Belt & Road's threat to Singapore

Belt & Road's threat to Singapore

While Singapore claims its number one status as a maritime capital city will be secured with the development of the mega-port at Tuas, China’s Belt and Road initiative (BRI) holds headwinds for the transshipment hub.

Better connectivity through improved infrastructure and technology has not only opened large markets in Asia, it has has also changed the manner and mix of freight. Key influences driving this change include e-commerce, changing the focus from port-to-port logistic platform to that of first and last mile considerations particularly as production methods now include 3D printing and just-in-time manufacturing. 

Singapore is particularly vulnerable to these developments as China extends its influence through the region with the BRI. The objective of the BRI is to find an alternative transport route to that of the Malacca Strait. A key pathway is the pairing of ports with inland rail and road networks. This will change the shape of the trade route that has 80 percent of China’s oil and energy requirements and three-fifths of its exports passing through the strait. The changed focus has seen growth in multimodal freight movement between China and Europe grow exponentially over the last 12 months, with 1 million containers expected to be transported by rail by 2020. There is an increase in European hubs connecting to this network, including the likes of Amsterdam, Mannheim, Duisburg, and Barcelona.

Singapore’s isolation from hinterland connectivity leads to the question of why build a mega port in Tuas? Not only are there other gateway ports being developed, but Shanghai has emerged as the second most important maritime city as well as the largest transshipment port. Shanghai has the advantage in that it connects to the hinterland but also services seven other Chinese ports. It is not an accident that seven of the 10 largest ports are Chinese. It could be said that this port structure, coupled with regional Asian port developments, undermines the case for Tuas being needed for transshipment to service short sea routes in and around Asia.  

Also supporting this notion is the change in the cost fundamentals of freight. Customers can now assess door-to-door delivery as opposed to port-to-port delivery costs. There are several cost fundamentals that will place pressure on Tuas in the future. These include that rail is faster and more regular than shipping, thereby reducing the costs associated with high inventory levels, warehousing, financing, and cash flow management. Furthermore, improved technology allows for better planning and inventory management assisting just-in-time manufacturing.

These changed cost fundamentals were being addressed by Singapore using Tuas as a new sea-air freight corridor, particularly with the development of Changi Airport. However this model has come under increasing pressure as air freight volumes decline and are being replaced by rail — particularly with regards to Eurasian trade. While rail may not be as quick as air, it has the dual benefits of being cheaper and lower in carbon emissions.

This inevitably raises the question of Hong Kong, which has declined as a maritime leader over the past few years. Hong Kong’s approach to the changes in intra-Asian trade has been to transition from a focus on transshipment to being a gateway port. It has been doing this by offering leadership as well as integrating into the Greater Bay Area development plan that is firmly positioned within China’s BRI strategic pairing of ports and rail. Hong Kong and the Pearl River Delta System are taking from the Shanghai/Yangtze River port system that is already ahead of Singapore in terms of handling capacity, automation, and new technology.

The city is poised to become part of the technology corridor of 11 cities in the Greater Bay Area, making it an important connector for China. It has placed itself as a connection point within a cluster of nine cities, with Hong Kong, Guangdong, and Macau being the outer limits. The combined GDP of the area is $1.5 trillion, which places Hong Kong in a strong position to rise as the global center for finance, high-end services, and technology development. This is particularly relevant due to the connection with Shenzhen’s tech and advanced manufacturing.

China’s recent articulation of the blue economic passages (BEP) shows the alignment of ports, rail, and road. These three broad trade routes (China–India Ocean/Africa, China–Australia/South Pacific, China–Russia/Northern Europe via the Arctic circle), creates new intermodal networks. For example, the Yangtze River-Shanghai Port pairing has one of eight horizontal rail lines connecting Shanghai with Chongqing and Wuhan and 11 river ports. The accelerated formation of regional rail hubs and network helps Shanghai move from a current international trade volume by rail of 1.5 percent to that of 20 percent to 30 percent by rail.  

While shipping will still be an important component, it will not be as dominant as a new Eurasian trade block emerges. With all this activity around the new transport infrastructure brought about by the BRI, the new cargo/freight forwarding instruments will be based on optimising freight modes. When considering this optimal mix of rail- sea-road modes, it is suggested that the need for 20,000 TEU and larger vessels is limited, and that modern fleets will be focussed on 10,000 to 14,000 TEU vessels. Potentially this shift will render the wharf design in Tuas as redundant.

This suggests that the timing of the Tuas mega-port development is open to debate. Besides facing threats from a number of changes in the shipping environment such as the Arctic sea route opening up, it also is at risk as regional ports transition to gateway facilities to cater for the BRI influence over trade.  

Andre Wheeler is director of Wheeler Management Consulting, Australia. Contact him at: andre@wheelermanagement.com.au.