MARITIME - Regional Leadership

Monday November 28, 2011

Malaysia can become regional leader with better supporting infrastructure and incentives

By SHARIDAN M. ALI
sharidan@thestar.com.my

KUALA LUMPUR: Malaysia has the potential of becoming a regional champion in maritime industry if efforts to improve its supporting infrastructure and incentives are given more focus by the Government.

Malaysian Maritime Institute’s (Ikmal) new president Datuk Abd Hak Md Amin said Malaysia had world-class facilities such as airports, hotels, road networks and modern ports but shipowners still preferred to go to Singapore for their crew change or stock-up provisions, refuel and others.

“The crew change for ships in Malaysia and Singapore alone ran into more than a million crew annually, but 95% of this crew change take place in Singapore,” he told StarBiz in an interview at Ikmal new headquarters in Setiawangsa.

“This activity contributed significantly to the economy of the republic because they use airport, hotels, transport facilities (air, land and sea) and entertainment outlets during their few days’ stay while waiting for the ships or to be repatriated back to their home countries.

“Singapore makes the immigration, custom and port clearance processes for ships calling at its port as hassle-free as possible. We need to emulate some of the good things that benefit the shipowners.

“For example, crew-change process that involves immigration clearance should be simpler.

“In certain countries, online advance immigration clearance could be done without requiring physical attendance of the seafarers.

“Another example is “spares in transit” which sometime put off the shipowners using Malaysian airport as transit point because of the bureaucracy.”

Hak said more support should be given to the local shipbuilding industry which would in turn create a lot of economic spin-offs.

The shipbuilding industry in Malaysia, he said, was “neither here nor there”.

“For example, the shipbuilding industry in Japan, South Korea and China would not have flourished without strong support from their governments especially in the initial stages.

“In Japan and South Korea, their governments supported the industry via giving a lot of shipbuilding contracts to new shipbuilders.

“They also encourage their shipping companies to build their ships locally by giving incentives like soft loan or grants. After seven to 10 years of usage, the ship must be sold to other foreign owners like Malaysians, Indonesians or Africans so that they could continue to order new ships from their shipbuilders, and the cycle continues,” he said.

This way the supporting industries like the designers, and engine and equipment makers will also flourish. There is also the element of sustainability in the industry.

Hak said the issue of piracy had also recently re-surfaced in this part of the region.

The Strait of Malacca was identified as a piracy hot spot prior to 2006 until there were dramatic improvements owing to the three littoral states’ effort.

The strait was removed from a war-risk zone list in 2006.

“Piracy is becoming a menace again especially around Batam and South China Sea areas, according to complaints by our members. Although it does not involve serious crimes like hijacking or vessels or kidnapping of crew, the pirates there have boarded ships and stolen the belongings of the crew.

“If this continues, it will dampen the spirit of the crew and could lead to more serious crimes later on. Fortunately, we have a world-class navy and coastguard that we can depend on to safeguard our waters,” he said.

On the current state of the maritime industry, Hak said obviously it was in a downturn where in Malaysia several shipping companies had ceased operations.

“Even the biggest shipping company, Maersk was reported to record a loss this year and at home, the third-quarter result for Maybulk dipped by 99%,” he said.

According to Hak, if the downturn persists, it will affect the country’s maritime graduates’ employment opportunities.

“Thousands of maritime-related graduates are being produced annually and if nothing is done to spur the growth of the industry, it will become a problem. For example, something should be done to support the growth of our shipbuilding industry as I earlier mentioned.

“Furthermore, the recent proposal to reduce income tax exemption for shipping firms to 70% of statutory income from next year, versus 100% currently, will further impede the investment and expansion for this industry.

“Most countries worldwide do not impose tax on shipping companies as they are one of the main trade facilitators and Malaysia is ultimately a trading nation,” he said.

Hak said currently Malaysian Shipowners Association (Masa) was talking to the Finance Ministry on that matter and Ikmal would give it full support to Masa.

On his appointment as the president of IKMAL, Hak was proud that he was the first marine engineer to helm the institute.

MARITIME - World's Largest Container Port

Shanghai set to handle over 30m TEUs in 2011

Shanghai expects its container throughput to reach 31.5 million TEUs this year, further cementing its position as the world's largest container port after it overtook Singapore in 2010.

The city is boosting capacity as it bids to become a global shipping centre by 2020, reported Shanghai Daily.

"Shanghai is estimated to achieve the target set in the beginning of this year, with year-on-year growth rate of about 8.4 percent," Yan Jun, vice-president of Shanghai International Port Group, said on the sidelines of a forum during the Marintec China 2011 show in Shanghai yesterday.

He said overcapacity and steep price cuts by shipping companies haven't affected the port's income and operation.

Yangshan Deep-water Port's container throughput will be around 13 million TEUs this year.

In the first 10 months of this year, Shanghai handled 23.9 million TEUs, compared with Singapore's 23.56 million.

Last year, Shanghai's container throughput was 29.05 million TEUs, with 10.1 million TEUs contributed by the Yangshan port.

As long as inland trade volume continues to grow, Shanghai will be able to maintain stable growth over the next few years, and the city now has no plan to cut prices next year, Yan said.

He added Shanghai's port infrastructure construction is in line with cargo demand, and the port will maintain a stable and healthy development.

Shanghai will continue to enhance efficiency and better coordinate port and logistics facilities along the Yangtze River to turn the city into a modern transfer hub during the 12th Five-Year Plan period.

Meanwhile, Shanghai will launch a pilot programme that allows exporters to enjoy a tax refund as soon as their dry bulk goods and containers depart for Yangshan Deep-water Port from their home ports, a government official said.

"The tax refund programme will be put into operation at the end of this year or the beginning of next year, and details will be announced very soon," said Dai Haibo, vice-head of Pudong New Area government.

Exporters of dry bulk goods and containers departing from Qingdao and Wuhan that used the Yangshan port as a transfer hub will get their rebates as soon as their cargo has left the home ports.

The Ministry of Finance and the Ministry of Transport support the pilot project and are coordinating with local government institutions, Dai said.

Observers said the tax refund would boost Yangshan port's competitiveness against other Asian ports.

MARITIME - Pulling Out Service

Maersk to end Chennai-North Europe service  In a move to ensure supply demand balance Maersk Line will pull out its fastest and direct container service — ICON (India Colombo North Europe) — from Chennai to North Europe from February, reported The Hindu. This is part of the line's effort to rationalise and optimise the shipping service between the Far East and the Indian sub-continent to North Europe. The world's largest shipping line will merge the ICON service, which was launched in March, with the recently announced Asia-Europe Daily Maersk network, which promises “absolute reliability’’. With seven 4,200-TEUs size vessels, the port rotation for the ICON service that commenced in March is Felixstowe, Zeebrugge, Rotterdam, Bremerhaven, Salalah, Colombo, Chennai, Colombo, Salalah and back to Felixstowe — from Chennai it takes 21 days to reach Zeebruge. However, with the transhipment in Colombo, the number of days increases by three to four days, said an official at a large Custom house agent. Besides the optimisation of trade between the Indian subcontinent and North Europe, this rationalisation will also help in efforts to establish a more balanced supply/demand scenario within the trade from the Far East to North Europe, the shipping line said in a statement. Exports from North Europe to the Indian sub-continent, including Sri Lanka and Bangladesh, will be covered on the AE1 service, which will feature a direct call in Colombo. These changes will not have any impact on the Daily Maersk network. The transportation times will remain unchanged, Maersk said. The network changes will become effective after the Chinese New Year (early February 2012), and will feature the following ICON product enhancements: a dedicated feeder link between Chittagong and Tanjung Pelepas, providing access to the “Daily Maersk’’ network. AE7 service direct call in Colombo westbound, improving the transit time from Colombo to North Europe by two to three days. Weekly Chennai feeder via Colombo, improving on time delivery. Daily Maersk – absolute reliability. Daily Maersk offers a daily service between four ports in Asia (Ningbo, Shanghai, Yantian and Tanjung Pelepas) and three ports in Europe (Felixstowe, Rotterdam and Bremerhaven) creating a giant ocean liner conveyor belt on the world's busiest trade lane — Maersk moves nearly one million containers from Asia to Europe every year. Up until now, customers have had to adjust their production schedules and supply chains to accommodate shipping lines' unreliability, as they have never been able to trust that their cargo would be on time. However, the engine behind Daily Maersk is 70 vessels operating a daily service between Asia and Europe in what amounts to a giant ocean conveyor belt for the world's busiest trade lane. Regardless of which of the four Asian ports the cargo is loaded at, the transportation time — from cut-off to cargo availability — is fixed. Daily cut-offs mean that cargo can be shipped immediately after production without the need for storage.

AVIATION - Commercial Operation

December 2, 2011 2:40 PM

Why's it so hard to make money running an airline?

(AP)  NEW YORK — Airlines may defy the law of gravity, but they can't ignore math.

When American Airlines sought bankruptcy protection this week, it marked the 189th time a U.S. airline has done so since the government deregulated the industry in 1978. Most lived to fly again, as American probably will. Some were grounded forever.

Expensive labor contracts, erratic fuel prices and passengers used to cheap cross-country fares were to blame this time. Other times, costly planes, fears of terrorism and even outbreaks of disease have pushed airlines to the breaking point.

"It's just a crapshoot," said Bill Diffenderffer, CEO of Skybus Airlines, which stopped flying on April 5, 2008 after less than a year in business. It was the third airline that week to fail.

In the past decade, U.S. airlines have lost a combined $54.5 billion and failed to make money in seven of 10 years.

So why is it so hard to make money running an airline?

— Planes are expensive. A Boeing 737's list price is about $80 million; leasing one costs about $300,000 a month.

— Oil prices are volatile. Fuel is an airline's largest expense. American paid an average $2.32 for a gallon of fuel last year; it expects to pay $3.01 this year. Yes, some drivers pay more for gas, but consider this: American used 2.5 billion gallons of fuel last year.

— Pilots, mechanics and other employees have very specialized jobs demanding higher salaries. Government regulations and union contracts limit the length of workers' shifts, often creating logistical challenges.

— Recessions. When businesses fold or vacationers lose jobs, the airlines lose passengers.

— The uncontrollable. Snowstorms, volcanic ash clouds, earthquakes, outbreaks of diseases like SARS and terrorism can ground planes or scare away passengers.

Besides all of that, airlines have to worry about what their competition does. If one carrier cuts fares, everybody else usually matches — even if it cuts into profits — because they know fliers will go for the airline that's $10 cheaper.

Then there's the brash, eager, entrepreneur who decides to siphon away passengers with a hip, new airline offering deeply-discounted tickets.

United and Continental used to fly more than half of the passengers out of San Francisco — 53 percent in 2006. Then Virgin America jumped into the lucrative transcontinental business. By 2010, less than 45 percent of passengers flew United or Continental. Virgin accounted for more than 6 percent of San Francisco's traffic.

United had to lower prices to compete, and made less money off those passengers it did retain. The competition doesn't even have to be profitable. Virgin America has lost $661.4 million since it started flying in August 2007.

"It's a business where competitors enter your market at 540 mph," Jeff Smisek, CEO of United Continental Holdings Inc., said in an October interview.

For American's parent, AMR Corp., the strains were too much. By Tuesday, when it filed for Chapter 11 protection, it had $29.6 billion in debt and only $24.7 billion in assets.

The rest of the industry has managed through the ups and downs and is expected to turn a profit this year. That's because airlines today are more willing to raise fares to offset fuel costs and are more cautious when deciding on whether to enter a new market, said Philip Baggaley, an airline debt analyst at Standard & Poor's. And, as passengers know, the airlines don't give much away any longer.

"They've found a new revenue source in all those annoying fees that passenger dislike," he said.

U.S. airlines came of age at a time when the government dictated who could fly where and how much they could charge. Flying was expensive but airlines generated healthy profits.

"There was really no risk of bankruptcy," said John P. Heimlich, chief economist at the industry's trade group, Airlines for America which chronicles bankruptcies and liquidations on its website.

Then in 1978, the government removed the restrictions, allowing competition. Ticket prices fell, but so did profits.

Many older airlines tried to adapt but were weighted down by business models set up for another era. Braniff, Continental and Eastern all went through court-supervised restructurings. Newer airlines thought they could do things better — and a handful did — but most struggled to understand the complexities of the business and eventually failed.

PeopleExpress was one. Donald C. Burr founded the airline in 1981. It grew quickly and became a passenger favorite, filling planes with $19 fares — and turning a profit.

That didn't last long. American introduced "Ultimate Super Saver" fares in 1985, "which basically killed us pretty much overnight," Burr said. "It was like a Gatling gun against a Colt revolver."

Less than two years later, Continental bought the struggling airline.

So, if it's such a tough business, what makes anyone go into it?

"It's not making toilet paper," Burr said. "It's a very sexy business. I don't think that necessarily attracts the best and brightest, which probably go to Silicon Valley and universities and medicine ... that's probably part of why the industry has problems."

LOGISTICS - Courier Service

DHL launches China-Japan multimodal service 

DHL is launching a new multimodal service operated by its Global Forwarding division between China and Japan, which cuts costs by up to 60 per cent compared to air freight alone, and reduces transit time by up to three days compared to solely using an ocean freight service, reported PR Newswire.

It also promises to emit up to 92 percent less CO2 compared to air freight.

The China-Japan multimodal service was made possible because DHL was recently licensed by the Ministry of Land, Infrastructure, Transport and Tourism to use railway for cargo transportation in Japan.

DHL's China-Japan multimodal service comprises the use of ferries, rail and trucks carrying 12-foot containers. Goods are picked up from any location in China – mainly Shanghai, Ningbo, Hangzhou, Suzhou, Nantong, Wuxi, Nanjing, Hefei and Wuhan –- and brought to Shanghai by truck, taken across to Hakata in Japan by ferry and then transported across Japan via Japan Rail.

In Japan, pick-up and delivery is done through Japan Rail – the country's most extensive rail network – and taken across to Shanghai by ferry, with final delivery to destinations in China done by truck.

Roger Crook, CEO, DHL Global Forwarding, Freight, said, "China and Japan are two of the world's largest economies and the China-Japan trade lane is among the top intra-regional trade lanes in the Asia Pacific region – it constituted over 44 percent of intra-regional trade in 2010. Pioneering, innovative transport solutions such as this, offer our customers yet more flexibility with the reliability of the DHL service quality."

The 12-foot containers used in this service – smaller than the usual 20 and 40-foot containers – can be carried on all three modes of transport – road, rail and ferry – and handled at the majority of Japan rail freight terminals. This significantly cuts handling and transit time as well as the potential for damage to goods by eliminating the need to move goods from one type of container to another to correspond with each transport mode. Additionally, these containers allow customers to ship in smaller amounts for better control over their inventory management.

"The US was Japan's top trading partner until 2007 when China took over as its biggest import and export partner," said Kelvin Leung, CEO, Asia Pacific, DHL Global Forwarding. "While we can ship just about anything to and from China on this multi-modal service starting with electronics, the next big potential we see is from the fashion and apparel sector – the biggest mover of goods from China to Japan – and the automotive sector, a key sector moving goods in both directions.

“The next step for us is to introduce a less-than-container-load (LCL) option into this service, something small and medium enterprises especially can look forward to."

LOGISTICS - Best Practices

Businesses often define their activities in terms of domestic and export sales. This can be a shortsighted and restricting view. Shortsighted firms also define their logistics and supply chains in terms of freight, warehouse and other costs. They fail to understand the impact of supply chain management on their customers and, especially, on their businesses. Often the result of all this myopic thinking is that these firms trap themselves into being defined as a commodity product provider where price is the key differentiator with competition. They lack value proposition key customers.

Companies that view themselves as dynamic and as global see the prospects for themselves. They have value propositions that separate them from competitors; they know that value propositions are about the customers-and not about what the firms do. They understand trends; they lead. These firms understand what supply chain management can do to not only create service advantage but to be a catalyst for new business.

AVIATION - More Competition

Watchdog gives Virgin-Singapore Airlines alliance go-ahead

Australia's competition regulator has given the go-ahead for an alliance between Virgin Australia and Singapore Airlines saying the tie-up is likely to increase competition for international air passengers, reported Dow Jones Newswires.

The deal, which will intensify pressure on rival Qantas Airways, which is also seeking to expand its presence in Asia, had already been given preliminary approval by the Australian Competition and Consumer Commission in October.

The ACCC said the alliance, which will see the airlines cooperate on joint pricing, scheduling, marketing, and sales for flights between Australia and Singapore and on connecting domestic and international routes, would "be attractive to both corporate and government passengers".

"The ACCC considers that the alliance is likely to lead to increased competition for international air passenger services," ACCC chairman Rod Sims said.

Virgin is pushing to raise its appeal to higher-margin business customers and strike agreements with other airlines. Starting last month, it has run code-shares on flights between Australia and the US with Delta Air Lines.

Virgin predicted that its alliances, along with separate deals with three other airlines, would lift its market share of flights into and out of Australia to nearly 30 percent by July 2012, putting it marginally ahead of the Qantas-backed OneWorld airline alliance.

Qantas, which is seeking to establish a premium airline through an Asian hub, had written to the ACCC stating that it didn't oppose the alliance. The regulator noted that at present, Virgin and Singapore compete on only a limited number of routes.

It also said that while Singapore Airlines has a 32.84 percent shareholding in Tiger Airways, which competes with Virgin on a number of Australian routes, the alliance "is unlikely to lessen Tiger Airways Australia's incentive to compete in the domestic market".