PIRACY

Piracy rise spurs Maersk to raise surcharge

Reflecting higher costs stemming from a jump in piracy off the Somali coast, A P Moller-Maersk has raised its emergency-risk surcharge.

Maersk's container-freight division increased the fee on each 40-foot container shipped through risky waters to US$200-$500 from $100-$400, to pass on some of the company's rising costs to customers, said Erik Rabjerg Nielsen, the division's head of daily operations, reported The Wall Street Journal.

Customers typically pay about $3,000 total to ship a container from Asia to the US.

He estimated that Maersk's anti-piracy costs will rise to $200 million this year from $100 million last year as ships are forced to sail faster and longer to prevent hijackings and crews receive doubled salaries as compensation for the added work.

"In 2010, one hijacking attempt was registered every six days, and in 2011 there's been a large increase in the activity. The problem has never been larger than right now," Rabjerg Nielsen said.

There were 142 pirate attacks in the first quarter, a quarterly record, according the International Maritime Bureau, a maritime-crime watchdog.

The rise was driven by a surge in piracy off the coast of Somalia, where 97 attacks were recorded in the first quarter, up from 35 a year earlier.

World-wide, there were 18 vessels hijacked, 344 crew members taken hostage and six crew members kidnapped in the first quarter, the bureau reported. A further 45 vessels were boarded, and another 45 were fired on.

Maersk Line's approximately 2,000 annual trips through pirate-ridden waters off the Horn of Africa, which cover an area about the size of Europe, now are made with larger ships, which are harder to invade than smaller ones.

"We have larger ships with more capacity, which isn't needed, and that costs money. As a consequence, our capacity utilisation on these routes is very low," Rabjerg Nielsen said.

Maersk has hired a former army major as anti-piracy chief in an effort to develop a stronger strategy and lobby competitors and politicians for a tougher international stance on piracy.

"Piracy is bad for the shipping industry, it's bad for global trade, and it's important that politicians and all involved take a larger responsibility now to try to put an end to it," Rabjerg Nielsen said.

Maersk hopes to encourage increased patrols by navy vessels near Somalia, political resolve to help stabilise the country and a stronger legal approach toward pirates who are caught, he said.
"Our message is that not enough is being done, and now is the time to act," he said.

The global shipping industry's total annual piracy costs, including ransoms paid, are between $3.5 billion and $8 billion, Ron Widdows, group president of Neptune Orient Lines, estimated at an anti-piracy conference in Dubai last month.

MALAYSIAN ECONOMY

More Upside to Malaysia

By Yiannis G. Mostrous 5/5/2011
Emerging Markets

Readers of the Global Investment Strategist know that we’ve been bullish on Malaysia for some time, a stance that has generated solid returns. Even after delivering such a strong performance, Malaysia remains one of our favorite investment destinations for 2011.
Malaysia traditionally has been viewed as a backward economy with a very defensive market. But Prime Minister Najib Razak is widely viewed as someone who can lead Malaysia’s people and economy. The success of his efforts thus far has provided a roadmap to the country’s long-term development, and investors like what they see.

The country’s economy expanded by 7.2 percent in 2010 as exports recovered on the back of a strengthening global economy. And although this performance may be difficult to replicate this year, Malaysia’s economy can still deliver gross domestic product (GDP) growth of 5 percent in 2011.

The economy has benefited from strong commodity prices; Malaysia is a net exporter of crude oil, palm oil and rubber, among other commodities. Given the size of the country’s rural economy, strength in commodity prices should provide a boost to rural household incomes, as most rubber and palm oil farmers are small producers.

Nonetheless, Malaysia’s long-term economic future will depend on improving the country’s infrastructure. To this end, Malaysia has launched an ambitious Economic Transformation Program (ETP) to revitalize the country. The government aims to attract USD444 billion in investments in 131 projects over the next 10 years and to double the country’s per capita standard of living.

This program will be very beneficial to the economy. Not only does the ETP allow for new investment in the country, it will also reduce much of the red tape that has long frustrated the private sector.

Foreign investors have responded to these positive developments. Oil services company Schlumberger (NYSE: SLB), for example, has chosen Malaysia as its regional hub. Meanwhile, foreign direct investment (FDI) inflows have risen strongly; in the fourth quarter FDI inflows rose to USD3.4 billion. That’s the highest level of FDI seen for the past 10 years, save for the month of June, 2008.

The top three contributors to Malaysia’s FDI are South Korea, the Netherlands, and Japan; most of the investment is allocated to the manufacturing, trade and financial sectors.

Malaysia’s general elections are set for March 2013, though there have been calls for an earlier, snap general election. Even if this were to be the case, the election would not occur before next year because the prime minister will need time for his initiatives to produce results and galvanize public opinion. This should be viewed, for now, as a positive for the stock market.

The success of government’s initiatives and the proper execution of projects will be critical to the long-term health of Malaysia’s economy. But the short-term picture suggests the country is on track to achieve these goals.

Malaysia currently runs a large current account surplus and has gone on a shopping spree for overseas assets. The country boasts ample foreign reserves that provide a cushion against external financial shocks. However, the country’s fiscal deficit is 5.6 percent of GDP. Although this is down from the 7 percent recorded in 2009, it remains one of the highest readings in all of Asia.

We may see a slight improvement in the deficit this year, as subsidies will rise while commodity prices remain high. Malaysia’s status as a net exporter of energy and materials means that government revenue should also increase this year. But we don’t expect to see a drastic change in the country’s deficit in 2011.

Investors should keep in mind that the Malaysian economy is small and relatively open to trade, which makes it susceptible to any downturn in global trade. Although a slowdown in global trade this year would impact Malaysia, we believe that the global economy will post respectable growth this year.

Investors seeking a foothold in Asia beyond the behemoths of China and India should consider adding Malaysia to their portfolio.

SERVICE SECTOR - SLOWDOWN IN THE US

Service Sector Growth Slowed Significantly in April
MAY 4 2011, 11:10 AM ET
This isn't a good sign. In one of the early economic temperature readings for April, the Institute for Supply Management reports that service sector growth slowed considerably. Its Non-Manufacturing Index fell drastically to its August 2010 level, which matches the 12-month low. Is the recovery losing its battle with rising gas prices and economic other shocks?

Here's the chart from ISM showing the components of its service sector barometer:

First, the NMI dropped a painful 4.5%. As mentioned, 52.8 matches its August level, but that was a low point for the early recovery. You have to go back to January 2010 to find a lower value than that for the NMI. Any score above 50 indicates growth, but at 52.8 that growth is much slower than it was when it peaked at 59.7 in February.

Business activity has now fallen two months in a row as well. That index has fallen a dramatic 13.2% since February. Again, however, business activity is still growing, on balance, but barely.

If you think the performance of those two indices sounds bad, then you'll be really worried about new orders. Their index fell a painful 11.4% in April to 52.7. This indicates anemic growth in new orders. New export orders also fell significantly last month, by 5.5%.

This report doesn't provide a pleasant verdict on hiring. If business activity and orders aren't growing as quickly, neither will hiring. Higher demand has been driving firms to take on more workers, but as that declines so will new job openings. In fact, we saw this through the ISM report, as employment growth also slowed in April. At 51.9, jobs are nearly declining again.

The service sector's status portrayed by this report isn't good. Its growth continued in April but at a very slow pace. Business activity and new order growth declined to a point where contraction in May looks plausible, which would end a 17-month trend of growth. Of course, this would also provide a potentially disastrous narrative on the recovery. Economists are currently forecasting that the recovery will continue to be slow. For the service sector, at least, it appears to be slowing even further. If the trends in this report continue, then the recovery may soon pause or even reverse.

MASSIVE TRAFFIC JAM AT THE TOLL

Wow!! why are we not promoting hard enough for public transportation to ease this problem. Looks like we have to make it costlier to use the road using private vehicles. Otherwise we will be choked.

OIL & GAS

Rising oil prices likely to stall Asian economies with high fuel subsidies
by Stella Lee 04:46 AM May 02, 2011

SINGAPORE - Rising oil prices are likely to weigh down heavily on Asian governments with high fuel subsidies, economists said.

They said that should oil prices continue to rise, fuel subsidies will take a larger share of government spending, which means that there will be less money available for other fiscal projects such as infrastructure.

Most investors expect the demand for oil to remain strong amid the global economic recovery and further helped by concerns over supply due to the unrest in the Middle East.

But they are also concerned about many Asian countries that have significant portions of their budgets allocated to fuel subsidies to help cushion the impact of rising oil prices and how that is likely to affect their economic performance.

With oil prices expected to remain above the US$100 mark this year, economists say this will have implications for Asia's economies.

Malaysia and Indonesia currently have the largest fuel subsidies in South-East Asia costing the economies as much as over 1 per cent of their GDPs. Both are expected to increase fuel subsidies.

Still, most analysts believe both countries, being oil producers themselves, will be able to absorb more subsidies as they will benefit in the form of higher tax collection and royalty payments.

Most vulnerable, they say, will be India, where fuel subsidies will likely increase its budget deficit. Analysts estimate that a US$10 (S$12.24) increase in oil prices will increase the subsidy bill by US$3 billion for India.

Mr Victor Shum, managing consultant at energy consulting firm Purvin & Gertz, said: "Politicians will be under pressure to really maintain the subsidies or increase the subsidies as oil prices rise."

"What will happen is that funds will be diverted from other areas to finance subsides and that is going to hurt economic growth in India, so these subsidies will hurt economic growth," he said.

Higher oil prices also mean more inflation, further cutting back investment spending.

Ms Prakriti Sofat, regional economist at British bank Barclays Capital, said: "You would see prices at the pump increasing, that is passing through to transportation costs, as well as having second-round effects into food and other products. And we are already seeing that, whether it's Singapore, the Philippines, service sectors are increasing quite a lot."

Economists say that the best way to control inflation will be to remove subsidies as higher prices would have an immediate effect of dampening consumption.

Territories such as Korea, Taiwan, Singapore and Hong Kong are the least likely to be affected as they have no explicit oil subsidy programmes in place.

Singapore, which uses an exchange-rate policy, has allowed its currency to rise to help counter imported inflation including the rise in oil prices. Bloomberg

LOGISTICS: TAILOR-MADE SOLUTION

Revenue matters for speed logistics operator

Time:matters posted record revenue of US$112 million last year and “significantly increased profit” as the specialist speed logistics operator focused on expanding the business.

The independent company, a Lufthansa Cargo spin-off, provides customers with tailor-made transport solutions on short notice, which are especially effective for logistics challenges such as volatile economic situations, strikes or ash clouds.

“We anticipate that the exceptional requirements of 2010 will become standard in the future and are continually adjusting to this development, which ensures we can generate and implement customised solutions for our customers as quickly as possible,” said Franz-Joseph Miller, CEO of time:matters.

The positive developments of time:matters’ European branch offices, as well as the constant strong business growth in Asia, confirm the ongoing strategy of expansion.

Therefore, time:matters expects above-average growth throughout 2015, based on its internationalisation strategy and focus on Special Speed Solutions.

Miller said the company planned to further develop its core business and expand its presence in Europe and Asia.

Port News - Malaysia

Malaysian ports handle 4.78m TEUs in first quarter

Malaysian ports handled 4.78 million TEUs in the first quarter of 2011, an increase of 12.7 per cent over the 4.24 million TEUs recorded in the first quarter of 2010, reported Bernama.

Cumulatively, the nine ports posted positive growth of between two and 18 per cent, with Port of Tanjung Pelepas (PTP) recording the biggest growth of 18 per cent in container traffic.

Port Klang, Northport and Westports solidified their position as the largest container ports in the country, with container throughput rising by 11.6 per cent to 2.25 million TEUs.

Kuantan Port and Bintulu Port however recorded a decline in the quarter reviewed, down by 2.8 per cent and 16.5 per cent, respectively.

Transhipment traffic in the first quarter increased by 19 per cent to 3.23 million TEUs while import grew by four per cent to 764,855 TEUs from 732,634 TEUs previosly.