Wednesday, August 11, 2010

Johor Port, PTP can still achieve cost savings

The expected cost savings from the consolidation of Johor Port and Port of Tanjung Pelepas’ (PTP) operations can still be achieved without changing their corporate structure, says Kenanga Investment Bank research head Yeonzon Yeow.

“The deferment of the rationalisation plan of the two ports will have minimal impact on their parent company, MMC Corp Bhd. Whether they consolidate or not, both ports are still within the group,” he told StarBizyesterday. MMC owns 100% of Johor Port and 70% of PTP.

MMC proposed to streamline operations at the two ports to reduce cargo leakages to Singapore, which has been going on for many years due to better connectivity offered by Singapore ports.

An aerial view of Port of Tanjung Pelepas. MMC proposed to streamline operations at PTP and Johor Port to reduce cargo leakages to Singapore,

The consolidation would also see Johor Port’s container operations in Pasir Gudang moved to PTP in Gelang Patah, turning the former into a non-containerised port.

But the Government shot down the idea last week due to the distance between the two ports, which is about 90km, as shippers and manufacturers operating in Pasir Gudang, Tampoi and Tebrau complained that they would incur higher transportation cost going to PTP.

OSK Research Sdn Bhd research head Chris Eng said with the deferment, the listing of MMC’s port units was unlikely to materialise soon.

“Nonetheless, we believe there is still the possibility of MMC list ing its other units, Gas Malaysia Sdn Bhd and Malakoff Corp Bhd within the next two to three years,” he said in a recent note to clients.

Eng said the deferment of the consolidation exercise would also result in PTP’s excess capacity being underutilised for the time being.

He said the main reason for the rationalisation between the two biggest ports in Johor was because the container operations at Johor Port was congested with minimal room for further expansion.

“The consolidation would boost container volume at PTP, helping it reach the eight million twenty-foot equivalent units level, which would then help to attract new customers,” he said.

Source: StarBiz

Questions for PTP as merger bid turned down

The failed rationalisation of the Port of Tanjung Pelepas and Johor Port may not affect the performance of MMC Corp much

The failed rationalisation of the Port of Tanjung Pelepas (PTP) and Johor Port may not affect the performance of MMC Corp Bhd much, but it does bring up the question of what will happen to PTP and its expansion plans.

Combined operations of the two ports contributed about 14 per cent of the group's revenue last year.

MMC Corp made a net profit of RM237 million on revenue of RM8.4 billion in the financial year ended December 31 2009.

"I doubt that any analyst has factored in the rationalisation of the two ports into MMC Corp's valuations. So it does not really affect the stock," said an analyst, who declined to be named.

According to OSK Research Sdn Bhd head of research Chris Eng, PTP has started dredging work for berths 13 and 14 as part of moves to increase the port's capacity. Currently, it has 12 container berths.

However, with only about 78 per cent of the capacity utilised and no added containers or shipping lines to be expected from Johor Port through the rationalisation, there does not seem to be a need for the expansion.

PTP is handling some 6.6 million boxes at present. It has a capacity of 8.5 million twenty-foot equivalent units (TEUs).

"They will have to hold back on expansion plans as there is still some spare capacity to work with now," Eng told Business Times last Friday.

He said that this could mean some capital expenditure in Johor Port instead, previously held back pending a decision on the rationalisation of the two ports to ease congestion.

"There are still a couple of bulk berths that can be converted into container berths (for expansion). There is a little bit of room to play for Johor Port," Eng said.

The announcement does not change his call on the parent of both ports, MMC Corp.

As Eng pointed out, the rationalisation was never factored in as he had anticipated the difficulty in consolidating the port operations.

MMC Corp owns 70 per cent of PTP and all of Johor Port. Ever since it bought over Johor Port in 2006, talk of rationalising MMC's port operations has been ongoing.

The plan had been to have PTP focus on containerised cargo, while Johor Port would handle bulk traffic.

It faced fierce opposition, however, from manufacturers who worried about higher transport costs.

Monday, August 2, 2010

No hidden agenda, says Masa

Malaysia Shipowners' Association says it has no hidden agenda in protecting the Cabotage Policy and the myth that the policy is a creation of Masa should stop

The Malaysia Shipowners' Association (Masa) expresses its regret over unfounded accusations and misinformation being reported by shippers' bodies in Sabah alleging that the association has hidden agenda in protecting the Cabotage Policy and blaming the policy for the high cost of goods in Sabah.

We have no hidden agenda in protecting the Cabotage Policy and the myth that the policy is a creation of Masa should stop. The Cabotage Policy was introduced by the Ministry of Transport in 1981 as part of a policy instrument to foster the development of the national shipping industry which was identified as a critical sector and also to protect the domestic trade from domination by foreign shipping lines.

We want shippers to support the government's aspiration to make Malaysia a maritime nation and they should have nationalistic values.

We urge the Federation of Sabah Manufacturers (FSM) to be rational and not make anecdotal comments and sensationalise the issues but be more evidence-based so that policy planners and the public are not confused or misled.

Local shipping companies and entrepreneurs are encouraged by the government, with the offer of tax incentive in view of the highly capital intensive nature of the industry, to invest in the development of the domestic shipping industry, which has grown into what it is today because of the Cabotage Policy.

There are more than 200 shipping companies with over 4,500 ships which have taken advantage of the opportunities because of the Cabotage Policy. Many of the container shipping companies serving the domestic trade had invested heavily in recent years to serve the rising demand of the trade.

Masa, as the national body of the shipping industry, is duty-bound to protect its member shipping lines since these companies have invested heavily. Our right to protect our members is an open secret and we only feel it is not right for rules of game to change mid-stream after decades of hard work and investment of billions of ringgit. We can assure that we have no hidden agenda whatsoever in this regard.

Masa is neither a shipping company nor a cartel but merely an association representing shipowners interests, just as the FSM, which is a body representing the interests of manufacturers and plays no role in fixing prices of goods sold by its members.

In fact, the shipping lines compete among themselves and their rates/charges differ from one to another and shippers are free to choose which line they prefer.

Reports by the FSM quoting a study on the high cost of shipping in Sabah as being sanctioned by the Malaysia Investment Development Authority (Mida) is totally inaccurate.

Masa is aware of the "Study to Address the Problems of High Cost of Logistics Expenses in Sabah", but this was commissioned by the Sabah State Ministry Industrial Development & Research.

While we are also aware that the report may have been submitted to federal ministries and relevant agencies, including Mida, we are not aware that Mida or any government agencies have concurred with the findings of the study.

We hope a copy of the study will be extended to Masa for our views against findings based on baseless accusations.

There is a great deal of misinformation over what constitutes ocean shipping costs, total transportation or logistics costs and shelf prices of goods.

While we have pointed out that ocean shipping costs make up about 46 per cent of the total transportation costs which involves eight other intermediaries (which account for the 54 per cent of the total transportation costs), this does not mean that the shelf prices of goods are burdened with 46 per cent shipping costs.

According to a survey carried by Masa, the shipping cost in a five-packet standard instant noodles is only 0.02 sen (per five packet), but sells in Kota Kinabalu higher by 0.40 sen than the average price in Peninsular Malaysia. Similarly too, the shipping cost is only 0.05 sen in the shelf prices of per kilo of sugar and flour sold in Kota Kinabalu, which is higher by 10 sen and 31 sen, respectively, compared to in Peninsular Malaysia.

It is obvious that there are other components of the total transportation costs which need to be looked into and addressed than merely attributing the whole thing on shipowners. Who is gaining? Definitely not the shipowners.

Why and how Masa or the Cabotage Policy could only be blamed for this?

We do not want to point fingers, but it is obvious there are other than shipping costs which make the shelf prices of goods in Sabah higher and we are willing to work together with shippers, including the FSM, to identify where these additional costs come from.

Masa has been open on this matter. I think the time has come for all the intermediaries, and also the shippers to do so and come out clean on the components of the cost structures of each party, as we shipowners have done in our earnestness to be transparent and open.


On 19/07/2010 Business Times reported:

Malaysia willing to look into Cabotage Policy

The federal government is willing to look into the problems faced by the business community in Sabah, particularly the Cabotage Policy.

"We will see whether we can review this (Cabotage Policy) so that you can export directly from Sabah ... it makes sense, but let me see whether there are other implications," Prime Minister Datuk Seri Najib Razak said in his speech during a luncheon with Sabah Chinese community leaders in Kota Kinabalu yesterday.

The business community in Sabah, including the Federation of Sabah Manufacturers, had called for the policy to be liberalised or scrapped as it did not benefit the domestic shipping lines.

Under the Cabotage Policy implemented on January 1 1980, domestic trading between two domestic ports can only use the services of local shipping lines in order to reduce prices of consumer goods.

Last Friday, Deputy Minister of Transport Datuk Abdul Rahim Bakri said the increase in prices of consumer goods was due to several factors including excessive profiteering by certain groups, and inefficient loading and unloading services at ports.

Exorbitant marine insurance fee, land transport cost and economy of scale were the other reasons, Abdul Rahim said.

He said the National Shipping Policy, which gave priority to domestic shipping services, was actually to protect the nation in the long run.

If the government allows foreign shipping lines to dominate or control the country's transportation system, "our local shipping companies will go bankrupt and eventually the nation will have to depend on foreigners forever", he said.

Abdul Rahim said many shipping companies that had received incentives under the National Shipping Policy were those from Sabah and Sarawak such as Johan Shipping, Hubline, Shin Yang and Chong Fui Shipping.

Seeking a solution to Cabotage Policy row

For years, shippers in Sabah and Sarawak and local shipowners have been at odds with each other over a 29-year-old national policy that allows only Malaysian flagships to carry cargo between domestic ports.

Each time it's the same: Exporters and importers in Sabah and Sarawak, led notably by the Federation of Sabah Manufacturers (FSM), want the controversial Cabotage Policy to be removed, blaming it for the higher prices of goods in the two states on Borneo island compared with the peninsula. Shipowners say it's untrue.

Well, the issue is back this year, with FSM president Datuk Wong Khen Tau firing the latest salvo by reportedly saying that partial liberalisation of the Cabotage Policy in June last year had failed to benefit domestic shipping lines and continues to contribute to the high cost of goods in Sabah and called for Prime Minister Datuk Seri Najib Razak to abolish the policy.

Under the relaxation of the policy, foreign vessels are now allowed to carry containerised transshipment cargo from abroad, between five ports in the country - Sepangar Bay, Bintulu, Klang, Kuching and Tanjung Pelepas.

And though shipowners have experienced such protests before, this time politicians are sharing shippers' criticism of the Cabotage Policy. Shipowners now find themselves in a political fight for survival of the legislation.

Thus far, a host of high-profile politicians and influential voices from the state have appeared to side with Khen Tau's statement about the Cabotage Policy. Among them are Sabah State Industrial Development Minister Datuk Raymond Tan, Sabah Progressive Party treasurer-general Datuk Wong Yit Ming, United Pasokmomogun Kadazandusun Murut Organisation secretary-general Datuk Wilfred Madius Tangau and Sabah Housing and Real Estate Developers Association president Datuk Susan Wong.

They believe that Sabah and Sarawak would notch up in the competitiveness rankings should the policy be abolished, as the exclusionary nature of the policy is blamed for high freight rates, which have led to high prices of goods in Sabah and Sarawak. They said the policy is also to blame for the lack of traffic from foreign liners in Sabah and Sarawak ports.

On its part, the Malaysian Shipowners Association (Masa) has issued three press statements defending the policy's role and saying shippers' accusations are "totally inaccurate" and "baseless".

Who's right, you ask? It is tempting to think that transportation costs are the primary culprit for the different living costs between Sabah and Sarawak and Peninsular Malaysia. And certainly there is an argument to be made that given that it's been 29 years since the Cabotage Policy was introduced in 1981, local shipowners should be much better prepared for eventual full liberalisation of the Cabotage Policy and to compete with their foreign counterparts.

Still, if that is so, we would expect reduced freight rates, in part due to reduced demand precipitated by the recent global economic crisis to be reflected on the consumer goods in Sabah and Sarawak prices. But that doesn't appear to be the case.

Masa executive secretary Captain Imtiaz Hussein said the fact that consumer goods like Sabah Tea bags (loose) of 100 grammes are priced at RM2.59 in Kota Kinabalu and RM2.20 in Kuala Lumpur suggests that there is profiteering or manipulation by certain traders in Sabah, who then hide behind the presumed high shipping cost caused by the Cabotage Policy.

Indeed, association chairman Nordin Mat Yusoff said there is no assurance that shipping cost would decline with the removal of the Cabotage Policy.

"In fact, there is even a bigger threat that shippers and the government will face as they will have no recourse to remedy if shipping rates are high or increase when the trade is open to foreign shipping lines," he said in a July 23 2010 statement.

"And if shippers in Sabah and the FSM are expecting an overnight solution to this low shipping connectivity by simply calling for the Cabotage Policy to be removed then this is simply a case of misinformation," he added.

"Why do you think the freight rate structure for shipments to ports in Sabah and Sarawak is where it is today?" asked Shipping Association of Malaysia chairman Ooi Lean Hin.

"The reasons for this are simply the infrastructure of the ports there (except for Bintulu Port) which deters big, mainline container vessels from calling, the size of the market and the imbalance in trade. Containers arrive in Sabah and Sarawak full, but many return to the peninsula empty," he said.

Ooi pointed out that using the freight rate for a 40-foot container from Port Klang to Miri, which is three times (RM3,150) that of the container from Port Klang to Hong Kong (RM1,020) as example, is bad because shipowners have been selling their vessel space below cost due to intense competition.

It's worth noting that it is common for countries to support the development of local industry through a protectionist policy. Masa had revealed that the Cabotage Policy is applied by more than 50 countries worldwide, including the US, India, China, Japan, the Philippines, Indonesia and Australia.

So, how does the federal government handle this delicate situation? The wrong choice in favour of one group can prove detrimental to the country as shippers and shipping lines are important stakeholders in the maritime industry.

A first step towards resolving this conflict is probably for FSM, Masa and federal agencies like the Ministry of International Trade and Industry, the Transport Ministry and the Sabah State Industrial Development Minister to sit down and find a solution. Masa has started the ball rolling by extending an invitation to shippers in its latest media statement. At the same time, a study can be conducted by an independent third party or the government to ascertain whether the Cabotage Policy no longer serves its purpose to protect the local shipping industry and that its removal can really reduce the cost of goods in Sabah and Sarawak.