For a region which includes 24,000 islands, spread across 5,200 km east to west and 3,400 km from north to south, modern and well-managed maritime and aviation sectors are crucial to economic progress. While the outbreak of the Covid-19 pandemic has impacted both the sectors, growth in the Association of Southeast Asian Nations (ASEAN) countries is expected to pick up pace over the medium term owing to a strong rebound in trade, robust domestic demand and infrastructure development initiatives undertaken by various governments.
Trends across the port sector
Given the geographical location of the Southeast Asian countries, they are considered to be an important gateway for maritime containerised trade. Singapore enjoys a dominant position in the ASEAN container market. The Port of Singapore is the second busiest container handling port in the world, behind China’s Shanghai port. Indeed, the former used to be the top container handling port until 2009, only to be surpassed by the latter in 2010. The Port of Singapore handled 37.2 million twenty-foot equivalent units (TEUs) of container traffic in 2019, as against 36.6 million TEUs in 2018, a year-on-year growth of 1.64 per cent. Another country emerging as a competitor in the ASEAN container market is Malaysia. Port Klang handled 13.58 million TEUs of container traffic in 2019, up by 10.27 per cent over the previous year.
Other than serving as container ports, the Southeast Asian ports also serve as key transshipment hubs for countries like India and China. With regard to transshipment, Singapore plays a vital role and is one of the world’s leading transshipment hubs. The upcoming Tuas terminal, when completed, is expected to further strengthen its position in the transshipment market. Another key port of the region, Tanjung Priok port, Indonesia, handles 50 per cent of the country’s transshipment traffic. Besides, the ports of Philippines, Vietnam and Thailand have also invested in deep-water facilities to get a share in the global transshipment market pie.
The Southeast Asian ports have been among the leading ports in terms of technology penetration. The increased emphasis on technological deployment and advancements is being laid primarily to reduce costs and improve efficiency. The Maritime and Port Authority of Singapore has started using stand-alone 5G networks to test its coastal drone flights. Hutchison Ports Thailand introduced autonomous truck technology at Laem Chabang port’s Terminal D, becoming the first port operator in Thailand to introduce such technology. Tanjung Pelepas port, Malaysia, has signed an agreement with Portchain for deploying AI-powered berth optimisation software at the port. The Philippine Ports Authority (PPA) has launched an electronic payment portal to digitise the collection of port charges, thereby reducing face-to-face transactions.
With regard to private participation in port projects, Philippines has been the front runner in the public-private partnership (PPP) race. Since 2016, the Department of Transportation (DoTr) and PPA have completed 369 seaport projects. Of these, 189 commercial ports have been completed and 37 projects are ongoing. Despite the outbreak of the Covid-19 pandemic and the subsequent lockdown measures, DoTr and PPA announced the completion of 14 strategic port projects in June 2020. Other than Philippines, Thailand, Vietnam and Malaysia have also been active in the PPP space.
More and more countries have started adopting the International Maritime OrganiZation’s (IMO) guidelines to slash the sulphur cap on fuel oil from 3.5 per cent to 0.5 per cent sulphur content, with effect from January 1, 2020, in order to reduce sulphur oxides from ship air emissions. In the first quarter of 2020, most of the ships calling at the Port of Singapore have complied with IMO’s sulphur regulations. On the same lines, Malaysia has prohibited the use of open-loop scrubbers by ships plying Malaysian waters. While some Southeast Asian countries have taken the requisite steps to ensure adherence to IMO’s guidelines, others find it difficult to ensure the same.
Trends across the aviation sector
The aviation sector is witnessing positive trends all over Southeast Asia. Economic growth, the growing middle-class population and increasing income and expenditure translate into better traffic growth. Single-aisle airplanes continue to be the main driver of capacity growth in Southeast Asia and it helps to stimulate the demand for commercial aviation services. The demand is driven by airlines adapting to the evolving business environment and new long-haul expansion opportunities.
The domestic and regional international market is generally oversupplied. Though there are opportunities to launch new secondary routes within Southeast Asia, but such routes are generally low yielding. Southeast Asian airlines are generally making money on core trunk routes connecting slot-constrained airports but they have no choice except to diversify and grow in unprofitable markets as they add aircraft.
Low-cost carrier (LCC)-based markets in Indonesia, Thailand, Vietnam, Malaysia and the Philippines have shifted their focus to international expansion as LCCs now account for 30-40 per cent of the international seat capacity in these countries.
Urban air mobility pioneer Volocopter successfully completed its first manned flight over Singapore, while industry leaders such as Boeing, Bell, Embraer, Safran, Uber, Fraport, Groupe ADP and others also unveiled plans for urban air mobility solutions. Use of biometrics and facial recognition mobile applications to make the check-in process easier for passengers to comply with social distancing norms has been witnessing an increasing trend.
Airlines competed very aggressively on price in the first three quarters of 2018 despite the increase in fuel prices. The decline in fuel prices in the last quarter of 2018 provided some relief but the aggressive competition in the market is continuing, leading to some extraordinarily low fares for both short-haul and long-haul travel. Philippine Airlines, AirAsia, etc. were also unprofitable because their capacity growth has outstripped demand, leading to fare wars at a time when airlines should have been increasing fares to offset higher fuel costs.
Future outlook in light of Covid
By virtue of their favourable geographical locations and long coastlines, Southeast Asian economies have tremendous potential for rapid economic growth if they are able to monetise their maritime and aviation assets. While infrastructure has been an important priority area for the Southeast Asian economies, the outbreak of the Covid-19 pandemic will certainly blur this focus. Covid-19 has led to disruptions in project delivery, raw material availability, labour supply, capacity addition and investments. However, activity has started to return to normalcy with the phased lifting of lockdowns across countries.
While the outbreak of Covid-19 has had a bearing on the maritime trade of ASEAN countries, continued and efficient shipping and port operations are crucial, both for short term policy response to the pandemic and for speedy and sustainable recovery. With regard to the aviation sector, the pandemic has had a dramatic impact as the ability of airports to maintain revenues has become increasingly challenging and they are facing a severe financial risk which would threaten their solvency, debt and liquidity. The recovery of the aviation industry depends on financial support from the government, financial institutions and investors including tax incentives.