Ports in Asia, which are currently enjoying good business, need to be wary of issues such as congestion, over-exposure to the wrong sectors and regulatory risk, Standard and Poor’s has said.

In its recently published Transportation Infrastructure Industry Top Trends 2018 report, the ratings agency outlines different problems for ports in different parts of the region.

“O&D ports in China, India and Indonesia will largely see moderate demand growth in 2018 in line with economic growth, in the range of 5%-7% growth in throughputs. Transhipment hubs like Hong Kong and Singapore face pressure from an increasing number of direct shipping routes,” the report says.

That said, nothing is going to topple Singapore from the top of the pile just yet, although longer term there are some issues even it needs to watch.

“We currently believe Singapore’s technology advantage and status as a transhipment hub is not seriously under threat as many shipping lines have consolidated operations and continue to partner with PSA. But in the medium to long term, significant cost differential and continuing shift in trade flows can create some pressure,” Abhishek Dangra, S&P’s director and sector lead, infrastructure, South and Southeast Asia, told Asia Cargo News.

One area specifically cited is Singapore’s own marine patch, the bumper-to-bumper Straits of Malacca.

“The Singapore Tuas Port of PSA, Tanjung Pelepas in Malaysia and a couple of Chinese Investments – the Melaka Gateway Port and the Tanjung Sauh Port on Indonesia’s Batam Island – are some of the ports which have significant capacity expansion plans in and around the Straits of Malacca,” Dangra added.

Chinese container operators will continue to dominate the league table of global ports in 2018, the report says, but they are challenged by the need to accommodate ever-larger ships and the growing bargaining power of the shipping lines.

This is good news for shippers, but less so for ports, as significant investments in infrastructure may not result in significantly better profitability, as all the rewards from increased operating efficiencies will flow to the shipping lines.

On top of this, regulatory decisions also weigh down port profitability, with the Port of Shanghai’s tariff cut a prime example.

This is a stubborn problem, both operationally and financially, for the ports. “Unexpected negative government intervention for political and economic means will remain a risk. In China, the cuts of container handling fees by major ports under the regulator’s ‘anti-monopoly’ claim are dampening these ports’ profitability,” the report said.

“The tariff cut was initiated by the NDRC, China’s economic planner, under the antitrust claim. It affected not only Shanghai, but also other major coastal ports in China, such as Ningbo, Tianjin, Qingdao, Guangzhou and Shenzhen,” Dangra told Asia Cargo News.

Flat growth is expected at Shanghai in 2018 because of the tariff cuts. Shanghai had seen robust volume increase from about 37.1 million TEUs in 2016 to about 40 million TEUs in 2017.

Longer term in China, fully or partially automated terminals and digitalization (so-called intelligent ports) will support asset utilization and growth, the report says, before warning that “as technology further penetrates the industry, cybersecurity will become increasingly important.”

Also to watch in China are port groups exploring the opportunities of establishing free trade ports, such as cross-border e-commerce and assembling of semi-finished goods from overseas. In return, cross-border e-commerce trade is becoming an important growth driver for port throughput and logistics businesses, the report said.

Some Chinese ports suffer a capacity glut and competitive pressure because of overlapping hinterlands and overspending. The trend of government-led port integration aims to achieve cost-savings and reduce competition, it added.

Elsewhere in Asia, S&P identifies India’s private ports as enjoying significant opportunities from the growing economy and increases in the proportion of higher margin container business, though on a smaller base. S&P notes that India’s private ports have a strong competitive position due to significantly better operating efficiency than over-congested government-owned ports.

The region’s potential maritime giant Indonesia gets a mention, too. It still has a lot of opportunities to promote inland sea transport to drive demand and utilization, although its ports have been affected in part due to lower commodity prices impacting exports, according to the report.

Indonesian ports, despite catering primarily to origin and destination traffic, are affected by changing demand and supply patterns within the country, which can decouple performance from economic growth, the report said.

“Indonesia has O&D ports. While ports like Tanjung Priok are largely an international gateway, other ports, like Tanjung Perak, equally serve domestic maritime routes in Indonesia’s archipelago to connect East Indonesia. So, despite changes in global trade flows, essential imports into such ports may demonstrate different trends from global trade traffic. Additionally, many consumption items are a big part of overall traffic and may show different trends from even national GDP growth,” Dangra explained.

By Michael Mackey

Southeast Asia Correspondent | Bangkok