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Staying afloat in a wave of change
- Arjun Batra, group managing director, Drewry Group
- Esben Poulsson, president, Singapore Shipping Association & chairman, International Chamber of Shipping
- SS Teo, managing director, Pacific International Lines
- Tan Chong Meng, group CEO, PSA International
Moderator: Francis Kan
The Business Times: What do you see as the key challenges in the maritime sector today?
Arjun Batra: Global shipbuilding capacity has grown manifold over the past decade and this abundant shipbuilding capacity remains a key risk. A critical factor in shipping cycles is capital. Low global interest rates deter scrapping and support uneconomical and speculative investment decisions.
Cheap capital also leads to new money entering the sector in the form of speculative investment flows. Demand-side risks emanate from shipping being hinged on economic growth in China, and demand growth will remain dependent on China for the foreseeable future. Lastly, volatility in energy prices also adds to the risk and leads to uncertainty in business planning.
Esben Poulsson: We live in a very fast changing world and shipping faces many challenges, be they a harsh commercial environment, as well as several upcoming complex and potentially expensive new regulations.
SS Teo: The growth in container liner shipping capacity has outpaced growth in cargo liftings. The Internet of Things and digitisation will also have a significant impact on future products and the way we conduct business.
HR planning will be important in ensuring sufficient quality workers with the right skillset to use future technology to innovate and provide world class service and products.
Tan Chong Meng: Recent years have seen unprecedented changes in the shipping and ports industry as a result of mega vessels, mega alliances and industry consolidation. Shipping lines continue to grapple with low freight rates and oversupply in capacity; and as a port operator, we have had to tackle the ensuing operational and commercial complexities.
We are also seeing the potential for emerging technologies to drive systemic change across the supply chain, as they are changing the way people consume, produce and interact.
BT: How do you think the sector in Singapore has fared in dealing with these challenges?
Arjun Batra: Singapore continues to cement its position as a leading international maritime centre (IMC), serving both as a regional and a global centre. The country has done well to build a "service ecosystem" by attracting commodity traders, banks, ship management and operating companies to set up their bases here.
The rapidly evolving global economic environment creates opportunities and poses challenges for Singapore's development as an IMC. Strategic and long-term initiatives in the form of IMC 2030 Advisory Committee formed to chart future direction will be helpful in meeting these challenges. As a port city, relocating the container port and getting mega ship ready with increasing adoption of automation is a key achievement for PSA.
Esben Poulsson: Singapore has fared well, I believe, because in common with most players, Singapore owners and service providers are flexible, adaptable and pragmatic - and have the benefit of operating in a very business friendly environment, and where there is a readiness to embrace and encourage change and innovation.
SS Teo: With the demise of Hanjin Shipping, there is more commitment among shipping lines to look at return on investment as a priority and not acquire market share at the expense of income. Predatory pricing strategy will not just kill the competition, but, like a trade war, there will be no winners.
Tan Chong Meng: Last year proved to be a difficult one for the maritime and shipping industry. With generally slow trade growth and excess capacity, coupled with low bunker prices enabling direct calls in place of transhipment, PSA in Singapore has done a creditable job in stemming the decline in container volumes. We also managed to push terminal productivity to new heights in 2016.
Going into 2017, Singapore will continue to be a significant port of call for global shipping alliances. We expect the positive growth momentum that took place in the second half of 2016 to continue well into this year.
BT: What are Singapore's competitive advantages in the maritime sector?
Arjun Batra: Singapore's biggest strength is a business-friendly government, while it is constrained by the limited human capital. The cost of doing business continues to rise and for some services like ship management it is getting expensive to operate.
Esben Poulsson: Singapore has managed over the years to build a very significant cluster of ship owners - local and international - along with traders, charterers, brokers, maritime lawyers, a growing insurance presence and many other ancillary services, all resulting in the creation of a leading and world class maritime hub.
SS Teo: A stable and efficient government to ensure security and ease of doing business in Singapore. The Smart Nation and Digital Government initiatives will also ensure that business costs remain low and interaction with government agencies is seamless using the latest in digital processes.
Tan Chong Meng: The competitive advantage of Singapore's maritime ecosystem has always been the strong public-private partnerships and tripartite collaboration among the unions, employers and the government. They support and anchor Singapore's status as a key maritime hub. The pro-business policies and forward-looking initiatives of our government have helped to drive continued growth of the maritime hub, making it attractive for companies to set up, innovate or expand their businesses for the long term.
BT: What do you see as the key trends affecting the industry in the longer term?
Arjun Batra: Changing spending patterns, protectionism, trade barriers, near shoring and miniaturisation all lead to lower volume growth of container traffic. For container shipping, we see carrier consolidation with an increasing role for carrier alliances and agreements as a key trend.
Digitalisation and automation driven by technology will also see the industry focusing on ways to best serve the globally integrated supply chains. Meanwhile, shipping will have to address challenges with respect to being more environment-friendly as debates on global shipping emissions intensify.
Esben Poulsson: There is naturally a degree of concern that the US under President Trump could negatively affect free trade. However, the infrastructure investments being discussed in the US would appear to be potentially positive for dry bulk and container shipping.
Another trend affecting the industry going forward concerns the impact of new technologies, where we are in reality just at the beginning of some serious upheaval in the way we currently do things.
SS Teo: Anti-globalisation and the nationalist agenda of some countries may create instability for global trade. Infrastructure development in Malaysia as part of the One Belt One Road initiative also needs to be studied for its impact on Singapore as a transhipment hub.
Tan Chong Meng: Like every other industry, we will witness the impact of technology-enabled changes - from consumer demands, to processes, to business models. We will also continue to see factors such as shifting labour arbitrage being in play, as China continues to grow its domestic consumption-driven economy. Global inter-connectedness today means changes ripple through the system at exponential speed, so we have to anticipate and be ready to respond faster than before.
There is also the potentially disruptive phenomenon of cross integration; just look at how e-commerce giants like Amazon and Alibaba are taking on a more active involvement in supply chain logistics. All these are exciting trends which spell both threats as well as opportunities.
BT: What more needs to be done to ensure the industry emerges stronger for the future?
Arjun Batra: Shipping has to go back to its roots - we have to move away from "speculative ownership" to "industrial shipping" and offer long-term solutions such as integrated supply chain solutions and inventory management. It should focus on products and people by introducing processes and safe operating procedures, building quality assets that are environmental-friendly and providing well-trained human capital.
Esben Poulsson: Ship owners have proven very adaptable and resilient as a whole and that is in part because we are not a subsidised industry, but one where the survivors will be those who are on the one hand bold, on the other prudent, and who are perhaps also blessed with a dose of luck. The best way to ensure we remain strong is to continue these policies, always guarding against regulation that threatens the level playing field - and where constructive collaboration between government and industry is always at the core.
SS Teo: Countries will have to adapt and change in the event of greater protectionist policies being touted in some developed economies. Hence, China, Germany and Japan will have to take the lead in championing trade among themselves as well as with other regional trading partners.
Our universities and institutions must continue to develop our future leaders and workers to drive the Smart Nation vision to face the challenges and adapt to the changing landscape.
Tan Chong Meng: Agility and resilience is key; so is collaboration and partnership. We must collaborate better with our customers and like-minded partners to optimise all aspects of operations, from berth scheduling to yard and stowage planning, to live operations management and exceptions handling. I also believe what we are seeing is a broader logistics renaissance. We will continue to tap new technologies and evolve business models that will enable us to work more seamlessly with players in the other segments of the logistics chain, as well as with our customers, for our mutual benefit.