrade (UBM (UK) Ltd). Replication or redistribution in whole or in part is expressly prohibited without the prior written consent of Seatrade.

Vincent Wee

Asia Editor, Seatrade Maritime News

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