Port of Singapore faces new rival

The Port of Singapore is the second busiest in the world

By Alison Gee BBC World Business Report

When Sir Thomas Stamford Raffles landed in Singapore in 1819 he set about transforming the island into an internationally recognised port.

Nearly 200 years later the Port of Singapore is the second busiest in the world.

But the emergence of a new rival just a few miles away in Malaysia has raised questions about its future.

Only this week Singapore unveiled a multi-million dollar package to reduce costs for shipping companies after losing two of its biggest clients.

Dark cloud looming

Singapore's port has come a long way over the past two centuries.

Raffles: established trading post on Singapore island

Priding itself on efficiency and new technology, it processed fifteen and a half million TEUs - or standard sized containers - last year.

But there is a dark cloud looming on the horizon in the shape of a relatively new port just a few miles away in Malaysia.

The port of Tanjung Pelepas - or PTP as its locally known - stole Singapore's biggest customer Maersk Sealand when it set up two years ago, and this year announced the defection of another of the world's largest shipping lines Evergreen.

It has been reported that the move brought Evergreen savings of around 30%.

Threat?

PK Basu, an economist at CSFB in Singapore, says the rise of Malaysia's PTP is causing concern and described it a " definitely a serious threat at this point".

"Competition is not new to PSA - perhaps what is new is this time round it is probably closer to home."

PSA spokeswoman Amy Balan

"I think PTP is competing very hard on technical efficiency grounds which really has been Singapore's greatest strength relative to all its competitors around the world," he said.

"And as they offer more attractive prices PTP is now beginning to steadily erode the port of Singapore's lead," he added.

So how worried is the PSA - Singapore's port authority?

Its spokeswoman Amy Balan played down the threat describing Singapore as "very much a bustling port", with 250 shipping lines connecting to 600 ports around the world in 123 countries.

"We compete with ports all around the world, particularly along the Europe/Far East lanes so we compete with ports like Malta and Calsho, Hong Kong," she said.

"So competition is not new to PSA - perhaps what is new is his time round is it is probably closer to home."

But despite these reassuring noises, observers say Singapore's decision to set aside $44m to reduce costs for shipping lines and improve skills at the port shows it is getting worried.

Size matters

When you look out to sea from Tanjung Pelepas you can almost see Singapore's port with its 37 berths.

In comparison PTP has just 6 berths. So as far as size goes - and size does matter for major league ports - Singapore is still way ahead.

"For PTP to entirely replace Singapore is still inconceivable."

PK Basu at CSFB, Singapore

But PTP was named as the world's fastest growing port last year, and its spokesman Brian Paul said me the next stage of development as being planned.

"From here what we are looking at now is basically to establish our feeder connectivity throughout South East Asia and we believe this is a good starting point - securing two big lines," he said.

"And now we are able to move on, attract a lot of other smaller traffic, medium size lines and so on that would be able to come in here and capitalize on the network that is already established at PTP," he added.

Healthy competition?

So to the big question - is there room for both ports?

Despite his warnings over the impact of the Malaysian operation PK Basu at CSFB thinks there is.

"For PTP to entirely replace Singapore is still inconceivable, but at the margins it is growing a lot faster from a much smaller base," he said.

"And what is interesting to me is that in the first quarter of this year - despite the competition from Malaysia - Singapore managed to see it's container throughput rise 8% year on year.

"I think the growth pace is going to be more modest over time but there could well be room for both."

Tensions over the battle of the ports have been running high - exacerbated by a land reclamation project just off the coast of Singapore which Malaysia says is affecting the flow and depth of the shipping channel.

And the rivalry doesn't stop at sea - Malaysia is also looking to promote itself as a hub for air transport.

So Singapore will have to keep a close eye on its neighbour to ensure it doesn't lose vital business.