Challenges within the shipping industry

It has been a relatively quiet period for the local shipping sector, with little growth caused by the standstill in world economics and less demand for bulk cargo and manufactured goods.
Although Malaysian shipping companies were previously sailing on high waters, they seem to have hit a rough patch in 2013 with issues of overcapacity creeping in.
Overall, the economic environment has not been favouring the shipping industry as evidenced by the liquidation of a shipping giant in Sarawak, Swee Joo Bhd, and the less than satisfactory performance of other surviving shipping players listed in the KLSE.
In fact, the Malaysia Shipowners Association (MASA) had pointed out that the Malaysian domestic shipping industry has been swamped by rising operating costs, including higher fuel and manning costs and poor market conditions.
It further noted that the industry, comprising mainly of shipping companies and operators serving the domestic trade between Peninsular Malaysia and Sabah and Sarawak as well as to ports in the region, continues to be affected by losses and difficult times.
Some worry that the Sarawakian shipping industry may also have suffered the same fate.
According to Lee Kim Kwang, secretary of the Sarawak Shipping Association, there was “virtually little growth in general due to the standstill in world economics with less bulk cargo (mineral) demand and manufactured goods.”
Lee noted that shipping is always the derived demand for transportation of these cargoes.
He further pointed out that the most significant impact on the shipping industry for the past 12 months was the recent hike in diesel price by 20 sen.
“Bunker cost constitutes more than 50 per cent of a ship’s total operating expenses under the present circumstances. Our members were forced to raise freight rates due to the increasing bunker cost,” he observed in an interview with the BizHive Weekly.
He went on to highlight problems ship operators were currently facing, such as the prolonged and unsolved shortage of qualified local seafarers, coupled with the increasing costs of employing foreign workers in this sector.
Other challenges include the implementation and ratifying by Malaysian Government of several new International Conventional Codes, for example, the Maritime Labour Convention 2006 (which went into force on August, 20 2013).
He explained that while this upgraded the welfare of crews onboard, it translated into more burden for owners in terms of operating costs.
 
Unhelpful laws
Ship operators were also affected by the strict enforcement by Immigration Department requiring owners to pay levies on foreign seafarers for ship plying within Sarawak waters, on top of the requirements by Marine Department which necessitated that all foreign nationals get the Malaysian Seaman ID and Certificate of Recognition (COR).
Other soon-to-be implemented or in the process of being implemented regulations include the Kyoto Protocol-originated ‘Green Ship’ requirements ranging from Air pollution Control, Ship energy Efficient Management Plan (SEEMP) to Energy Efficient Design Index (EEDI) and others.
There has also been great pressure on shipowners to scrap ships which are more than 15 years of age eventhough they are still in sound working condition. This is mainly due to the underwriters’ reluctance to provide coverage for these ships.
In terms of the move to tax 30 per cent of a shipping company’s profit, Lee said this indicated the government is reducing attention on the wellbeing of the shipping industry.
“They are moving away from their original aspiration to become the World Maritime Nation that would also greatly help reduce the nation’s service account deficit in international trade,” Lee commented, believing that  ships are ‘floating assets’.
If the country’s rules and regulations or environment are less competitive, Lee noted that shipowners could easily re-flag their fleet to another nationality which offers more incentives or advantages.
“I am aware some owners are registering their ships under the flag of our neighbouring countries or ‘flag of convenience’ such as Panama, Belize and even the lesser known Mongolia, Tuvalu and others,” Lee added.
As shipping is an extremely high risk venture, when compared to shore-based businesses.
Besides facing the normal financial risks, shipping companies have to struggle with the perils of seas.
As such, Lee strongly believes that the government’s assistance in the form of tax incentives and human capital development, for instance training facilities and training grants are still relevant.
 
Not as affected as others
However, Lee indicated that the Sarawak shipping industry is not entirely as affected as the rest of its counterparts.
“I do not perceive the Sarawak shipping industry with the simple criterion of being over-capacity or under-capacity. The Sarawak fleet constitutes a very small section of the world shipping capacity, and as such, any over capacity could easily be assimilated in another market,” he explained.
In other words, he said that Sarawak shipowners are always smart to reduce any over-capacity by selling off or operating these ships in the neighbouring routes out of Sarawak.
“During the 2008 economic downturn, there was a temporary over-capacity of 300 tug and barge vessels due to reduced demand for mineral and lumber logs. However, we did not see the prolonged lay-up of these vessels in Sarawak waters,” he added.
He has found that Sarawak shipowners are generally prudent when investing in new-built ships as they will only do so if they have found a sustainable market for it.
On whether there were any suggestions on improving the state of the shipping sector in Sarawak, the first thing he said was that the government and shipowners should work closely together in building up local human capital for the shipping industry by ways of training grants, increasing and upgrading more affordable training facilities, and providing better financial rewards and welfare to local seafarers.
In addition, the government should continue giving attention to the shipping industry by maintaining tax incentives, building better infra-structures (including the deepening of navigational channels to cater for larger capacity ships), upgrading port facilities and performance.
“As Sarawak is still a small market which could only warrant limited cargoes outturn (import and export), the government has a greater role to play by creating a conducive environment that attracts more industries and agricultural ventures here, thus building up the cargo volume for our own fleet,” he added.
With no foreseeable interesting growth in 2014 amid the prevailing world economic backdrop, BizHive Weekly takes a look at one of Sarawak’s major shipping companies and Malaysia’s third largest port operator for some insight into the shipping industry.
 
Shin Yang Shipping sees potential ahead
With the potential outbound cargo from East Malaysia to West Malaysia showing signs of increase through the use of containers as a mean of shipment, Sarawak shipping magnate, Shin Yang Shipping Corporation Bhd (Shin Yang) still sees much potential within the industry here.
The shipping industry in Sarawak is well-positioned to benefit from steady growth especially with projects to be started off under the Sarawak Corridor of Renewable Energy (SCORE).
Also, companies will inevitably tap into the business of transporting raw materials from Bintulu Port to Samalaju Industrial Park.
Furthermore, existing oil palm and reforestation plantation, heavy industries,  and downstream processing industries are continuously expanding and hence will have a need for sea transportation. This provides a vital link to the international markets, since Malaysia is still a net exporting country.
Shin Yang Shipping’s chief financial officer Richard Ling noted that during Budget 2012, Prime Minister Datuk Seri Najib Tun Razak said that the strength of domestic demand should keep the country’s economy growing which to date, remains robust.
“Hence, we believe that sea transportation to and from West Malaysia, especially with the delivery of consumer goods and daily food products to the domestic markets, are still strongly required,” he outlined to BizHive Weekly in an online interview.
“Mobilisation of some containerised routes to East Asia regions with which Malaysia has strong trade links include Bangkok (Thailand), Vietnam, Hong Kong and China.”
This, he added, was on the back of a bleak outlook faced by international shipping players in the dry bulk shipping markets, due to plunging rates for carrying commodities and containers.
The over-capacity of global vessels has further hampered freight rates, causing a dilemma for container-shipping lines.
“Locally, the performance of shipping companies is below expectations due to the weakening of freight rates.
“This is clearly another challenge for the shipping companies from Sarawak,”Ling commented.
He pointed out that although there have been some flashes of rebound, such as in the container and dry bulk trades, they have not occurred on a sustainable basis for pundits to be convinced that the shipping industry is well and truly on a path of recovery.
Thus, since the shipping sector is heavily influenced by the drumbeat of world trade and given the state of the global economy, it continues to find itself in rough conditions.
Seeing that the shipping industry has been in a very challenging situation, Ling opined that in order for the shipping industry to remain sustainable, it must be able to stand firm to its commitments and responsibilities.
 
Meeting niche demand
When asked if there were any new developments at Shin Yang in the shipping segment, Ling replied that their  emphasis of development is to expand and construct high end types of vessels such as various offshore supply vessels.
He explained that this is to meet the requirement of the niche markets from the oil and gas (O&G) industry and also oil palm sectors of the neighbouring Southeast Asia regions and is done by way of strategic partnerships with the local partners from these regions.
“We are looking at dry bulk cargo vessels and container shipments especially in the Southeast Asian regions and between the East and West Malaysia regions,” he added.
In addition, he noted that there have been redirect investment opportunities and an influx of infrastructure development projects in the Middle East region, especially Dubai, Abu Dhabi and Qatar.
We see the potential to undertake such huge projects through our existing presence in the Middle East region since 1997 to undertake development projects,” he said, adding some of the mega development projects include the New Doha International Airport – Phase 2, World Cup Qatar 2022, construction of railways and roads to link the Middle East countries, World Islands in Dubai, and Oilfield Island/platform in Abu Dhabi.
In terms of the main challenges Shin Yang Shipping has faced, Ling opined that it is the upward pressure on direct costs due to increasing bunker fuel costs, marine equipment and spare parts replacement costs, other direct operating costs especially in regards to human capital and insurance costs, and costs of new investment of vessel fleets. The latter is considered a long term return on investment.
Furthermore, there are also increasing costs on compliance to the maritime standards and regulations. As a result of this, there is an increasing trend to employ foreign crews on board.
“Shipowners are facing the impact of rising operational and management costs arising from the need to comply with a slew of mandatory shipping rules and regulations introduced by the International Maritime Organisation (IMO) as well as Classification Societies,” Ling said.
 
Pirates still a main risk
Other challenges faced in the shipping sector include the risk of being targeted by pirates during voyage and improving the reliability of services in terms of the timing of cargo deliveries to the production sites so that it will not affect the commitments of customers when using the company’s vessels.
Establishing a track record of prompt delivery of services and broadening its market networks to reach both local and international destinations are also challenges Shin Yang faces to date.
“Going forward, it is also challenging dealing with port charges and dues in Malaysia especially with the introduction of new tariff items.
“These new port tariff rates would definitely increase cost of operations to shipping companies,” Ling opined.
Bintulu Port gearing up growth
As the third largest port in Malaysia (in terms of total cargo handled) and one of the main gateways to Sarawak’s regional corridors, Bintulu Port Sdn Bhd (BPSB) has its share of responsibilites to handle – not only for itself but also towards the industries surrounding it.
In 2012, the port handled 41.16 million tonnes of cargo, compared with its humble beginnings of handling 13.59 million tonnes way back in 1993.
Based on its experience, BPSB informed BizHive Weekly that the shipping sector has shown much focus on improving operational costs, with shipping companies for all sectors – either bulk or container – working together with terminal operators to reduce the ship turnaround time at port.
“For the container sector, there has been some realigning or streamlining of service routes which involved several shipping lines,” the port operator told BizHive Weekly during an online interview.
Record has shown that for the first six months of 2013, compared to the same period last year, there has been a growth of two per cent in the number of vessel calls by ports in Sarawak.
The increase in vessel calls, it believed, was attributable to the new shipping service introduced and the demand to cater for oil and gas (O&G) industries.
Last year alone, Bintulu Port handled 41.157 million tonnes of cargo, with the handling of liquefied natural gas (LNG) contributing approximately 57 per cent to the total volume.
Aside from LNG, Bintulu Port also handles a mixed volume of other cargo sectors such as Liquid Bulk, Dry Bulk, Break Bulk and Containerised Cargo.
Among the top major cargoes in terms of tonnage handled are container, crude oil, palm oil products, logs, petroleum products, general cargo, clinker and timber products.
 “ We have identified four major growth sectors, namely palm oil products, dry bulk cargoes (bulk fertiliser and woodchip), containerised cargoes and the O&G sector,” Datuk Mior Ahmad Baiti Mior Lub Ahmad, chief executive officer, Bintulu Port Holdings Bhd highlighted.
“T hese cargo types and sectors have been selected due to their strong potential of growth after taking into account all the environmental scanning and economic development surrounding the region.”
Development plans identified
To keep up with the increasing demand while at the same time striving to achieve its overall vision of becoming a world-class LNG Port and Port of Brunei, Indonesia, Malaysia, Philippines-East Asean Growth Area (BIMP-EAGA), BPSB has identified development plans to be implemented in the coming years.
In regards to the container segment, BPSB’s Bintulu International Container Terminal (BICT) intends to add additional berth and container storage yard in line with the rapid economic development currently taking place in Bintulu.
“Together with this expansion, there will be additional handling equipment such as the container quay crane to support the operation. All these improvements are targeted to be implemented within the next two to five years,” Mior stressed.
With such improvements to facilities, BPSB’s capacity is expected to increase from 400,000 20-foot equivalent units (TEUs) currently to 600,000 TEUs annually.
Currently, our container terminal is operating at 52 per cent capacity. Our business objective is to attract container volume within the BIMP-EAGA region to capitalise on the available capacity,” Mior said.
“With the ongoing economic activities within the Sarawak Corridor of Renewable Energy (SCORE) region, it is anticipated that this sector will see a strong growth of between eight per cent to 10 per cent annually.”
For the dry bulk sector which is currently being handled at the Multi-Purpose Terminal, BPSB intends to realign its overall handling operation to optimise the provision of facilities and services.
This shall include the development of additional berths, warehouse and storage space not only for dry bulk cargo but also to cater for general cargo such as wood-based products as well.
Bintulu Port’s edible oil terminal, through Biport Bulkers Sdn Bhd (Biport Bulkers), is improving its capacity through the development of additional storage tanks in line with the increasing palm oil activities in Sarawak which has been recognised as the final frontier in Malaysia’s palm oil industry.
Biport Bulkers is currently building another 25 units of storage tanks that will give additional 53,000 metric ton (mt) of storage capacity adding it to the current 101,600mt of storage capacity. Plans are also underway for the development of barge berth at the palm oil jetty.  Added with its global standard of 430 tonnes per hour pumping rate, the terminal is expected to be able to cater to current and future demand.
Finally, BPSB has identified an increase in O&G activities within Bintulu/Sarawak waters, indicating a potential sector for the company to invest in. This increased activity has translated into increased demand from O&G players to use BPSB as their support facilities and services provider for their current operation.
As such, BPSB intends to develop a dedicated terminal or supply base to handle the O&G vessels and its related operations.
Going forward, facility development plans in Bintulu Port are streamlined towards potential cargo sectors of containers, woodbased products, dry bulk cargo, palm oil as well as O&G related activities.
 
Staying competitive
In terms of challenges faced to date, BPSB noted that its main challenge at the moment is to continuously stay competitive in the industries and facing the rising costs of operation.
It observed that ports and shipping industries are rather competitive nowadays, be it in terms of cost and services.
The diversion of cargo to a certain port will depend on the port’s ability to attract shipping lines and offer efficient services with good facilities.
It further pointed out that the rising cost of fuel has also set off a chain reaction for the increase in cost of other materials.
Another factor that we need to relook into is the availability of human resource and skill to cater for the need of SCORE requirements which might have an impact towards the port operation and productivity,” BPSB added
All in all, Mior has found that the outlook for 2013 and 2014 seems to be promising with overall modest growth in cargo throughput and certain cargo sectors showing strong growth potential.
Aside from the anticipated organic local growth, the industrial development within SCORE itself will contribute and fuel the cargo growth for Bintulu Port.
LNG is estimated to maintain its position as the major cargo handled at the port, out of the total cargo throughput in 2013 and 2014.
There is also encouraging and steady growth on the handling of palm oil products from year to year and this is estimated to continue in relation to the increase in palm oil plantations in Sarawak.
Major contributions to the volume of dry bulk sector are from the bulk fertiliser, alumina, woodchips, palm kernel products (expeller and shells) and clinkers.
This sector will see a positive and encouraging growth for the next two years, Mior said.
For the year 2013, Bintulu Port is expected to record an impressive growth of between eight per cent to 10 per cent in container (in terms of TEUs) throughput as compared to 2012.
The growth is attributed to strong demand in containerisation shipments especially for timber products, rice and fertiliser shipments, increased export and import from SCORE-generated cargoes and expected increases in Sarawak transshipment container.
This trend is expected to continue in 2014.
The Break Bulk cargo sector will also contribute positive growth, spurred mainly by an increase in the handling of general cargo.
These include the project cargoes which is meant for SCORE-related constructions plants and the Malaysia LNG (MLNG) Train Project. Other potential cargo sectors that will fuel growth at Bintulu Port are from the offshore O&G industries.
“Therefore, the outlook for non-LNG sector is expected to grow at an average annual growth of about five to six per cent,” Mior said.
Despite improved global financial conditions and reduced short terms risks, BPSB opined that the world economy continues to expand at a subdued pace.
The global economic slowdown undoubtedly has an impact on the global cargo.
Instead of double digit growths, shipping lines are revising their growth down to between three to five per cent.
The shipping industry, particularly in the container sector, will see carriers focus more on improving costs.
“In doing so, we can expect that the shipping industry will see the streamlining of service routes, introduction of more fuel efficient ships which will lead to the phasing out of fuel gauzing vessels, deployment of bigger-sized vessels to reduced slot cost, increases in Bunker Fuel Surcharge, and the formation of new alliances,” the port operator projected.
Source: The Borneo Post