Steering Port Klang to become one of the world’s top 10 busiest ports
11 Sep 2024
THE national load centre was a policy established initially to recapture a significant portion of Malaysia’s domestic cargo that was being shipped through the Port of Singapore and bypassing local ports.
This initiative — the setting up of the national load centre — also aimed to boost Port Klang’s role as the principal gateway for imports into and exports out of the country as well as make it a regional hub port that could compete with the Port of Singapore by bringing shipping lines into Port Klang.
In March, the federal government moved to end the national load centre policy after a 31-year run. The decision came at a time when Port Klang had risen to its highest level in Lloyd’s List ranking of the world’s top 100 busiest ports by volume — snagging 11th spot last year, up from 13th place in 2022.
Port Klang Authority (PKA) general manager Captain Subramaniam Karuppiah says the national load centre policy has fulfilled its original purpose and Port Klang is geared towards moving up to be among the world’s top 10 busiest ports in terms of throughput. He admits, however, that breaking into the top 10 busiest ports in the world band will be no mean feat.
“We will get there eventually but it will take a lot of planning and investments. Most importantly, we need to have the confidence and support of our customers, that is, shippers, shipping lines and traders,” he tells The Edge in a candid interview at PKA headquarters in Port Klang.
“At Port Klang, we are not done and dusted. Although we are more than 120 years old, we are still evolving.
“With the support of the government and industries, we are on the right track. We also have two port operators — Westports Holdings Bhd (KL:WPRTS) and MMC Corp Bhd — that are aligned with the government’s plan and recognise that we have good assets here at Port Klang, located on the major sea lane of the Strait of Melaka. We have all the right ingredients,” says Subramaniam, who joined PKA 31 years ago and took the helm at the port regulator in 2016.
In a nutshell, PKA regulates commercial activities at Port Klang, which comprises Westports and Northport.
Subramaniam recalls the introduction of the national load centre in 1993. “The concept behind the policy began in the 1990s at a time when 50% to 60% of Malaysian cargo was passing through the Port of Singapore.
“The cargo was ‘leaking’ through feeder vessels that took domestic cargo from several Malaysian ports to the Port of Singapore, where the containers were then loaded onto mother vessels to their final international destination.”
Domestic cargo was also leaking to the Port of Singapore by road, resulting in a huge loss to the country’s revenue.
According to Subramaniam, the government carried out studies on how to plug the leak of domestic cargo to the Port of Singapore. One way was by enhancing and expanding the facilities at Port Klang.
Subramaniam says today, most of the areas in Northport and Southport have been developed by PKA.
“When we privatised the terminal, the structures were already there. It was almost fully built up. So, when [MMC Corp] took over, they upgraded most of the structures and reengineered some of the facilities, but there is only so much you can do with an old port.”
Thus began the development of Westports in 1989.
“The first port facility at Westports came onstream in 1993, before the terminal was privatised to Westports Holdings in 1994. The government then said: ‘Since you have a new terminal, can we use it to lift Port Klang even further?’ That’s because our master plan for Westports indicated that we could develop the terminal up to a total wharf length of 15km. And if fully developed, it could handle up to 14 million 20-foot equivalent units (TEUs) a year. This was at a time when Port Klang was handling less than one million TEUs,” Subramaniam says.
“Still, just a plan was not good enough. We needed to have a good implementation strategy. Our master plan for Westports had facilities for containers, dry bulk cargo and liquid bulk cargo.
“This master plan was developed by PKA in 1994 and inserted into the privatisation agreement with Westports Holdings.”
The first privatisation agreement between the federal government, PKA and Westports Holdings was signed for a period of 30 years from September 1994 to August this year.
Since then, Westports Holdings has signed a new concession with the federal government and PKA for an extended period of 58 years from September 2024 to August 2082.
The new concession governs the existing facilities of Container Terminals (CTs) 1 to 9 as well as the new facilities (CTs 10 to 17) to be developed (dubbed Westports 2) during the concession period, which involves an investment of RM39.6 billion. The new container terminals will nearly double Westports’ capacity to 27 million TEUs from 14 million TEUs, spread over 26 years.
As for Northport and Southport, MMC Corp — controlled by low-profile tycoon Tan Sri Syed Mokhtar Al-Bukhary — took over the terminals in January 2016. It also operates the Port of Tanjung Pelepas (PTP), Johor Port, Penang Port and Tanjung Bruas Port.
Subramaniam says: “After privatisation, no more assistance or incentive from the government was given to the two terminals; therefore, the private entities had to manage their business well.
“Today, we have all the supporting activities such as bunkering, ship chandling, ship repairs and crew change facility here. We have managed to recapture most of the [Malaysian] cargo back from Singapore. We also have most of the main line operators (MLOs) calling at Port Klang,” he says, noting that about 40 MLOs currently call at the port.
Never-ending comparison with Port of Singapore
Still, the comparison between Port Klang and Singapore Port continues. “We always benchmark ourselves against Singapore. That’s because we were once together and, eventually, when Singapore parted ways with us [in 1965], we then started growing as Malaysia without Singapore. Having said that, there were so many industries that were shared by both countries. Shipping was one of them,” says Subramaniam.
In fact, there was a time when Port Klang had a competitive advantage over Singapore.
“Port Klang was the first to introduce containerisation in 1973. Singapore started it only two years later but quickly caught up,” he recalls, adding that the local shipping sector was also losing its skilled workforce to Singapore.
“Then we realised it was because we did not have the right ecosystem at the time. For one, were we attractive enough for global shipping lines to call at? Shipping lines don’t come for a little bit of cargo. They expect to have a critical mass of cargo before they consider whether it is worth making a direct call in terms of their economic returns and cost. While Malaysia was a big country, our cargo was not actually passing through Port Klang.
“So, we realised that one of the reasons for this was that our port facilities then were not up to mark. If shipping lines were to come, they want to see fast turnaround of their vessels as well as the best port equipment and facilities. They don’t want to spend too much time here.
“Having said that, over the years, we have done well.”
Last year, Port Klang handled a container throughput of 14.06 million TEUs, up 6.3% from the 13.22 million TEUs recorded in 2022. It handled 8.4 million TEUs in the first seven months of this year, up 25.6% from the same period last year.
“We are forecasting a 5.5% growth for 2024 to 14.83 million TEUs, putting the port in good stead to break through to the top 10 rankings,” says Subramaniam.
“As a country, if you combine the container throughput of Port Klang and other ports like PTP, Penang Port, Kuantan Port, Kota Kinabalu Port and Kuching Port, we handled 27 million TEUs last year.”
By comparison, however, the gap is still considerably wider compared with the Port of Singapore, which handled 39 million TEUs in 2023. Today, the Port of Singapore is the biggest and busiest in Southeast Asia and the second in the world after Shanghai.
The following are excerpts from the interview.
The Edge: Why does Port Klang continue to lag behind Singapore Port?
Captain Subramaniam Karuppiah: This is a question that I have been asked many times. What I can say is that Singapore is a different entity. [The Singapore government] developed its port facilities on the basis that Singapore’s container port is a critical part of the island state’s economy and identity as a maritime nation.
Not that it was not a necessity for us but it was more so for Singapore because they were an island nation [and] they were looking at economic activities that were maritime-based. They are surrounded by a coastline … So, when they developed this way back in the 1970s, they did not just develop port facilities; they created a maritime centre.
From [being a] regional port, they moved on to become an international maritime centre (IMC). An IMC is more than just a port. It deals with everything that is required by the maritime industry. They went beyond [the basics] to develop other maritime infrastructure. Take, for example, shipyards. Today, Singapore is well known for ship repairs and shipbuilding.
Then, they have shore-based activities [to support the maritime industry] such as banking, ship financing, maritime legal system, healthcare access for seafarers, crew change on cargo ships and on-board licensing. They had a head start compared with Port Klang in the 1970s and 1980s when we were still trying to grow our port business. At the time, we were very much focused on ‘let’s develop the cargo first; everything else later’.
Having said that, over the years, we have done well. From the time in the 1990s when we were handling half a million TEUs, we are now doing 14 million TEUs. That is something to be proud of.
We are now also seen as a transshipment hub. After we created the local critical mass [of indigenous cargo], we started to look at the transshipment market. How can we attract regional cargo to transship in Port Klang? Then we came up with strategies to help shipping lines move their cargo from regional ports such as Indonesia, the Philippines, Thailand, Vietnam, India and Bangladesh to transship in Malaysia. Between 2004 and 2008, [PKA] introduced a scheme incentivising feeder operators to transfer their cargo to Northport and Westports. That was successfully implemented.
What’s next? Will Port Klang be able to make it to the world’s top 10 list of busiest ports?
Every port around the world is aspiring to do better than what they are doing now. At Port Klang, we also have this ambition. We want to break into the world’s top 10 ports but it is not going to be easy. It will take a lot of planning and investments. We will get there eventually. We have for many years been in the top 15 global rankings.
But ambition alone isn’t enough. We need to have proper plans and strategies, proper implementation techniques and make sure that we meet the requirements of the port users. At the same time, we need to grow, develop and bring in new businesses.
Today, we are looking at how to grow our bunkering business in Port Klang. We are trying to promote ourselves as an alternative bunkering centre apart from Singapore.
By comparison, total bunker fuel demand in Singapore last year was 51.8 million tonnes; in Port Klang, it was only close to two million tonnes. You can see the disparity. We also want to improve our ship chandling services.
Malaysia is a large country. We are unlike Singapore, which can consolidate everything into one port. We have coastlines that extend from Langkawi right down to Johor and across to Sabah and Sarawak. No one port can serve the needs of the country.
For instance, Penang is the hub for the northern area. Port Klang is mainly for the Klang Valley, while PTP is able to challenge [Singapore directly], especially on transshipment cargo. For Kuantan Port, many industries, such as steel, petrochemicals and palm oil, are using the port. Bintulu Port deals mainly with the needs of oil and gas. Sabah has a total of eight ports in the state.
As a large country, nothing can stop us from developing more ports. There is no policy to say that everything must be concentrated in Port Klang, PTP, Johor or Penang. If there is a need for more ports to be developed, the authorities or the government will definitely study this matter to ensure that when they build a port there, it actually serves the industries there and demands are met.
The Port Klang Free Zone, or PKFZ, was a dark spot of PKA’s history. In the making of the 1,000-acre free commercial and industrial zone, the project’s cost ballooned from an initial estimate of RM2 billion to RM12.5 billion because of mismanagement, inflated land deals and construction costs. The project ultimately left taxpayers to shoulder billions of ringgit in debt. How are you managing the inherited problems left by your predecessors?
I think we are way past that [scandal-ridden] era. We need to move forward. We have invested in this logistics hub and it has achieved full occupancy, although we feel that we can get more [revenue] out of this place. We are relooking at some of the areas that can be redeveloped to offer a higher-yield kind of business. We will see what facilities are required in the future.
When we redevelop the place, we need to be sure that that is what the industry wants. There’s no point developing something that is not really in line with the requirements of the industry. Therefore, [the board of directors of both PKA and PKFZ] are doing some studies now to find out what is the best redevelopment that should take place at PKFZ.
PKA’s latest annual report for 2021 shows a net loss of RM68.5 million in 2021 compared with a net profit of RM50.1 million in 2020. Why? And when does it expect to turn around? (It has yet to submit its 2022 annual report to the parliament.)
One of the major financial drawbacks that we experienced was the development of PKFZ. We had to take a soft loan amounting to RM3.8 billion from the federal government to finance the whole project.
Under the loan agreement, we have to make a yearly RM200 million repayment to the Ministry of Finance (MoF). We have been servicing the loan since 2018. It has been a good six years now. We have been paying RM50 million diligently every quarter. That is one of our biggest expenditures. If you look at our earnings over the last few years, we have earned good returns from our port activities and lease payments by the terminals. The PKFZ payment is the one that leads to occasional losses [for PKA]. The loan is payable until 2047. I am confident we will manage this well.
Having said that, we also faced other issues. For one, there were many pockets of land within the port that for many years had not been properly transferred to the port authority. These plots of land were entrusted to the port authority to manage and operate as a port facility, but the transfer [of land ownership] was not executed. This issue came to light seven to eight years ago and, so, we decided we needed to make sure that all the land in the port area must be owned by the port authority to ensure that we don’t end up with any legal problems in the future.
In the process, however, we had to pay premiums to the state government to make sure these pockets of land are all owned by the port authority. We spent about RM200 million on this exercise. Today, I can confidently tell you there are no more pockets of land within the port area that is not owned by us.
Also, as a port authority, we need to maintain the ports, especially to deepen and maintain channels for ships to dock. On average, we spend RM15 million a year on dredging.
Still, we have a healthy cash reserve of close to RM500 million. Although our outstanding liabilities are big, especially for PKFZ, we are able to service those loans. The port authority is in a good state now.
We recently renegotiated [the lease terms for] Westports under Westports 2 and our revenue has increased considerably. That will offset some of the losses that we have been experiencing over the last few years. So, 2025 will most likely be a profitable year for us.
What are some challenges that Port Klang faces?
Geopolitical tensions, such as attacks on vessels in the Red Sea, have an impact on the global maritime sector. On Port Klang’s part, we are trying to minimise the impact of delays by working closely with the shipping lines. Waiting times for ships to berth at Northport varied between three hours and seven hours in May; at Westports, they peaked in June, at 36 hours — the worst. The congestion has since eased. The waiting time is now 5.3 hours at Westports and 4.6 hours at Northport. But I can’t say whether this situation won’t deteriorate over the coming weeks as long as the Red Sea crisis persists.
Port digitalisation is another challenge. The third challenge is sustainability. Malaysian ports, especially Port Klang, are old ports. Today, we need to move to new technologies that are carbon-free or emit less emissions. We are looking at using electric vehicles and power-driven equipment, but they require a lot of investment. How do we scale up quickly? We are working very closely with the terminal operators, MoF, the Ministry of Transport and the Ministry of Natural Resources and Environmental Sustainability to come up with policies, strategies and a timeline that will not force port operators to move towards sustainable initiatives, but [will be] a win-win kind of collaboration. We need to have a transformation plan but we can’t do it overnight.
Source: The Edge Malaysia
