The good news for PSA is that Evergreen is following a blueprint pattern set by Maersk Sealand which would be hard for others to follow.

 

The two liner giants are both stand-alone companies that can move their business unilaterally without consulting their alliance partners. Another crucial factor is that both companies have their own in-house feeder network and are not solely shackled to a common feeder system serving Singapore.

 

In volume terms, the impact is unlikely to be as great as the loss of Maersk, with reports suggesting that Evergreen and Uniglory are handling 1.2m teu in Singapore, with much of its transhipment done elsewhere.

 

The Evergreen website shows that the only transpacific service calling at Singapore is on the eastbound round-the-world service, because all the other business is transhipped over Taiwan where Evergreen has several large terminals.

 

All of the European services and one of the Australia services call there with hubbing for Malaysia, Thailand and Vietnam. Uniglory is also hubbing in Singapore for Middle Eastern shipments.

 

Symbolically though, it is a major blow for PSA as the two top container lines snub it in favour of a port that just 18 months ago many thought would be a white elephant. Evergreen is also the anchor customer for its state-of-the-art Pasir Panjang Terminal.

 

Much like Maersk, the news that Evergreen is planning to go to PTP will come as little surprise to the market which has whispered of talks between the two for some months.

 

Evergreen has also actively looked for an alternative for a southeast Asian hub before with aborted plans to build its own deepwater port in Vung Tau, Vietnam in 1997.

 

What is surprising though is that the Taiwanese line is looking to a port 30% owned by its rival Maersk. The players involved are not saying much. “We are still studying the possibility, but we have not made a final decision,” said Elysia Chen, Evergreen’s public relations manager in Taipei.

 

“PTP has given us some plans, which we are looking at.”

 

Reports indicate that cost savings are the main carrot for the Taiwanese line. The 1.2m teu in Evergreen/Uniglory business if true would translate to about 750,000 box moves. Estimates from industry sources range from $10m to nearly $30m in nominal savings.

 

PTP is also offering dedicated berths which would give Evergreen better control over its vessels and allow to better programme its shipments and shuffle on-dock boxes. PSA has long maintained such facilities are simply not economical in land scarce Singapore. It will be interesting to see if the defection of two major customers alters this view.

 

The PSA was tight-lipped. “PSA does not and cannot comment on confidential agreements with our customers,” said a spokesman, citing “contractual obligations” not to comment on its business operations and dealings with its customers.

 

The news of the Evergreen defection to possibly start as early as August clearly was leaked out of Malaysia, where PTP handled 1.48m teu in the first nine months of 2001, compared with PSA’s 7.55m teu in the first six months.

 

While the move remains unconfirmed by both Pelepas and Evergreen, the Malaysian port would appear to be gearing up for a major surge in volumes.

 

Present capacity meant it was looking for regional lines with a volume of 500,000 teu or less, however it recently placed two separate orders for sets of five super post panamax gantry cranes. The order was split to meet PTP’s tight delivery schedule, which wanted the cranes up and running by the second quarter of next year. This will give it 4m teu in annual capacity, far more than it needs for Maersk.

 

With PTP already planning phase II the obvious question is will there be more defections from Singapore?

 

Fortunately for PSA, not many companies fit the business profile of Maersk and Evergreen. Cosco, for example, is doing a lot of regional business, but most of this is direct end-to-end business from mainland ports so the mainland carrier is somewhat captive to Singapore’s feeder network.

 

Just last week, Cosco signed a virtual terminal agreement with PSA Corp that would allow berthing on arrival.

 

There do appear to be few long-term guarantees in the VTA scheme. Maersk Sealand broke a similar agreement, shifting its regional hub to PTP, where it was able to take a 30% stake in the port.

 

Apparently, a periodic review within the VTA contract enables carriers to walk away without being hit by heavy penalty clauses. PSA’s first publicised 10-year VTA ceased to exist when the Global Alliance, which signed the deal, broke apart following the acquisition of APL by Neptune Orient Lines.

 

The trade-off between efficiency and cost has always been central to Singapore’s claims to have the edge in retaining transhipment business.

 

Singapore’s efficiency is one in handling ships and paperwork. Hong Kong’s strength is that the middlemen traders are able to move cargo in and out of the mainland more quickly and less expensively than mainland ports.

 

This is why a meat importer in Beijing will buy products at a Guangdong wholesale market in the south. Hong Kong is so good at getting cargo into China that it keeps boxes nicely balanced with export loads and the freight handling savings are very attractive to container lines.

 

Hong Kong efficiency is founded on the inefficiencies of mainland distribution networks. Singapore’s efficiencies are internally generated and tied into serving the commercially rational strategies of container industry. In particular, PSA Corp’s Portnet system is renowned for electronification of documentation and communications.

 

The container industry is going to play that calculation quite tightly.

 

Any carrier is going to look at reduced cargo handling costs estimated at 20% to 30% lower in Malaysia and is going to ask: “What will stop me from moving over there? ”

 

The obvious answer seems to be resistance from alliance members while lack of feeder services are a big disincentive.

 

There was a lot made of the decision of MOL to pull out of PTP on a straits service due to claims of poor quality service.

 

The MOL defection from PTP looks like more of an indication that it could not tap into Malaysian cargoes and that the service call was never intended to be a transhipment hub in the sense of Maersk Sealand’s efforts or that which Evergreen is now contemplating.

 

Some of the local feeder operators in Singapore are as big as the main container lines and the transhipment function would seem to make this logical formula. Regional Container Lines handled more than 1.4 m teu, while Indonesian-owned Samudera Shipping Line also crossed the 1m mark.

 

Most feeder companies enjoy volume discounts at PSA terminals in Singapore and are tied into ‘shuttle services’ which call directly between Singapore and the region or port of origin.

 

The immediate problem for Singapore though is Evergreen.

 

If Evergreen does pull out, it seems like another nail in the coffin of PSA’s long-awaited and already shelved initial public offering, with it appearing to ruin any chance of a pick-up in volumes in 2002.

 

A lot has happened since the beginning of this year and Evergreen has to save costs as it shifts to a new revenue base.

 

With the outlook getting grimmer for the trades at the end of the year, then PTP must have started looking like a more attractive option.

 

There must be a lot of smiles across the causeway, though.