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Diesel Cost May Crimp Port Operators' Margins

Posted on: Tuesday, 27 December 2005, 21:00 CST

By KANG SIEW LI

HIGHER diesel cost and global port congestion are two major factors that may crimp local port operators' profit margins in 2006.

OSK Research Sdn Bhd manager Chris Eng said diesel accounts for one of the major costs in operating a port given the number of heavy machinery used.

"We estimate that fuel comprises some 6 per cent to 10 per cent of overall operating costs at a port.

"Given the rise in diesel prices in tandem with oil prices, a number of ports have seen erosion in margins," he said in a note.

To counter this, ports have looked at optimising the use of their quay cranes when loading and unloading cargo.

Eng also said that although the problem of port congestion has eased considerably, it still exists in China and the US West Coast.

This has caused some container shipping lines to incur delays in loading and unloading their cargo.

"The ships then try to make up for lost time by bypassing some of the smaller ports and requesting freight forwarders to consolidate their shipments at hubs.

"Northport has experienced a drop in its container throughput, particularly transhipment cargo, as a result of this," he said.

Local or indigenous cargo, however, is less likely to be affected by port congestion.

"(As such) for the major listed ports in Malaysia, namely Northport, Bintulu Port and Johor Port, we believe the growth factor will be the indigenous cargo originating from the hinterland of each port," said Eng.

For Northport, being the designated National Load Centre, its indigenous cargo from the central part of Peninsular Malaysia will continue to sustain its container throughput.

For Bintulu Port, liquefied natural gas will remain its main revenue driver, particularly with de-bottlenecking activities planned for MLNG Dua.

"Similarly for Johor Port, we see palm oil exports sustaining throughput and, to a smaller extent, local container and non-edible liquid exports. That being said, the new London Metal Exchange (LME)- certified warehouses in Johor Port will help to promote breakbulk and container cargo," said Eng.

"Although this can be viewed as a form of transhipment rather than local cargo, the fact that Johor Port's fees are much cheaper than Singapore's (the only other LME certified port in the region), means that this new business should also contribute to Johor Port's growth," he added.

Source: Business Times; Kuala Lumpur

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