Container growth seen contained
Westports forecasts conservative outlook on uncertainty in key shipping alliances
WESTPORTS Holdings Bhd is projecting a conservative container growth outlook of between 1% and 5% this year due to the uncertainty of the shift in key shipping alliances, according to its chief executive officer Ruben Emir Gnanalingam.
For comparison, Westports recorded a 10% volume growth to 9.95 million twenty-foot equivalent units (TEUs) in 2016 but for this year it will be a game changer for the terminal located in Port Klang as two of its major customers, namely French liner CMA CGM and United Arab Shipping Company (UASC), are members of a new alliance.
The Ocean Alliance of CMA CGM, China Cosco Shipping, Evergreen, and Orient Overseas Container Line, beginning April 1 this year, will operate 20 weekly services between Asia and North America.
It was also reported that CMA CGM, one of the four members of the alliance, could potentially shift some of its shipping traffic from Westports to Singapore following its takeover of Singapore shipper Neptune Orient Lines (NOL) in order to expand its presence in trans-Pacific routes.
Meanwhile, UASC is merging with HapagLloyd, which is a member of the alliance alongside other members, namely K Line, Mitsui OSK Lines, Nippon Yusen Kaisha and Yang Ming, which will also start its services in April this year.
The alliance will cover over 75 ports in Asia, norther Europe, the Mediterranean, North America and the Middle East.
As of last year, CMA CGM and UASC contributed about 3.5 million TEUs and one million TEUs respectively to Westports’ total container volume of 9.95 million TEUs.
“As for CMA CGM, we expect some volume to go to Singapore but Westports is still going to be one its hubs in the region.
“And for UASC, we are still somewhat unsure how it is going to affect us until we obtain more clarity pending the completion of its merger with Hapag-Lloyd,” says Ruben. AFTER the spike in UMW Holdings Bhd’s share price since its announcement that it will be exiting the oil and gas (O&G) business, what remains to be seen is the quantum of impairments the group will incur when the company releases its financial results next week.
The group’s share price has gone up close to 80 sen from RM4.62 since the announcement was made on Jan 19.
In its filing to the stock exchange last month, the group revealed its planned strategic exit from the O&G sector in order to enhance the operations of its core businesses of automotive, equipment, manufacturing and engineering.
UMW Holdings has said it would hand its 56% stake in UMW Oil & Gas Corp Bhd (UMWOG) back to investors in the company, followed by a progressive exit of its non-listed O&G assets, a process that it says commenced five years ago.To achieve this, the group noted that it would have to impair its investments in its non-listed O&G assets.
Based on the group’s most recent annual report, the activities of the group’s O&G unlisted segments include fabrication, onshore drilling, manufacturing of oil country tubular goods and line pipes and trading of oilfield products.
The business operations are located in Malaysia, Oman, India, China and Australia.
The group said the details of its upcoming impairment were being assessed as part of its annual audit impairment testing exercise and the quantum of the potential impairment was yet to be determined.
According to UMW Holdings president and group CEO Badrul Feisal Abdul Rahim,
Kenanga Research’s estimates are also not too far away from the conservative container volume growth for Westports.
“We are comfortable and maintain volume growth estimates of 4.5% in FY17 and modest FY18 growth of 3% pending further updates on shipping alliances strategies, especially for UASC, while Westports expects similar port calls from existing clients of the Ocean Alliance,” says Kenanga .
Meanwhile, CIMB Research says, Westports’ hopes of other carriers making up for the loss of CMA CGM’s traffic is not unwarranted as it was proven that the Cosco and China Shipping Container Lines merger increased the volume of intra-Asia boxes handled at Westports in 2016.
“We believe the remaining carriers of the Ocean Alliance will retain most of their longhaul services at Westports, as Westports is likely to be one of the cheapest ports in Asean
“We think Westports will easily deliver 5.5% volume growth this year, especially with the onset of ad-hoc movements in second quarter of 2017 when the Ocean Alliance and the Alliance take effect,” it says.
Ruben says the environment would be a lot clearer starting from the third quarter of this year after the first few months when the new alliances take effect.
“From my experience, when a new shipping alliance start its services, it will take about 15 months to re-allign and sort of predict the exact gain or loss of volume.
“Clearly there will be some winners and losers but it is at this juncture it is too early to tell. Nevertheless, we will continue to focus on to render efficient service to our customers,” says Ruben.
In terms of expansion, Ruben explains these changes in shipping alliances will not affect what Westports had already planned in terms of increasing its capacity.
“We will still go on with our expansion plan up to the development of container terminal nine (CT9) that will see our yearly container handling capacity increase up to 16 million TEUs,” he says.
Expansion of the CT8 phase two wharf construction is on schedule, and the 300m facility is expected to be completed by mid-2017.
Expansion at CT9 will commence due to the record volume and high utilisation of existing container terminal facilities at Westports, and these additional facilities are expected to be completed by the end of next year.
On future competition from the recently mooted RM200bil industrial port development in Pulau Carey which is also in Port Klang area, Ruben says there are more current pressing matters now to be attended to as the Pulau Carey port will only be completed in 2035.
“But as far as expansion is concerned beyond CT9, there are still adjacent land available but we have to ask the government,” he says.
Early this year, it was reported that Port Klang Authority (PKA) proposed to build a giant port on Pulau Carey.
Pulau Carey, measuring at 13,000 ha, is about 25 times the size of Singapore’s Sentosa Island.
As Sime Darby Bhd owns most of Pulau Carey, it will also have to be involved.
Some analysts question the need for a new port, especially one intended to compete with Singapore.
Last year, Port Klang – the world’s 12th busiest container port – handled container cargo totalling 13.2 million TEUs, a rise of 10.8% over 2015. Its maximum capacity is 16 million. Westports accounted for 76% of the total containers that were handled at Port Klang in 2016.
In comparison, the Port of Singapore handled 30.9 million TEUs in 2015.