Singapore Port – Biggest transshipment hub in the world

Located at the door of East Asia, the Malacca Straights, Singapore’s port activities materially revolve around connecting oil and cargo markets to the West (Europe, Africa, Middle East, and South Asia) with that of East Asia.

With a large share of its GDP derived from oil, port and shipping activities it’s a high stakes game for Singapore. And as the biggest oil and container transshipment hub in the world it’s theirs to lose.

With surrounding state of Malaysia budding in and China building pipelines to circumvent the Straits, it’s a game of governments as each try to protect their own interests.

Ground Zero

A Very Large Crude Carrier (VLCC), or oil tanker, leaves the Arabian Gulf with 200,000 tonnes of crude oil. The oil is transported on the biggest oil corridor in the world, the Middle East/East Asia corridor. The tanker heads for the Malacca Straits where all commercial traffic from Europe, Africa, the Middle East and South Asia has to go through to reach East Asia (and vise versa). An estimated 18% of the world’s oil demand pass through these straits every year.

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The VLCC reaches Singapore and docks at the Jurong Island, home to one of the most concentrated oil storage and refining industries in the world. The entire load of 200,000 tonnes is discharged, some for direct refining into other petro chemical products and onwards distribution and some for storage and subsequent onward transportation to the East Asia markets.

Phnom Penh, Cambodia, a container is packed with 5,000 pairs of Nike Shoes, loaded onto a barge with 10 other containers and transported down the Mekong River to Ho Chi Minh Port where a feeder vessel picks it up. At the same time in Manila, The Philippines, 1,800 crates of bananas are loaded into a refrigerated container and feedered to Singapore. Elsewhere in Jakarta, Indonesia, a container with 500 office desks is loaded onto one of several weekly intra-Asia feeders and transported to Singapore.

Once in Singapore, the shoes, bananas and office desks can connect to markets both East and West. In this case the desks are loaded onto a 11,000 TEU container vessel destined for Rotterdam to be sold on the European market. The shoes go onto an 8,000 TEU vessel and head for the US. The bananas go with the desks but are dropped off on the way, as the vessel passes the growing Middle East market.

More than 3,000 vessels call Singapore every week and Singapore is connected directly with all of Asia’s biggest cities. Dedicated intra-Asia services connect Singapore to many of the smaller ports, whereas the big vessels on the services from North America and Europe represent the main connections not only to the markets outside Asia but also to all the major ports in Asia (Shanghai, Hong Kong, Tokyo etc.).

Total market throughput and main cargo segments (2010)

Segment Mill. tonnes (TEU) Pct. of total
Container 289.7 (28.4) 57%
General cargo 24.0 5%
Bulk 12.6 3%
Oil 177.1 35%
Total 503.3 100%

Source: www.mpa.gov.sg

Combined oil cargo (and related products) and container cargo represent 92% of Singapore’s total throughput when measured in tonnes. The vast majority of this cargo is un-related to production or consumption in Singapore, however a larger part of the oil is refined into other petro chemical products before leaving Singapore for other East Asian markets.

What’s What and Who’s Who

As laid out by the Maritime and Port Authority of Singapore (or MPA), all cargo handling in Singapore is essentially handled by PSA International (PSA) for containers, Jurong Port for bulk and general cargo and a multitude of companies situated mainly on the Jurong Island for oil handling. Whereas there is some overlap of activities between PSA and Jurong Port, this essentially divides Singapore Port into two exclusive operations for containers and bulk/general cargo respectively.

Singapore’s main three port areas:

  • Container terminals to the east on the main island at Brani, Pasir Panjang, Sembawang and Tanjong Pagar
  • Bulk and general cargo to the west on the main Island – Jurong Port
  • Oil and related activities on Jurong Island (not to be confused with Jurong Port)

The MPA is a statutory board under the Ministry of Transport and oversees all port and maritime affairs of Singapore. It had a turnover of 239.6 million SGD in 2010, vast majority of which comes from “Port dues and marine services”. The “surplus for the financial year” of 2010 was 142.6 million SGD.

The 2nd biggest container terminal operators in the world and a $ 150 billion sovereign fund

PSA reported 65.1 million TEU for their global operations in 2010 and of that 27.7 million TEU as deriving from Singapore. This generated reported revenue of 4.1 billion SGD and net profit of 1.2 billion SGD for 2010.

Whereas PSA was once the Port Authority of Singapore, they have over the last 10+ years grown into a global container terminal operator. Today PSA has ownership in more than 29 ports globally and compete with the other global operators for new developments and concessions.

PSA is a fully owned subsidiary of the Singaporean sovereign wealth fund (SWF), Temasek Holdings. Temasek is fully owned by the government of Singapore and one of the world’s largest SWF’s. Temasek Holdings should not be confused with Singapore’s substantially larger SWF – Government Investment Corporation (GIC). Estimates for assets managed by Temasek range anywhere from $ 134 to $ 159 billion to Temaseks own last estimate of $ 153 billion, whereas substantially bigger GIC has been estimated by some to be at around $ 330 billion.

Temasek also owns one of the world’s largest shipping lines – APL (through NOL). And PSA in turn owns 20% of Hutchison Port Holdings, the biggest container terminal operator in the world.

The 5th biggest oil refinery in the world

Reported to have more than 22 billion SGD worth of investments on it, the Jurong Island is one massive port island with jetties butting out from all sides and a vast area of oil storage and refining facilities. Jurong Island is in many ways Singapore’s oil hub. This includes the massive ExxonMobil refinery with a reported capacity of 605,000 barrels a day, and is the world’s 5th biggest.

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Jurong Island is also the home of some of the world’s biggest oil port operators including the Dutch Vopak, and one of the world’s largest oil traders and distributors, Hun Leong.

Jurong Port and all the rest…

Jurong Port Pte Ltd. is a fully owned subsidiary of JTC Corporation, a Singapore state owned entity that undertakes Singapore’s “industrial infrastructure … planning, promotion and development”. Jurong Port is positioned as Singpore’s bulk and general cargo port.

Singapore is also a major bunkering, cruise and ships building and repair hub. The MPA estimates the value of these services to exceed 11 billion SGD.

Port in Perspective

Over the last decade Singapore Port has grown substantially to reach a total throughput above 500 million tonnes giving it a rank as 3rd biggest port globally.

But with the volatile world trade situation over the last few years it has not been linear growth. Further whereas the other big segment, oil, seems to have followed a stable path, container volumes has seen significant volatility.

Total market and main segments development 2000-2010

Year Total Container Oil
2010 503.3 28.4 177.1
2009 472.3 25.9 177.3
2008 515.4 29.9 167.3
2007 483.6 27.9 157.4
2006 448.5 24.8 153.0
2005 423.3 23.2 137.8
2000 325.6 17.1 113.3

Source: www.mpa.gov.sg; Note: Total and Oil in million tonnes, Container in million TEU.

Whereas international trade is a fundamental driver there is, as we will see, much more to it than that for the Singapore port market.

Just across the border…

…in Malaysia lies Port Tanjung Pelepas (PTP). And it is no coincidence that the port grew from literally nothing in 2000 to 6.5 million TEU in 2010.

Singapore and PTP container volumes 1998-2010 (mill. TEU)

Notes: Singapore is represented by the blue line, PTP by the red line.

In 2002, A. P. Moller-Maersk, owner of the biggest shipping line in the world – Maersk Line, took a 30% share of PTP. A few years after Maersk Line’s transfer, another major shipping line followed – Evergreen Marine Corporation.

Competition between ports or governments?

Little known Malaysia Mining Corporation (MMC) owns 70% of PTP. MMC is a listed company on the Malaysia Stock Exchange (Bursa Malaysia) but with the majority being state owned.  MMC had a turnover of 8.9 billion Malaysian Ringit and 4,700 employees in 2010 and most of all looks like an investment fund (with some characteristics of being a sovereign wealth fund). Actually, MMC no longer holds any assets in mining, and today claims to be pursuing a path to become “a leader in infrastructure and utilities”.

Further to PTP, MMC own the Port of Johor to the East of Singapore and has JV Greenfield with the Port of Jeddah (eventually owned by Saudi Arabia). Further, rumors are flying around that MMC in the future may consolidate all of Malaysia’s port assets. MMC seems determined to become a future big player in ports.

…and there is no shortage of capacity…

In Singapore there are plans to add another 16 berths to the Pasir Panjang Container Terminal alone, and PTP has stated plans to increase capacity in excess of 12.5 million TEU.

Given the fundamentals of transshipment, it should be no surprise that also neighboring Indonesia for a long time considered head on competition with Singapore Port.

So it is not strange that PSA has sought to sign up big shipping lines in strategic cooperation’s including the big Chinese shipping line Cosco.

So what about the oil? More or less uncertain?

On the surface of it, the numbers seem to suggest a smooth moderate growth pattern. Underneath however large factors are at play.

What Singapore has going for it as far as the oil is concerned is the more “sticky” nature of the oil business, with large investments in refining and other oil product treatment the oil majors have put into Singapore.

Further when looking at the future expected supply and consumption pattern of oil globally it seems like only more oil will be going through the Straits in the future (chart source: BP).

But the Straits have long presented a big worry for China and its energy supply security. And so China has been building pipelines to circumvent the Straits, the latest in addition to several into Russia and East Europe is the Sino-Myanmar pipeline, allowing the Chinese oil majors to transport oil from Africa directly to Myanmar and through more than 1,000 km of pipeline to the Chinese market for refining and distribution.

Simultaneously China has been expanding its refining capacity and continues to do so, diminishing the need for refining elsewhere in the supply chain.

And for all of this vessel connectivity, size and economics really matters…

Vessel sizes have grown, markets have gone up and down and with that the economics of transshipment have been changing year by year, but not in linear fashion.

Transshipment ports are by nature very dependent on:

  • Network connectivity
  • Vessel size
  • Operating economics and service patterns

That makes transshipment markets a very difficult field to speculate in, and whereas many had thought the oil and container ships would not be growing further than the current mega ships there are still signs that the trend might continue.

As example, the A.P. Moller – Maersk Group, parent company of Maersk Line, reported an order of 10 so-called “Triple-E” vessels, which they claim will have capacity of 18,000 TEU with an option to order 20 more. This would indicate that some shipping lines do not see the current vessel sizes to be the end game. Whether they will prove economical and giving an edge over competition remains to be seen.

Further vessel sizes might increase, but with mega ports like Shanghai, the tables turn in favor of direct services from mega port to mega port.

Where to from here?

If we did a simple extrapolation with the average growth over the last 10 years (4.5%), Singapore Port would grow from 500 million tonnes in 2010 to 780 million tonnes in 2020. But as we have seen it has been a bumpy ride over the last 5 years and Singapore may as well face a flat or even declining scenario over the coming years. Which it will go will largely depend on a few key drivers for the Singapore port market.

The main market and cargo drivers in summary

With more than 90% of its throughput derived from oil and container cargo and Singapore’s position in the Straits, the dominating drivers for Singapore’s future position are clearly going to be very reliant on following factors.

1. Merchandise goods flow between East and West

Trade in merchandise goods between on the east side – East Asia (dominated by China) and the west including South Asia (materially India), Middle East and Europe.

2. Oil demand and supply patterns

South Asia oil demand (China in particular) and future supply patterns (Middle East, Africa etc.)

3. Transshipment economics

Both for container lines and oil tankers and related to that the absolute mass of vessels calling at Singapore, the network effect is strong with high connectivity and weak with low connectivity.

4. Alternatives

Alternatives to Singapore Port as a transshipment and oil treatment hub.

So what has Singapore got going for and against it?

In light of this we have outlined what we think are some positive and less positive circumstances for Singapore as a port market.

The good news for Singapore:

  • There seems to be no economically feasible alternative to a big scale replacement of the Straits for shipping between east and west
  • Compared to local ports with a smaller market Singapore has a broader demand base which should give less volatility in terms of the markets where the cargo comes from
  • Oil demand in East Asia (in particular China) is estimated by several sources to continue increasing and the supply is expected to increasingly come from the Middle East and to some extent Africa
  • The massive investments in the oil sector done by oil majors and others will create some stickiness for Singapore over the short to medium term
  • Intra-Asia trade (and in particular trade between China and India) is increasing, so is trade in merchandise goods in general to and from Asia

The bad news for Singapore:

  •  In its nature transshipment can be done from a wider area of ports, it is not dependant on hinterland connections and position to hinterland markets in the same way as captive market ports
  • Malaysia seems keen on competing with Singapore as hub for the Straits and already capture more than 6 million TEU of the transshipment market and Indonesia is clearly contemplating similar moves
  • China is building alternatives to oil shipping via the Straits in the form of pipelines and continue to expand its refining capacity
  • Direct shipping option in the intra-Asia market offers options to bypass Singapore entirely, likewise the Chinese mega ports offer shipping lines good incentives to do direct services, being able to fill their large container vessels by calling just a few Chinese ports

Important investor questions

With all of the above in mind we would like to highlight a few questions we think investors and potential investors should consider.

Will PSA and PTP collude?

Or maybe more relevant will the Malaysian government through MMC and Singapore through Temasek decide that cooperation is better for the two than competition? If they do, this will both mean something to the assets in question as well as the wider market.

Or will PSA and Hutchison Port Holdings form a new super operator?

The CEO is ex HPH, PSA and HPH are now tied together and the owner of HPH is not getting any younger – where is this relationship going in the future?

Is PSA going to be listed?

With capital being in short supply for most governments and Singapore with a public debt at more than 100% of GDP, a listing could be very relevant, and PSA would be an easy target to list without losing government control.

What will happen to all the bulk and oil activities?

Will Jurong Port and Jurong Island stay as they are or will the MPA be looking to get new investments funneled into these parts of the business?

What does the future hold in store for the Malacca Straits and its regional importance?

So far it has been a good ride for Singapore, but will this continue as the dynamic transshipment markets continue to shift?

Where is the next big step for the MPA and Singapore Port?

With so much of the Singaporean economy riding on its shipping and oil related activities our guess is that Singapore is looking at bold ways of getting ahead. We could imagine anything from strategic cooperation with other governments with big sovereign funds (good guesses would be China or some of the big Middle East oil states) to major innovations in oil and industrial hubs in cooperation with oil majors and others.

Will MMC seek to create a global port operating entity like PSA?

And if so will it preset opportunities to form JV’s with MMC in the various port markets. There may well be a natural lead in to Middle East markets, but maybe also other South East Asian markets.

Will Singapore enter a new cycle of extraordinary growth?

Just as Singapore Port in theory could be gone over a short period of time given the dynamics of its market position, it could as well enter a new cycle of high growth given the expectations to especially oil demand in East Asia. Likewise what seems to be a continuous growth in vessel sizes mean high growth in both the container and oil segments. If so many of the companies present in Singapore today and close by markets may well have the potential to see significant equity value hikes.

We would like to hear from you!

This article has tried to give a basic understanding of this port market and relevant dynamics from an investor perspective.

We very much welcome any comments or views you may have on this market!

Further we cannot possibly cover all relevant material in these “pages” but suggest that readers who want to know more contact us on contact@port-investor.com.

Thank you!

Michael Pomerleau

Michael Pomerleau

Investment, BD and Commercial

Former Director of Investment and Business Development China and Europe at APM Terminals, Michael works with port operators, investors and owners to maximize investment and portfolio value.

During his career at APM Terminals Michael has worked with portfolio strategy setting, securing terminal investments as well as divestments and business development projects.

Educational background: Master in Finance and International Trade and various management school programs including INSEAD.

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