Global Trade: PSA vs. PTP - Assignment Example

Analysis of PSA vs. PTP It is often the case that a region is dominated by one large entity typically unmatched by competition. The dominant superpower in Southeast Asia is the Port of Singapore Authority (PSA), owner of the Port of Singapore, the regions largest volume transshipment hub. However, an upstart moeity called the Port of Tanjung Pelepas (PTP) began to strike away at the solid foundation of the PSA, undermining it through the acquisition of two key shipping companies; Maersk Sealand and Evergreen Marine.

The strengths and weaknesses of the two will highlight the strategic decisions made by each company in their battle for dominance of the Southeast Asia region. The PSAs largest advantage against the PTP is its irreplaceable 30+ years of experience. This operational depth translates into an already completed infrastructure, highly efficient information processing systems, and a labor force able to handle high-volume traffic. This also establishes a track record that conveys safety to future customers who would otherwise increase their risk by choosing a less experienced company.

This experience lead to the development and deployment of a strategy that proved to keep PSA competitive through the emergence of rival companies. The computer-integrated terminal operations system (CITOS) was the direct result of experience streamlining the shipping process. The flow-through-gate component, added in 1996, stepped up this efficiency. Other contributions such as remote control cranes and maintaining protocol for time-sensitive, special needs, and temperature-controlled cargo added to the high quality of services that the Port of Singapore would offer at a premium rate.

This strategy would prove to be the most beneficial for the Port of Singapore in the long run and be considered its prime strength in light of the coming events. Additionally, the PSAs wide-reaching grasp on multiple ports allowed it greater flexibility in focusing its resources. Although absorbing blows from PTP at the Port of Singapore at the tune of more than 1 million TEU (twenty-foot equivalent units), it continued to service the international community at 9 other facilities, thus providing more liquidity in the allocation of its resources.

Though mostly miniscule in volume by comparison, when added these volumes, 3.43 million TEU in 2001, were still cumulatively larger than all the volume handled by the PTP estimated at 2.1 million TEU of the same year, despite its alarming growth. Similarly, this wide-reaching influence may have been useful in their joint ventures with Maersk at the Dalian and Pipavav terminals in China and India, respectively. Though much lower in volume than the powerhouse Port of Singapore, they are critically valued as assets against the region dominant Hutchison Whampoa.

Intensified efforts by the PSA in other smaller operations may have provided leveraging opportunities with Maersk in some of their other ventures, an opportunity that PTP could not be involved in. The superb geographic location of the Port of Singapore offered a decisive strength against alternative competitors as a transshipment hub. Due to its ability to provide a nexus point in shipments, the flexibility of shippers schedules were greatly increased. By comparison, competitors such as Port Klang could not provide an economically feasible transshipment hub for traffic coming from the South China Sea and heading south toward Australia or conversely for southerly traffic headed east.

The PTP, however, is located in a nearly identical geographic location. This provides it the same benefits that are shared by the PSA at the Port of Singapore. Although this is a crucial factor, it is only the first step in taking advantage of the PSAs weaknesses. High quality services came at a premium price for the PSA, due to expensive land leasing coupled with higher labor costs in the smaller country of Singapore. Due to this inherent weakness, the PTP was able to undercut the market with cheaper labor, cheaper land lease rates, and a competitive information technology system akin to the CITOS being operated by the PSA.

These lower handling charges coupled with the same geographic location made it difficult for shippers to choose the higher priced of the two. In a move that could be considered a strategic mistake, the PSA decided after losing their largest client, Maersk Sealand, that it would reduce costs in a dual variant manner. The cost of handling fees was reduced significantly, with empty container handling being dropped as much as 50%. This was in stark contrast to the long-held philosophy of higher quality services at premium prices.

Even with these reductions, the PSA could not match the PTP in cost. The negative impact of this cost reduction lead to Moodys downgrading of stable status to negative in 2002 and eventually lead to a restructuring program that would thin the company in 2003. The adverse effects can also be seen in financial ratios compared from 2001 to 2002, where operating margin dropped 22.3%, return on average total assets dropped 3.8%, and the return on the average shareholders equity dropped 6.4% (with earnings per share dropping US$0.34)[1]. The trigger for this knee-jerk reaction was the surprising change of loyalties of Maersk Sealand. The A.P.

Moller Group obtained a 30% stake of Pelabuhan Tanjung Pelepas Sdn. Bhd. at an estimated US$165 million, transferring approximately 1 million TEU in volume from the Port of Singapore to the PTP, thus allowing the use of its own dedicated terminal [2]. The PSAs size restricted operator controlled terminals because its flexibility was dependent upon being able to use terminals for ships as they arrived. The three major weaknesses associated with the PSA were its inability to designate dedicated terminals, to lower handling fees, and expand infrastructure.

The PSAs actions should have remained rigidly in focus with their overall philosophy and mission. The PTP, as a newer company, had the ability to absorb the surge of volume from Maersk Sealand at the cost of giving up 30% of its company by offering a dedicated terminal. It also took Evergreen Marine whose director, Patrick T.C. Poon, was quoted as saying, "[We] . will go where the costs are less." However painful these two losses were to the PSA, the only viable solution was to look at which factors could be controlled.

Instead of offering price reductions as a last plea to customers who were already leaving, only empty container volume handling prices should have been reduced while keeping maximized profits on cargo-carrying containers and beginning negotiations of compromised dedication in the terminal. Additionally, by increasing technology, efficiency, and network connectivity they would offer a higher quality product, thereby eliminating the cost differential based upon customer preference. This belief was substantiated in August of 2002 when Hanjin Lines, a South Korean-based liner, refuted offers from PTP and cited their reason for continued commitment with the PSA as due to high levels of service and the willingness of the PSA to compromise its dedicated terminal service.

Similarly, Cosco Pacific, one of Chinas largest shippers, renewed their contract with the Port of Singapore citing its network connectivity. Though not stated in the class notes, Evergreen Marines News portion of their website states they reaffirmed their relationship with the PSA in Singapore on September 6th, 2002 [3]. However, the PTP did itself a favor by staying out of the fray after the renewal of contracts at the Port of Singapore in 2002. Instead, noting its increased productivity and its need for expansion, it focused on accomodating the newly acquired high-volume customers instead of going after more volume.

This internal focus and patience lead to the innovative use of internal air operations from Senai Airport which widely affected the network connectivity of the hub by allowing planes to help facilitate the import and export of cargo, an amenity not available to the Port of Singapore. The acquisition of the PTP by MMC Corporation Berhad, who also owns Johor Port and Senai International Airport, has lead to consistent growth and technologies rivalling that of the PSA, such as smartrail systems, cargo and gate management systems, radar systems, and vessel clearance systems [4,5].

In conclusion, with global trade finally recovering and pricing pressures being relieved, the PSA should consider completely removing the enacted price reduction or consider keeping it in place at less of a cost to the company. They should be focused on innovative internal strategies and incorporating the dynacism offered by their wide-reaching multi-port influence. Additionally, the Port of Singapore may become more appealing by expanding its technology in artificial intelligence, organization, and distribution systems.

It is otherwise impossible to compete with the PTP as it has growth for infrastructure expansion planned in five phases to be complete by 2020, lower operational costs, and innovative operating procedures. Only by competing at an innovative level and offering higher quality services will the PSA be able to compete against the growing PTP. BIBLIOGRAPHY 1. International PSA. 2011. 18 March 2011. 2. Economist Intelligence Unit. An Economist Group Business. 2011. 17 March 2011. 3. Evergreen Marine Corp.

Evergreen Marine Corp (Taiwan) Ltd. 2011. 18 March 2011. 4. Pelabuhan Tanjung Pelepas Sdn Bhd. 2011. 18 March 2011. 5. MMC Corporation Berhad. MMC Corporation Berhad. 2011. 18 March 2011.