Which way, PSA?

Two major shipping lines moving over to the Port of Tanjung Pelepas (PTP) in Johor is not just a loss for PSA Corporation. It is a loss for Singapore.

Apart from the loss of prestige as one of the world's busiest ports, the greater loss will be suffered by the whole range of businesses servicing the shipping industry, such as those in logistics, warehousing, transport, supplies (of fuel and food), servicing and repairs, insurance and finance.

It is a major setback for Singapore's development as a transport and logistics hub.

Maersk relocated at end-2000 and took away 1.8 million TEUs (twenty-foot equivalent units) of container cargo last year, which represented 10 per cent of PSA's container business.

Evergreen and its subsidiary, Uniglory, will take away another 1.2 million TEUs when their contracts with PSA expire in August, unless PSA can make them change their mind at the last moment.

This is just the beginning.

With PTP reportedly charging port handling fees 50 per cent lower than Singapore's and acquiring a critical mass that makes port operations viable, coupled with the Malaysian government going all out to develop supporting infrastructure like roads, rail and airports, more shipping lines are expected to follow.

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Efficiency

PSA's strongest selling point is its efficiency. It can turn around a container ship in just eight hours and that makes Singapore one of the most efficient ports in the world.'

Time is money, yet the two are not totally interchangeable.

In a depressed economy, many can afford the time but not the money. So long as their goods arrive in good condition and in reasonable time, some clients will be happy.

PSA's efficient service, backed by advanced information technology, may represent good value even though it costs more.

But it is hard to sell premium services to those who are satisfied with basics.

In any case, the standard of port services at PTP can only get better, especially with Maersk holding a 30 per cent stake and lending its management expertise. PTP will close the quality gap.

The threat being faced by PSA is neither new nor unique.

It is the same threat faced by Singapore companies in a broad range of industries: Cheap competition from abroad, often matched by comparable quality.

Companies faced with such threats have responded in a variety of ways.

Some have folded up, others have remained in business by moving on to higher value-added services like research and development. There are also those who have benefited by investing abroad.

These options are not entirely open or relevant to PSA. Yes, it has invested in ports further away that do not rival Singapore. But while this may boost its profit figure, it does not prevent the loss of business in Singapore.

PSA has also been developing higher value-added services, such as advanced IT systems that allow the easy tracking of cargo. Obviously, Maersk and Evergreen do not appreciate that enough to want to stay.

Fold up? No way!

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Whatever it takes

A manufacturing company folding up would, at most, result in a few thousand job losses. If PSA - representing the Port of Singapore - were to fold up, even if it were to just drastically shrink its operations, the effects on the Singapore economy would be devastating.

Of course, that is not about to happen. But what if 50 per cent, or more, of its clients were to move over to Johor over the next few years?

PSA cannot afford to let that happen. Yet, with its two biggest clients set to take away about 17 per cent of its container business, it is already one-third of the way there.

So do or die, PSA needs to retain its clients.

How? Cutting its rates to stay competitive could be one way.

Or, perhaps it needs a drastic management or strategic overhaul - setting its objective to maximise clientele rather than maximise profits. Perhaps some form of government help or intervention may be needed.

Whatever it takes, PSA needs to stem the potential exodus of shipping lines to Johor.

And it needs to do it with the same sort of speed and efficiency that it is famous for.

Up till now, PSA has been silent about how it plans to counter the Malaysian challenge.

Let's hope this silence is a sign of behind-the-scenes negotiations to win back its clients, rather than a sign of resigned acceptance and a loss for words.