ASEAN shipping firms strong against global troubles; However ASEAN “Connectivity” means many more ships

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ASEAN shipping firms that focus on intra ASEAN trade is doing well, against global economic troubles, with World Trade Orgqanization (WTO) saying global trade have slowed. However, Indonesia shippers says the industry will have to invest to buy new ships-to meet ASEAN connectivity plan.

The economic slowdown in Europe and US has not affected the shipping industry in Southeast Asia due to vibrant trade within the region that comprised 27 percent of total ASEAN trade last year, analysts from Frost and Sullivan said.

“People are questioning the impact of the slower growth of the economy in the US and Europe. Apparently it hasn’t had any impact on us, because trading among the countries in ASEAN is increasing. We are expecting an intra-trading increase from 27 percent to 29 percent this year,” Frost and Sullivan vice president for transportation and logistics in the Asia-Pacific region Gopal R said.

According to Gopal, there was an aggressive expansion plan for major ASEAN ports to build their capacity, which reflected the healthy condition of the industry in the region.

For example, the port of Singapore, with a current capacity of 29.9 million 20-foot equivalent units (TEU), will be expanded to 55 million TEU in 2018, while Port Klang in Malaysia is going to be expanded to 10 million TEU 2013 from the current 8 million TEU, and Tanjung Priok will be expanded to 11 million TEU in 2017 from its current 5.9 million TEU.

According to Indonesian Shipowners Association (INSA) chairperson Carmelita Hartoto, the overall shipping industry in the country and the region was still strong and many shipping companies booked profits last year.

“Few shipping companies are facing financial difficulties due to freight market that focuses on US and European countries. They are affected by decreasing demand and the high price of fuel,” Carmelita told The Jakarta Post.

“Shipping companies that focus on the domestic market and the ASEAN market generally have a positive outlook this year because the freight demand is high,” she added.

Deputy Transportation Minister Bambang Susantono said that Southeast Asia remained an important hub for cargo flow given its strategic location and the strong growth in the region.

“Due to the economic crisis in Europe and US, along with the shift of economic power from west to east, Southeast Asia will remain the most interesting region for the next 20 years. This situation means new opportunities are open for new markets, for example Indonesia,” Bambang said.

  • Yet while the shipping business in ASEAN, is mostly shielded from global slowdown, WTO piants a grim picture, and scaled back its estimates for world trade growth over the next two years.

Forecasts for 2012 trade growth were dropped from 3.7% to 2.5%, while forecasts for 2013 trade growth were lowered by a similar amount, from 5.6% to 4.5%.

The WTO says, quote: “The global economy has encountered increasingly strong headwinds since the last WTO Secretariat forecast was issued in April. Output and employment data in the United States have continued to disappoint, while purchasing managers’ indices and industrial production figures in China point to slower growth in the world’s largest exporter.”

More importantly, the European sovereign debt crisis has not abated, making fiscal adjustment in the peripheral euro area economies more painful and stoking volatility. Figures for world trade include trade between EU countries, making them highly sensitive to developments in this region. Markit’s September composite PMI, also showed that the eurozone’s private sector activity shrank by its largest amount since June 2009, despite a German trade surplus.

As for China, HSBC’s Flash PMI for September shows that Chinese manufacturing ticked up slightly from last month’s reading, which was the lowest reading in three years, although numbers still indicate a severe contraction in the sector.

In conclusion, WTO says merchandise trade volumes, although recovered from a fatalistic downturn in 2009, have continued to falter, along with aggregated world GDP.

  • The Jakarta Post also reports:

Indonesia is expected to need at least US$2 billion in annual investment over the next three years to help develop the local shipbuilding industry if the country is to take advantage the ASEAN connectivity program.

Indonesian National Shipowners Association (INSA) joint cooperation and overseas affairs chief Djoni Sutji said shipbuilders needed to produce more vessels, especially roll-on/roll-off (RORO) and commercial ships.

“We need more ships to strengthen our connectivity within the country and to ASEAN countries as well ahead of ASEAN connectivity. We believe the Indonesian shipping industry will benefit a lot if we can take advantage of this opportunity,” Djoni said on the sidelines of the official launch of the Indonesian Maritime Expo 2013 in Jakarta on Thursday.

He said RORO and commercial ships would be in higher demand in eastern parts of Indonesia, such as Maluku and Papua, to better transport both people and goods.

“We have seen goodwill from the government and state-owned enterprises to develop shipbuilders in Papua this year. We hope this support will continue in the future to help sustain maritime growth,” he said.

ASEAN member states adopted the master plan on ASEAN connectivity in October 2010, which identified a number of important transportation projects needed to bridge connectivity gaps within ASEAN. The ASEAN connectivity program is expected to be realized in 2015.

During the 18th ASEAN transportation ministerial meeting held in Bali last month, ministers from ASEAN countries agreed to promote several main routes to better connect the region through sea transportation.

Dumai–Malaka, Belawan–Phuket, and Bitung–Santos are among routes that are set to be strengthened starting in January 2015.

In addition, Djoni said that INSA was optimistic that the domestic maritime sector would not die off during the implementation of the ASEAN connectivity project because the government employed a cabotage system.

Indonesia implemented the cabotage principle through a presidential decree in 2005 requiring all vessels operating in Indonesian waters to be domestically owned.

The principle has brought huge benefits to the shipping industry as indicated by the rising number of national-flagged ships for domestic maritime transportation and the amount of cargo delivered by national ships.

According to INSA data, Indonesia’s fleet has almost doubled from only 6,041 ships in 2005 to 11,600 ships as of October 2012. Moreover, Djoni said the Indonesian Maritime Expo, which will be held in Jakarta on Sep. 5-7, 2013, would further strengthen the country’s position as the center of the shipping industry across the Asia-Pacific region.  He also said the expo would be the event that allowed any related maritime-related industry to maximize its potential both in the domestic and international markets.

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