Saturday, November 22, 2014

The hidden opportunity in container shipping By taking advantage of savings and revenue opportunities, container lines can return to profit.

This is an interesting piece by McKinsey.

The container-shipping industry has been highly unprofitable over the past five years. Making things worse, earnings have been exceptionally volatile. Several factors are responsible, notably trade’s spotty recovery from the global financial crisis, and redoubled efforts by corporate customers to control costs. Some of the pain is self-inflicted: as in past cycles, the industry extrapolated the good times and foresaw an unsustainable rise in demand. It is now building capacity that appears will be mostly unneeded.
These problems are real and significant, and largely beyond the power of any one company to address. But shipping companies cannot afford to throw up their hands and accept their fate. Hidden beneath these issues (and driving them to a degree) is another set of challenges that shipping lines can readily take on. Across the enterprise, in commercial, operations, and network and fleet activities, shipping lines have opportunities to improve performance. In sales, for example, carriers often confuse their costs with the value received by customers and fail to charge a premium for services for which shippers will pay more. In operations, many lines treat bunker as just another cost of doing business. In fact, fuel presents many opportunities, not just in procurement, but also in consumption. In network design, more than a few shipping companies use outmoded approaches to design their routes; new and more powerful systems use algorithms to make better, more effective decisions about networks.
With a little bit here and a little bit there, companies that take on a full program of initiatives can boost earnings by as much as 10 to 20 percentage points—enough to reverse the recent trend, and return to profit. To realize that kind of upside, however, firms must also ready their organizations for change. That’s a nontrivial challenge: in many ways, very little has changed in container shipping since the first crane hoisted the first box in 1956. Companies need to find ways to help employees embrace new ways of working and must be prepared to bet on the future. Carriers that embrace change will be better prepared than their rivals to make the best of the current business cycle and to thrive in the next one.

The industry’s bleak economics

Transport is often seen as the harbinger of the broader economy. It certainly fulfilled that role in the recent economic crisis, as business fell off precipitously. However, shipping is now also a kind of lagging indicator: its performance is trailing the broader, somewhat erratic global recovery.
A big part of the problem is that the industry continues to add capacity. By 2015, the typical vessel delivered will handle about 10,000 20-foot equivalent units (TEU), five times more than ships built in the 1990s. Not surprisingly, pressure to fill this capacity and capture the efficiency benefits of larger vessels has led to hasty decisions by carriers. In turn, profits have become exceptionally volatile. Record losses in 2009 were followed by strong profits in 2010―and significant losses again in 2011 (Exhibit 1).

Exhibit 1

Industry earnings are lower and more volatile.
The supply/demand imbalance, the larger vessels that will only make the imbalance worse, and the volatility of profits are significant problems. However we argue that they are in fact symptoms of these deeper challenges:
  • The market is saturated, and the industry is now in a race for market share. The quest to take share is squeezing out smaller players and has started another wave of price wars. Shipping companies are forsaking their guidelines on pricing, both in spot rates and general rate increases, and choosing not to enforce contracts with customers.
  • Companies are pricing at their marginal cost. That’s not necessarily bad; in fact, it’s the right decision for many. But for others it is irrational, and when everyone does it, the industry suffers. Many shipping companies have ineffective cost-management systems.1 When they use these to determine pricing, they are pricing at a fraction of full costs; fuel, for example, is only partially priced into many charters. In effect, companies are passing on all of the cost savings they have achieved in recent years to customers.
  • Innovation in service offerings is sporadic. Most carriers offer the same or similar service to all customers, regardless of need. Carriers are missing opportunities to charge premiums for value-added services (for example, intermodal and guaranteed delivery times) and are unable to monetize innovations.
  • Fleet changes have made network designs outmoded. Most companies’ networks do not adequately maximize profits. For example, the arrival of the new ultralarge container ships has already triggered cascading effects on smaller ships. Although feeder ships are benefiting from this trend, mid-size Panamax vessels and others have been squeezed out. This will have a significant effect on shipping lines, which carry a large portion of Panamax vessels on their balance sheet.
  • Conflicts between asset managers and transportation companies are producing suboptimal business decisions.Many carriers are caught in conflicts with owners of ships they manage. Carriers want to manage the transportation business for profit; owners want to manage for maximum value of their assets. Many suffer from a conflict between the asset-management and transportation mind-sets. Without fundamental changes, such as industry consolidation or new external shocks, we see the trend of overcapacity and industry losses continuing for the next three to five years. We project that supply/demand imbalances will persist (Exhibit 2), with revenues and pricing remaining under pressure as larger vessels launch and global GDP grows only moderately.

Exhibit 2

Supply will likely exceed demand for some time; rates may slowly rebound.
Organizational challenges
Of course, executives are aware of many of the problems the industry faces. And most know the solutions—nothing we describe in this article will be earth-shattering for container-line executives. But getting their organizations to act on them is difficult. Shipping companies are deeply conservative; change comes only slowly. Many companies discount anything that is “not invented here.” One operations head found that an unconventional trim, one or two meters “by the head,” cut bunker consumption by 3 percent. But when captains and masters balked, the executive found no support elsewhere to drive his cost-saving idea. Most lines also have few analytical resources, either in the corporate center or the business units. Decisions are often undertaken and forecasts made with only a minimum of information, much of it often borrowed from external providers that also supply their competitors.
In part, the industry’s conservatism is born of a long history of boom and bust. These cycles make it difficult to provide meaningful performance-based incentives to executives and staff. But that hinders motivation; employees become uninterested in challenging the status quo or in making changes in the way they work.
Other problems crop up in companies’ structures. Most are organized by function, for good reason. But ensuring cooperation can be difficult when departmental budgets are involved. The maintenance organization pays for cleaning of hulls and propellers, but the resulting savings in fuel go to purchasing.

An agenda for greater productivity

Some of the challenges that companies face―the supply/demand imbalance, and swings in demand―are systemic, and beyond the ability of any one company to fix. But the rest are readily addressable. Container lines can and must deploy three sets of actions―commercial, operations, and network and fleet―to improve their performance. Taken together, these three elements typically improve a line’s earnings by 10 to 20 percent. Companies have a huge incentive to act first—once the whole industry has moved to a greater level of productivity, the benefits will likely be passed on to customers once again through competition. Several lines are already well advanced on the journey to greater productivity; smart lines can beat the competition by being quicker and more thorough in their implementation.
Commercial
In their marketing and sales, shipping companies need to shift from a cost-plus approach to one that emphasizes value. Lines should get paid full value for the services they provide. A comprehensive commercial program, covering the full gamut of commercial activities from pricing strategy to contracting strategy to uptake management, can deliver immediate bottom-line impact. In our experience, companies can improve return on sales (ROS) by 1 to 2 percent within 9 to 12 months.
The approach has many elements; three stand out. First, a “model ship” analysis can help carriers understand which customers contribute most to profits. One global container line used market information to develop its model. Based on this analysis, the company created targeted sales campaigns to pursue and capture high-contributing customers. The campaigns lifted ROS by about 2 percent in several regions and trade lanes.
A second element is better commercialization of “last mile” customer services, including detention and demurrage. Many shipping lines have made strides in this area, but more can be done. One global shipping line created a rigorous performance-management system to ensure accurate invoicing and expedited collection of detention and demurrage. It also standardized tariffs across different countries and trades. These two steps lifted detention and demurrage revenues by 15 percent.
Third, and perhaps most important, lines can improve their pricing discipline to ensure that they reap the full benefit of their value-selling approach. We see clear improvement potential for lines across all elements of the pricing process, from strategic pricing to transactional pricing to the systems and tools used to support the front line. Sometimes it is right to follow the market and price close to marginal cost to fill the ship. But lines need to identify the peaks in prices (they do happen, even in today’s oversupplied market) and the times that they have privileged capacity, and ensure that they are charging to capture both events. This requires building flexibility into contracting, so that in the peaks a carrier’s ships are not full of low-yielding cargo contracted at annual rates. Carriers can also extract higher prices from customers in certain industries, to whom smooth and reliable transport and the resulting stable inventory are quite valuable.
Operations
Even more than commercial levers, operational improvements are squarely in the shipping company’s wheelhouse; they are entirely under the carrier’s control. That makes them an excellent source of improvement in both profitable and unprofitable periods. And, given that many lines are already well down the implementation path, it’s an imperative for all. Three levers account for most of the costs and thus deliver most of the impact: bunker management, procurement, and asset utilization. The improvements we sketch out below can drive a five- to ten-percentage-point rise in earnings.
Bunker management. Rising fuel prices have made bunker the largest cost item for shipping lines, more than fleet or overhead, and often exceeding 40 percent of all costs. Fuel bills can be reduced in many ways, some well known (optimizing vessel speeds, more frequent hull and propeller cleaning), others less so (unconventional trimming “by the head,” inventory management). Lean terminal operations is one that many carriers overlook. Faster turnarounds in port save time, which ships can use to steam at lower speeds at sea. Ports can automate intermodal dispatch of both incoming and outgoing cargo and better integrate planning and IT systems with inland operators. That work falls mainly on port operators, of course, but shipping lines can make it happen through tough negotiations with competitive ports, service-line agreements that cement the deal, and guarantees of berth availability.
Finally, though bunker is a commodity, companies can achieve savings through better sourcing processes, drawing from a wider range of suppliers and using lower-quality fuels where available. Reducing bunker costs through these moves typically improves earnings by two to three percentage points. For example, one global shipping company optimized the hundreds of millions of dollars of bunker inventory it carries in the ships, saving about 3 percent of total bunker costs from just this one lever (Exhibit 3).

Exhibit 3

A new bunkering approach can yield savings.
Procurement. For most lines, the next biggest operations opportunity is in procurement. Beyond bunker, lines should be concerned with three other categories. First, terminal costs can be reduced. Negotiations with competitive port operators, as discussed above, will help in some cases; in others, greater use of requests for quotation (RFQs), and a clean-sheet analysis of ports costs, including accessorial fees, such as storage, security, handling, transshipments, and reefer monitoring can deliver savings. A few carriers are taking these moves a step further, and tightening their relationship with terminals. Colocated teams can jointly optimize operations; well-structured incentives and penalties can align interests.
The same analyses can also produce savings in intermodal costs (including feeder vessel hires), the second big category. Lines should understand suppliers’ costs for trucking, rail, and feeders, and use the information for advantage in negotiations. Market analysis can help lines know when prices are at their lowest and establish the correct pricing structure to reduce total cost of ownership. One global carrier rolled out a new online bidding system for trucking services in North America; it eased the system in with workshops for vendors. The initiative is now delivering savings of about 10 percent of intermodal costs.
Third, RFQs and similar approaches also work well in containers and logistics, at time of purchase and also in maintenance and repair. A review of the total cost of ownership can reveal some surprising anomalies; the container with the cheapest purchase price often costs the most in the long run. Companies can get more strategic by building price forecasts of dry containers, which can help them decide when to pull the trigger on new purchases and negotiate those in progress.
Asset utilization. Stowage planning and container-fleet management are crucial levers to optimize asset utilization. Done well, a company can even reduce its fleet. New software tools can help with stowage planning. A “cockpit” can help companies develop smart metrics and use them to guide the company. A target performance analyzer shows the deviation between planned and actual stowage. A move validator uses a heuristic to calculate the “right” number of crane moves for the given load, which can then be compared to the number of moves on the bill.
These tools must be combined with careful execution. Since stowage is a tension point between operations (which wants certainty) and commercial (which prizes flexibility), companies need to clearly define processes, handovers, cutoff times, and so on. Best-practice companies finalize their load lists two to three days before sailing and rely on solid forecasting and prediction systems, standard rolling processes, and exception-handling routines.
Network and fleet
Network and fleet improvements take longer than commercial or operational moves and require strategic timing. Two moves in particular can boost earnings by six to eight percentage points.
“Own or lease?” The question has long lain at the heart of container-shipping strategy. From our analysis, the industry typically relies too much on leasing. While leasing may be the only option for many cash-strapped liners that already have substantial debt, other lines should take advantage of this by owning more of their fleet. Leasing does provide a little more flexibility to change vessel deployment. But that breathing room often comes at too high a price.2
Shipping lanes or “trades” provide another interesting test. Shipping lines must choose whether to deliver direct or transship at an interim hub. The decision depends on several factors such as size of ship and distance. The tradeoffs have changed with today’s larger vessels and expensive fuel. But lines have not always made the necessary changes to their networks.
Leading lines are building new network tools to solve these knotty challenges.

Making it happen

As they take up the complex agenda outlined above, lines will also want to make changes to their organization that will give them the best chance for success. Five tactics can help a container-shipping line unleash its full potential.
  • Build cross-functional teams. Teams that bring together critical functions make better decisions on the trade-offs facing carriers. For example, one global line recently established an exception-management team with representatives from operations and commercial. Its mandate is to decide tricky questions that come up in vessel operations. Should a vessel speed up to get to Hong Kong and take on transshipment cargo, or should it skip the port and sail at a lower speed? The exception-management team considers both the commercial and operational impact and makes the right choice for the company.
  • Challenge the legacy. Companies can shake things up by bringing in new and controversial points of view. External experts can challenge established practices. Companies must innovate; a systematic approach to finding and testing new ideas can help. Innovation is possible across the enterprise, in products and services, the organizational and business models, and especially in the digitization of key operational processes. It is not too far-fetched to imagine that within three years, new technology start-ups can develop a superior, data-based understanding of cargo flows to threaten container lines. Already, new IT-enabled businesses are making inroads into logistics and freight-forwarding markets; others aim to automate processes for ocean-freight booking and invoicing. In anticipation, leading carriers are investing in devices and software to track containers in real time. At a minimum, all carriers need to monitor developments in this space.
  • Create a performance culture. Programs to transform business practices may start strong but typically fade after a few months or years. To sustain the improvement, shipping lines must build a rigorous and regular performance-management system. Weekly dialogues can improve transparency and help senior managers make more informed decisions.
  • Redesign incentives. Employees need both monetary incentives and recognition to energize a transformation journey. We have helped the transformation leaders of global shipping companies think through incentive program design and rollout. Programs can include new key performance indicators and bonus pools in addition to recognition awards and ceremonies. It is important to balance the right mix of monetary and nonmonetary incentives to achieve the desired behaviors.
  • Invest in analytics. Dedicated analytics teams can help senior managers understand the financial impact of both high-level issues including corporate strategy and pricing. Analysts can also help with tactical issues including network design (utilization, vessel deployment, string strategy); terminal productivity (port bottlenecks, terminal operations); bunkers (speed profiles of vessels, optimal speeds), and market intelligence and forecasts (industry-wide utilization on given trades, rate trends, mid- and long-term outlooks). Automatic identification system (AIS) data can be invaluable to the analytics team; some leading shipping lines are developing AIS-based models of utilization and other measures of productivity.
Container shipping has come through five highly volatile and unprofitable years, but remains in poor health. We expect the challenges to persist, especially with new capacity coming online, but argue that container-shipping lines must not give up in the face of market adversity. They can and must launch comprehensive transformations that addresses technical issues and organizational and mind-set challenges. This is the only way to stay a step ahead of competition and achieve elusive profitability.
About the authors
Timo Glave is an associate principal in McKinsey’s Copenhagen office; Martin Joerss is a director in the Beijing office, where Steve Saxon is a principal.
The authors wish to thank John Chen for his contribution to this article.

Saturday, October 11, 2014

MyCC accepts undertakings from logistics service providers

The Malaysia Competition Commission (MyCC) recently accepted undertakings in accordance with Section 43 of the Competition Act 2010 from Giga Shipping Sdn Bhd and Nexus Mega Carriers Sdn Bhd. 

The undertakings are in relation to exclusive agreements between the two enterprises with vehicle manufacturers, distributors and retailers.

Both enterprises are major providers of logistic and shipment services by sea for motor vehicles from ports in Peninsular Malaysia to ports in Sabah, Sarawak and Labuan, the commission said in a statement.

Following a complaint from a competitor, MyCC had been investigating suspected infringements of Sections 4(1) and 10(1) of the Act regarding the said exclusive agreements.

MyCC was concerned that these agreements may have had the effects of foreclosing customers to competitors of the enterprises, which if established, would have the effect of significantly preventing, restricting or distorting competition in the provision of the services.

Both enterprises have denied that their agreements with customers infringe the Act.

To address MyCC's competition concerns, the enterprises undertook to stop, including any exclusivity clauses or clauses in their agreements, which may distort, restrict or prevent the provision of services to their customers or potential customers.

"MyCC's intervention in this matter has ensured that competitors in the logistic and shipment services have access to customers while customers will also stand to gain from having more competing service providers to choose from," Domestic Trade, Co-operatives and Consumerism Minister Datuk Seri Hasan Malek was quoted as saying on the matter.

The undertakings accepted by the MyCC are legally binding on the enterprises and for so long as the enterprises are in compliance with the undertakings, the MyCC would refrain from instituting or taking proceedings against the enterprises.

The enterprises have also undertaken to continue implementing their competition law compliance programme initiated during the MyCC investigation for as long the undertakings are in effect.

The MyCC is satisfied that the undertakings provided by the enterprises address its competition concerns and has therefore closed its investigation on the matter.
The undertakings are available for public viewing on the MyCC website, www.mycc.gov.my.

- See more at: http://malaysianlaw.my/competition/news/mycc-accepts-undertakings-from-logistics-service-providers-MY12009.html?utm_source=MLTIC%20DAILY%20ALERT&utm_medium=Email&utm_campaign=MLTIC%20DAILY%20ALERT#sthash.7zWBMSQi.dpuf
__________________________________

Giga Shipping, Nexus Mega to stop any exclusivity clauses


PETALING JAYA: The Malaysia Competition Commission (MyCC) recently accepted undertakings in accordance with Section 43 of the Competition Act 2010 from Giga Shipping Sdn Bhd and Nexus Mega Carriers Sdn Bhd.
The undertakings are in relation to exclusive agreements between the two enterprises with vehicle manufacturers, distributors and retailers.
Both enterprises are major providers of logistic and shipment services by sea for motor vehicles from ports in Peninsular Malaysia to ports in Sabah, Sarawak and Labuan.
Following a complaint from a competitor, MyCC had been investigating suspected infringements of Sections 4(1) and 10(1) of the Act regarding the said exclusive agreements.
"The MyCC was concerned that these agreements may have had the effects of foreclosing customers to competitors of the enterprises, which if established, would have the effect of significantly preventing, restricting or distorting competition in the provision of the services," MyCC said in a statement yesterday.
Both enterprises have denied that their agreements with customers infringe the Act.
To address MyCC's competition concerns, the enterprises undertook to stop, including any exclusivity clauses or clauses in their agreements, which may distort, restrict or prevent the provision of services to their customers or potential customers.
"MyCC's intervention in this matter has ensured that competitors in the logistic and shipment services have access to customers while customers will also stand to gain from having more competing service providers to choose from," Domestic Trade, Co-operatives and Consumerism Minister Datuk Seri Hasan Malek was quoted as saying on the matter.
The undertakings accepted by the MyCC are legally binding on the enterprises and for so long as the enterprises are in compliance with the undertakings, the MyCC would refrain from instituting or taking proceedings against the enterprises.
The enterprises have also undertaken to continue implementing their competition law compliance programme initiated during the MyCC investigation for as long the undertakings are in effect.
The MyCC is satisfied that the undertakings provided by the enterprises address its competition concerns and has therefore closed its investigation on the matter.
The undertakings are available for public viewing on the MyCC website,www.mycc.gov.my.
Source here

See the Undertakings HERE and HERE

Wednesday, August 20, 2014

Malaysia Competition Commission (MyCC) published a Block Exemption Order for liner shipping agreements (BEO)

Cooperative agreements among liner shipping companies have existed in most trades for more than 100 years. Most major trading nations in Asia and the Pacific Rim have recognized the importance of these agreements to both the shipping industry and national economies. To the extent that these countries have competition laws that could restrict such agreements, many have found after careful study that these agreements should be afforded an exemption from those competition laws for economic, public policy and international comity reasons.
On July 7, 2014, the Malaysia Competition Commission (MyCC) published a Block Exemption Order for liner shipping agreements (BEO) in its Federal Government Gazette. This decision was based on an application by local carrier and port operator associations on behalf of the liner shipping industry serving Malaysia. Cozen O’Connor acted as a foreign law advisor to those associations while working with local legal counsel.
The BEO is valid and in force for three years, unless cancelled earlier by the MyCC. It broadly exempts liner Vessel Sharing Agreements (VSAs) and (to a more limited extent) Voluntary Discussion Agreements (VDAs) from certain prohibitions set forth in the Malaysia Competition Act of 2010.
The publication of the BEO is significant as it provides broad protection for VSAs. Of note, the liner industry is the first and thus far only industry to be formally exempted from provisions of Malaysia’s Competition Act, which was adopted in 2010. While this is positive news for the shipping industry, to the extent that a company participates in any VSA or VDA operating in the Malaysian ocean trades, there are certain compliance issues associated with the publication of the BEO. Some key points in the BEO and related compliance issues are summarized below.
General Provisions
  • The BEO exempts VSAs and VDAs from certain prohibitions in the Act against anti-competitive horizontal agreements, such as those involving market allocation. The BEO does not exempt entities from engaging in monopolistic conduct.
  • The BEO only applies to ocean transport services provided by liner operators. It does not apply to any inland carriage of goods that is part of through transport.
Provisions Relating to VSAs
  • The BEO defines Vessel Sharing Agreement broadly to include all operational agreements between ocean carriers involving direct calls to Malaysia (e.g., alliances, consortia/vessel sharing agreements, joint service agreements, space/slot charter agreements, and cooperative working agreements).
  • Copies of all VSAs and any amendments thereto must be filed with the MyCC within two weeks from the date of signing such agreement or amendment. All VSAs currently in effect are required to file their agreements with the MyCC by September 6, 2014.
  • There are other conditions placed on VSAs in the BEO, such as: (1) the VSA may not contain any element of price fixing or price recommendation, (2) the VSA may not require the disclosure of any confidential information, and (3) the VSA must allow lines to enter into any confidential contracts with their customers.
Provisions Relating to VDAs
  • VDAs are subject to similar conditions and the same filing requirements as VSAs, including the requirement to file all existing VDAs with the MyCC by September 6, 2014.
  • There is one important aspect of the BEO relating to VDAs that is more narrow than other countries’ VDA exemptions. The BEO permits “the sharing of information relating to the shipping industry,” including “market data, supply and demand forecasts, international trade flows, and industry trends.” It does not, however, exempt actions of VDAs “containing any element of price fixing, price recommendation, or tariff imposition.” VDAs serving the Malaysia trades should therefore consider whether changes to the VDA’s structure and/or activities are necessary in order to comply with the terms of the BEO.
Conclusion
The Malaysia action is an important one for members of VSAs and VDAs serving the Malaysia trades, but it will be important for carriers to review those agreements to ensure that they meet all of the conditions contained in the BEO. In addition, carriers should be mindful of the need to file their existing agreements with the MyCC by the deadline set forth in the BEO (September 6, 2014). 

Wednesday, June 26, 2013

Maritime sector needs reallignment

THE New Economic Mode (NEM) envisions transforming Malaysia’s economy into a developed nation status by 2020.
Such an economy will be propelled not just by capital but by productivity and high technology, featuring high income, value adding, innovation driven and knowledge based activities.
The maritime industry is unfortunately not among the first that comes to the mind of many in terms of its potential to generate such activities and to help transform the nation’s economy. It is probably a reflection of its understated importance and contribution to the nation’s economy.
Admittedly the maritime industry – which includes activities such as shipping, port operations, shipbuilding/repairing and offshore oil and gas exploration and production, among many others – is not as high profile or glamorous compared to say the aviation, banking or legal profession. The industry is also arguably not the first career choice of most young people.
However, this does not mean that the industry does not offer exciting earnings and career development potential. There are many sectors within this vast industry that present high-income prospects for those who care to look carefully and set aside stereotypical perception of the industry as being unappealing and characterised by hardship and unattractive remuneration.
Among such services are specialised services in offshore oil and gas exploration and production, integrated logistics services, maritime financing, supply chain management, shipyard services, advisory and consultancy, maritime education and training, shipyard activities, and producing solutions to reduce emissions from shipping.
These value-adding activities not only are capable of generating high -income to meet the goal of NEM but also lead to realising Malaysia’s ambition of becoming a globally competitive maritime nation.
Local companies which can offer value-adding products and services will be able to enlarge their market shares and compete globally. Such activities tend to yield high earnings to their companies and offer high income to their personnel.
Take shipping for example, whose competitive nature has become even more so amid the global recession and slump in the major shipping trades. As demand for shipping services fell, banks tighten financing to shipping, huge new tonnage keeps on entering the major shipping trades and oil prices hovering at high levels, shipping companies have faced very challenging market conditions. Many have gone out of business and hanging by thread amid the tough operating environment.
Those which are still surviving and thriving have done so by offering value-added services to their customers. Being in a very competitive market, shipping lines which can offer more than just transportation services are the ones least likely to run aground amid choppy waters in the industry. Such value-added services include specialised cargo transportation, logistics, ship management, ship brokerage and automated shipping status update.
By promoting such high-income generating activities in the maritime industry, Malaysia can also move to the “blue-ocean” side of the maritime industry and differentiate itself amid the crowded field. This will enhance their prospect of offering their services to the international market, which is crucial given the global nature of shipping and the small domestic market in Malaysia.
The importance of providing high-income, value-adding maritime related services becomes clear when one takes into account that competition in the maritime industry is increasing and Malaysia cannot out-compete countries which have advantages such as cheaper labour cost and economies of scale. To have a truly world-class maritime industry, Malaysia must break away from just offering “plain vanilla”, low-cost maritime services and start investing in developing and nurturing the manpower to cater to high-end, specialised and high-revenue generating activities to remain competitive.
For that to happen, Malaysia needs to re-align its maritime sector to develop the soft-side of the maritime sector. There must be in place a well-defined strategy, infrastructures, conducive environment to promote research and development or R&D, innovation, entrepreneurship and risk-taking, and strong leadership and public-private partnership. Above all, there must be a mindset and attitude change among local players in the maritime sector from relying on cheap labour and cost advantage to a strong desire to serve bigger customers and to compete on an international and global marketplace.
Malaysia’s maritime industry can no longer depend on a low-cost structure to remain competitive internationally. It cannot continue on the common path that it has been practising and hope to keep clinging on to the advantage of low cost as this can easily be replicated by other aspiring maritime nations. Even regional countries like Vietnam and Thailand, which have invested heavily in maritime infrastructures such as trade and shipyards, are fast catching up. They might even overtake Malaysia in certain aspects of the maritime industry, for example attracting main line operators and enlarging market share in handling transshipment cargos and intra-Asean trade, if Malaysia’s maritime industry does not continue to make progress.
A plan of action is also recommended to facilitate the promotion value-adding, high-income activities in the maritime sector. This includes developing a set of strategies and plan of action to align the maritime sector with NEM’s aspirations, offering a comprehensive set of incentives to local companies providing maritime support services, investing in skills and talents, inculcating and promote a strong R&D culture, and consolidating certain sectors to attain economies of scale.
A comprehensive approach in promoting value-adding, high-income activities in the maritime industry can lead to the enhancement of Malaysia’s competitiveness in the maritime industry and put the maritime industry on course to fulfill the aspirations of NEM.
It is high time Malaysian maritime industry players wake up to the fact that taking a myopic worldview of their business environment and continue with the status quo in their respective sectors would lead to a dead-end tunnel. They cannot be depending on the small domestic market and on government contract alone. They must branch out and develop a keen sense of where the business is and where new opportunities will emerge. They cannot just follow the leaders if they want to really excel and make a mark for themselves on the global stage in this ultra competitive industry.
Realising the ambitious targets set by NEM requires nothing short of the highest level of commitment to excellence, strong resolve and hard work, and major mindset transformation.
Only by doing so can the nation make the quantum leap required to attain high-income status and to generate knowledge-based, innovative-driven economy, as envisioned by the NEM. The motto pencapaian diutamakan must be used as a mantra for maritime industry players to adapt to the dynamics that will be unleashed by the NEM and to enhance Malaysia’s maritime competitiveness on the global stage.
Source: StarBiz

Tuesday, May 21, 2013

Kontena Nasional


A Kontena Nasional yard. The company incurred a loss of RM19.2mil in the last financial yearA Kontena Nasional yard. The company incurred a loss of RM19.2mil in the last financial year
SUBANG JAYA: Transport and logistics provider NCB Holdings Bhd will address the issue of escalating costs with a more efficient financial management system to turn around its haulage and logistics operation subsidiary Kontena Nasional Bhd.
Kontena Nasional incurred a loss of RM19.2mil in the last financial year ended Dec 31, mainly due to the lower margin contribution from new logistics activities caused by high initial start-up costs.
“The board of Kontena Nasional is addressing this issue at present.
“We want to strengthen the financial management system to stabilise cost so that we can obtain improved margins.
“We hope to see better results in the coming quarters,” NCB chairman Tun Ahmad Sarji Abdul Hamid told reporters after the company's AGM.
One of the core focuses of Kontena Nasional, according to Ahmad Sarji, would be operational cost management and bottom-line results.
<B>Ahmad Sarji:</B> ‘We want to strengthen the financial management system to stabilise cost.’Ahmad Sarji: ‘We want to strengthen the financial management system to stabilise cost.’
Nevertheless, Ahmad Sarji said the company's port operations, viaNorthport (M) Bhd, continued to be the main profit contributor.
In the last financial year, NCB posted a pre-tax profit of RM180.4mil, reflecting a marginal decrease of 5.1% over 2011.
This came on the back of an RM987.2mil revenue, a 6.4% increase against the previous year.
Northport's profit contribution was RM197.3mil.
Northport handled 3.1 million twenty-foot equivalent units (TEUs) last year, a decrease of 3.4% over the previous year.
Ahmad Sarji said the completion of container terminal four in August should boost the port's capacity and business.
On capital expenditure, Ahmad Sarji said the company had earmarked RM1bil for 2013 and utlised about RM700mil year-to-date, adding that future expansions might be financed via the issuance of sukuk.
He was also thankful to the Government for renewing the Northport lease by extending its present tenure by another 30 years to 2043 and another 21 years for Southpoint to 2034.
“The terms and conditions of this new lease are being negotiated and finalised, and slated for completion in the third quarter of this year,” he said. NCB paid out a dividend of 65.5 sen per share, involving a total payout of RM308mil, last year.
Source: StarBiz

Friday, March 1, 2013

Port Klang handled 100 million TEUs


PORT KLANG: From its humble beginning of container operations since the early 1970s, Port Klang recently celebrated the handling of the 100 million twenty-foot equivalent units (TEUs) at Northport (M) Bhd.
“We also began this year with a milestone achievement of surpassing the 10 millionth TEU mark. Northport handled 1.74 million TEUs or 47% of Port Klang’s indigenous volume and 1.35 million or 21% of the transhipment volume,” Port Klang Authority said in a statement.
In terms of development, Northport’s new container terminal 4 (CT4) is progressing on schedule. Wharf 8A, which forms part of CT4 is expected to be fully operational by July this year.
Upon completion in mid-2013 Northport will be able to handle 5.6 million TEUs. Northport is also investing in new equipment to further enhance the efficiency of its operations. Four super post-panamax quay cranes will arrive in the second quarter of 2013 to coincide with the completion of Wharf 8A.
Northport is acquiring 13 units of electric rubber-tryed gantry for its container handling operations.
Source: StarBiz

Tuesday, September 25, 2012

Regulate freight forwarding industry


The Federation of Malaysia Freight Forwarders wants the registration of freight forwarders be made mandatory to weed out fly-by-night operators


THE Federation of Malaysia Freight Forwarders (FMFF) has proposed that the Transport Ministry control the number of players in the market and make the registration of freight forwarders mandatory in order to weed out fly-by-night operators.

Selangor Freight Forwarders & Logistics Association (SFFLA) vice-president Chan Kong Yew said the freight forwarding industry is currently not regulated by any government body.

"The government should recognise the linkage between regulation, accreditation regimes, industry performances and quality standards," he told Business Times in an interview.

"On our part, FMFF is developing a framework where local freight forwarders can be regulated and benchmarked against international standards in terms of paid-up capital, operational capability, financial strength, ethical conduct, professional capacity and experience," he added.


FMFF also plans to upgrade the professionalism of the logistics industry through education and training.

"We recognise the importance of training and upgrading the skills of our members and employees, and have divided them into three focus groups," said FMFF president Alvin Chua Seng Wah.

Chua is also the newly-appointed president of SFFLA, following the demise of former president Abel Tan Ah Beng last month.

"The first group will comprise operational staff, who will undergo practical and vocational training, while the second group will focus on enhancing the knowledge of clerical and supervisory employees through a series of short courses.

"The third group will encompass executive staff, who can participate in the federation's foundation and certificate courses," he said.

In this regard, FMFF is working closely with the United Nations Economic and Social Commission for Asia and the Pacific and the International Federation of Freight Forwarders Associations (Fiata) in developing a series of logistics courses from foundation level to certificate, and eventually leading to a diploma in accordance with Fiata's syllabus, which is recognised by the world logistics industry.

"We are planning to introduce the diploma programme in Multimodal Transport Operation by the end of this year," Chua said, adding that FMFF is in discussions with Universiti Tunku Abdul Rahman to enter into a collaboration to offer the diploma course.

In another development, FMFF wants the government to lower the Bumiputera equity requirement for locally-registered licensed Customs brokers to 30 per cent from the current 51 per cent, to help them compete on a level playing field against their foreign counterparts.

"In 1976, the Customs Authority had imposed a requirement of 51 per cent Bumiputera equity share for all new and renew Customs brokerage licence. As a result, there is now a big percentage of Bumiputera portion that are normally decorative rather than actual contribution," said SFFLA deputy president Yeoh Kean Jin.

It is understood that the current 51 per cent Bumiputera equity requirement has prevented many non-Bumiputera Customs brokers from reinvesting their profits into growing their company over concerns that they do not have control over the company's operations.

To reduce their risk, the non-Bumiputera Customs brokers have spread their investments among many different companies.

"As the Customs brokers start to expand and diversify their businesses to offer integrated logistics services like warehousing and distribution, transportation, and value added services, they would normally form new companies and have different partners," said Yeoh.

This has resulted in many of them not being eligible for the Malaysian Industrial Development Authority (Mida) incentive for integrated logistics services (ILS), which requires the company or the group of companies to have the same shareholding structure.

"This problem is reflected in the number of local freight forwarders who have qualified for the ILS incentive. Of the 12,000-odd freight forwarders in the country, only 21 have qualified so far.

"As such, we call on the government to liberalise the Bumiputera equity requirement in the Customs brokerage business so that we can consolidate all our companies into one integrated logistics service provider and compete with the likes of Nippon Express, Geologistics and BAX Global," said Yeoh.

"This is also in line with the full liberalisation of freight services in Asean by 2010," he added.

Source: BTimes

Wednesday, May 2, 2012

Truck drivers protest at Northport over depot charges, delays




PORT KLANG: Container truck drivers who are unhappy with depot operators for allegedly exorbitant charges and causing delays, have taken their grouses to the streets.
Thousands protested at Bandar Sultan Sulaiman, outside Northport here Wednesday, from 10am, urging the Transport Ministry and Port Klang Authority (PKA) to help resolve this matter.
Several demonstrators were also seen hurling stones and empty bottles at trailers that refused to stop. The protest lasted for almost two hours. The drivers claimed they were acting on their own and were not from any group.
R. Pandian, 52, a container lorry driver for 30 years, said they resorted to a protest after depot operators raised handling fees.
"They used to charge RM5 and now it is between RM15 and RM20. We would not mind paying a standardised fee of RM20 if their services improved.
"But their services got from bad to worse and this has resulted in an average of one trip a day for all of us," he said, adding that drivers could previously make at least four trips, back and forth from the depots.
Meanwhile, PKA chairman Datuk Teh Kim Poo, when contacted, said the problem was beyond the authority's jurisdiction.
However, he said, he would see how he could handle this issue as Klang Barisan Nasional chief, by speaking to depot operators and truckers.

Source: BizStar

Klang ports facing a standstill

PORT KLANG: Trouble is looming at the ports here following a planned move by over 1,000 container truck drivers to stop transporting goods on Wednesday to protest against depot operators.
The drivers plan to hold a three-hour gathering from 9am outside Northport to express their frustrations over long-standing issues on delays and increases in depot gate charges, which they claim are affecting their earnings.
The planned demonstration is worrying Northport and West Port as their action may affect operations.
According to a driver who declined to be named, the service level at the depots had resulted in them having to wait for three to four hours to pick a box and transport it to the customer’s premises.
“We are only able to do one or two trips a day and this has reduced our earnings. Some of us are paid monthly wages of RM300 and our main income is from our daily trips. Some drivers are not paid monthly wages.
“We will be able to do six or more trips if the depot operators are more efficient,” he said, adding that previously it would only take them 45 minutes to pick a container.
A haulage company executive said the depot operators had introduced gate charges of between RM10 and RM16 per container so that they could invest in new equipment to improve service. Previously, it was RM5.
“But, until now, nothing has changed and it has severely impacted the livelihood of these much needed professional drivers,” he said, adding that attempts to resolve the issue had been unsuccessful.
Depot operators are paid by shipping lines to store their containers while haulage operators work on behalf of the shippers to move the containers.
An Association of Malaysian Hauliers official said he hoped that the drivers would not go ahead with the stop-work action because this would adversely affect the ports.
In an interview with StarBiz on Feb 20, association president Datuk Che Azizuddin Che Ismail had admitted that haulage operators were still having problems with container depot operators, suggesting that depots should be placed inside port areas rather than outside.
“It’s easier and cheaper if all containers go back to the port. It’s not productive to have a container 10km away from the port,” he said, adding that although some ports in Malaysia had on-dock depots, it was still not efficient as there was only one gate for trucks to collect and send the boxes.
Source: BizStar