This article first appeared in The Edge Malaysia Weekly, on March 7 - 13, 2016.

THE global container shipping industry is seeing massive changes, with a slew of confirmed and rumoured mergers and acquisitions. With larger companies being formed, shipping alliances are bound to change and, in turn, affect the ports they call at.

This is especially true for two of Malaysia’s main container ports, Port Klang and Port of Tanjung Pelepas (PTP). They are competing with Port of Singapore to become the main transhipment hub in Southeast Asia for the Asia-Europe trade route.

Port Klang, specifically Pelabuhan Barat, which is managed by Westports Holdings Bhd, is the Southeast Asian hub of the Ocean Three (O3) alliance. Meanwhile, Port of Singapore is the main port of the other alliances — 2M and CKYHE — in the region. 2M also uses PTP as a secondary hub in Southeast Asia.

2M is a partnership between AP Moller-Maersk Group and Mediterranean Shipping Co SA (MSC), the top two container shipping liners in the world by number of 20-foot equivalent units (TEUs).

Westports CEO Ruben Gnanalingam does not think that the eventual shake-up in global shipping alliances will affect the group’s operation as much as feared by observers. He believes there are enough cargoes to be shared among Southeast Asia’s major ports.

“I think CMA CGM Group wants to have two hubs going forward. I think its view is that Southeast Asia is large enough [for it] to have two hubs. If you combine the transhipment volume in most of the other hubs in the world, it is still smaller than that in the Straits of Malacca.

“If you combine the transhipment volume of Dubai, Hong Kong, Panama, Alexandria, Busan and Kaohsiung, it is still smaller than the volume in the Straits of Malacca. There’s a lot of transhipment handled here,” Ruben tells The Edge.

In 2014, about 55 million TEUs were handled by ports along the Straits of Malacca, according to Ruben. Out of this, only five million or six million TEUs were local cargoes, with the rest being transhipment, he says.

“That is a lot of transhipment. This is why in Southeast Asia, for example, 2M is using two hubs — PTP and Port of Singapore. I think shipping lines having more than one hub in this region is quite logical.”

Container liners usually enter into partnership with each other to share vessels, thereby reducing their cost. For example, containers from MSC can be put onto Maersk’s vessels and shipped to and from Singapore or PTP, and vice versa.

Ruben says he is unsure of how container liners will partner going forward. The mergers and acquisitions will create bigger shipping groups, which may realign their operations in Southeast Asia.

To recap, CMA CGM is in the midst of finalising its acquisition of Neptune Orient Lines (NOL) for US$2.42 billion (RM9.98 billion) cash. CMA CGM has made a commitment to set up its regional headquarters in Singapore following the acquisition, which is expected to be completed by the middle of this year.

Generally, a port that is used as a regional hub for one or more alliances would benefit from the number of containers handled and the number of vessels berthed. Singapore, home to 2M and CKYHE, handles more containers than any other ports in the region.

Last year, Port of Singapore handled 30.9 million TEUs or about 55% of the containers handled by the ports in the Straits of Malacca. Port Klang handled about 11 million TEUs, while PTP’s container throughput was at 9.2 million TEUs.

Whatever happens to the make-up of the shipping alliances, the impact will not be seen this year, says Ruben. Despite the recent merger and acquisition, a lot of container liners are still in discussion about who they will align themselves with in the future.

“Thus, the status quo will be maintained for most of this year. But the change in alliances will definitely come next year. This year … we are not going to gain NOL and we are not going to lose CMA CGM,” Ruben remarks.

Ruben says Westports’ container throughput growth this year will be less than the 8% it saw last year. He declined to provide the company’s growth target for 2016.

However, in terms of income, Westports is expected to perform better as the group’s earnings will be boosted by a 15% tariff hike approved by the government and a three-year investment tax allowance (ITA). Ruben did not provide any earnings growth forecast during the interview.

Westports’ net profit came in at RM505 million last year — slightly lower than the RM526 million it reported in the financial year ended Dec 31, 2014 (FY2014). The fall was attributed to the higher effective income tax rate last year, which was at 22.3% compared with 11% in FY2014 as the group lost its ITA.

With the ITA extended for another three years starting from this year, Westports says the effective tax rate for FY2016 and FY2017 will be around 15% to 16%. The group was granted the ITA by the government after it built CT8, the latest terminal in Pelabuhan Barat in Port Klang.

“With CT8, we’ll go from 11 million TEUs to 11.5 million TEUs in the first phase. You measure capacity by cranes. We have about 53 cranes now. Only the first half of CT8 was completed this year, with the other half to be ready by next year.

“Next year, we will add capacity for sure, which will take us to about 13 million TEUs. In total, by the end of the CT8 development by the end of next year, we will have about 65 cranes,” Ruben says, adding that the next expansion phase, CT9, will depend on the container volume growth of Pelabuhan Barat.

On the prospect of Westports acquiring stakes in other ports in the region, he says the group is open to investments but does not intend to pursue them aggressively. The weaker ringgit against the US dollar has put a damper on Westports’ plans to venture out of Malaysia, he adds.

“Seeing the way the ringgit is going, I think it is not the most logical time to make acquisitions overseas. Looking at how undervalued our currency is, if we acquire and the currency appreciates, the assets would be devalued.

“So, at the moment, we are trying to understand what kind of locations, what kind of ports we may look for. It is more like a learning process, and if while we are learning and something great comes along, why not?”

Westports’ share price has climbed steadily in the past two years, from RM2.33 in early 2013 to a high of RM4.37 in April last year. It has been hovering around the RM4 level in recent months — an indicator that it needs a fresh catalyst to reach greater heights.

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