Monday, August 31, 2009

Resource-based Growth Strategies used by PTP Port

By Muhammad Subhan & Ahmad Bashawir

(My article that has been published in the Gajah Mada International Journal of Business, Indonesia)


I. Introduction


In last few decades, the world has witnessed a rapid growth of the global trade movement which triggers globalization of port logistics (UNCTAD 2007, 2008) or market place globalization (Robinson 2002) as a result of the towering growth of the world population, commodities, and the increasing economic prosperity as well as the new inventions in maritime and shipping technology. Port and shipping industries have experienced great transformations to support the innovation and development in maritime industry sectors with necessity infrastructures and services.

In shipping industries, studies and researches on design, size, and capacity of the containerships have been carrying out continuously to produce larger and faster vessels. According to Global Security Organization (2008) it was around 6,800 containerships in different sizes, recorded in 2000, operated to handle 5.8 million TEU and in the early 2004, 100 containerships of 8,000 TEU were already in operation. Samsung Heavy Industries (SHI) in Korea has been successfully developed containerships double in terms of its capacity only in 7 or 8 years. SHI developed a containership of 6,200 TEU in 1999, followed by the making of containership of 7,700 TEU in 2000, containership of 8,100 TEU in 2002, containership of 9,600 TEU in 2003 and is in progress of developing eight ships of 13,300 TEU since 2007 that will be in use by 2011 (Samsung Heavy Industries 2008). Recently, containership of 11,000 TEU named Emma Maersk is already operated by A.P. Moller-Maersk Group. It is the biggest containership ever built so far in term of its capacity and the ship has 397 meters length, 56 meters breadth and 14 meters draft (Maersk 2008).

The process of building containerships of 12,500 TEU is now carrying out according to Lloyd’s Register and expected to be accomplished by 2010. The study on innovative design carried out by Germanischer Lloyd and Hyundai Heavy Industries has resulted a design of 13,000 TEU containerships with 382 meters length, 54.2 meters width and draft 13.5 meters. It is expected that in the next 10 years, containerships of 18,000 TEU, with 60 meters length and maximum draft 21 meters will be built. This is simply because a research conducted by them shows that this huge containership is possible to be developed (Global Security Organization 2008).

As a result, according to Robinson (2002), the rapid transformation and development within the industries will significantly affect to structural and functional changes to ports and port authorities. In this such a situation, port authorities and port managements need to recognize and capture the new opportunities, define the new core business of the port, to identify an appropriate strategic intent as described by Hamel and Prahalad (1994, 1988), to specify relevant core and threshold competencies (Hamel and Prahalad 1994) and to position all of these as opportunities for growth of the port.

In this paper, we look at growth opportunities of the port from the resource-based theory. The case of Tanjung Pelepas port in Malaysia of recognizing opportunities for growth is explored and analyzed using the theory.


II. Resource-based Perspective

According to Mahoney and Pandian (1992) the resource-based approach is an emerging framework that incorporates concepts from mainstream strategy research concerning a firm’s unique competencies and heterogeneous capabilities, provides value-added theoretical propositions.

Resource-advantage theory views the firm as a combiner of heterogeneous and imperfectly mobile resources. Heterogeneous resources may include a firm’s knowledge base about markets and specific expertise. Imperfectly mobile resources are those that can be traded but are of more value within the firm. In the shipping industry companies may have an assortment of resources, which are in some ways unique and costly to copy, and also more difficult to trade in the market place. Competitiveness in many sectors of the maritime industry may be achieved through the efficient and effective organization of a firm’s economic resources (Panayides and Gray 1999).

In order to contribute to competitive advantage, resources that are unique must be aligned with core competences and integrated into the firm's capabilities or complex patterns of coordination between people and between people and resources to perform specific value added activities. Competences are necessary but not enough to allow a firm to create a differentiated market offering that grants an advantage over the competition are called threshold competences (Magala 2004).

Resource-based View of Port Growth Opportunities

The notion of competitive advantage is still critical and central to port growth strategies (Robinson 2002, and Magala 2004) and the essence of strategy formulation is dealing with competition (Porter 1980, 1998) and it is choosing to perform activities differently than rivals do (Porter 1996). According to Robinson (2002), port’s advantage is something created for shippers and their ancillary service providers.

The resource-based approach, according to Magala (2004), suggests that the strategies which a port can pursue should focus on the use of resources such as better logistics, good transport network and intermodal arrangements, available land for expansion, skilled labor, efficient cargo handling and storage facilities, effective configuration of supply chains, and managerial talent which are unique to the regional port and valuable to port customers. The purpose is to seek marketplace positions of competitive superiority and to contest for growth. Inland distribution and inland accessibility is also a cornerstone in port competitiveness (Notteboom and Rodrigue 2005). In addition, location of the port is a key factor. A seaport located on a shipping lane has distinct advantages in terms of being on a trade route thereby requiring, no detour to gain access to/from the port, thus reducing voyage time (Branch 1996).

An effective strategy to competing on resources, according to Magala (2004), should include the identification and classification of port resources, the identification of port capabilities (what the port can do more efficiently and effectively) than its rivals. Only after this review, port authorities select a strategy to exploit their resources relative to external opportunities and competition.

III. Defining Key Concepts

To stay away from potential misleading, three key concepts that are critical to the rest of this article are defined in this section. The concepts are port resources, port growth, and competitive advantage.

Port Resources

In general, resources can be defined as any tangible (such as personnel and major items of equipment, supplies, money, data, technology, location, and facilities) or intangible entities (time, skill and knowledge, reputation, loyalty, capability and competency) that are available to a firm for performing operations and accomplishing assignments. We can simply define resources of a port as any factors (assets) that a port can position as inputs in the port production or operation process.

As in normal business environment, port resources can also be seen as internal resources and external resources (see figure 1). The internal resources are resources exist within the port while the external ones are all resources outside the port which are not the property of the port but still can be utilized by the port directly or indirectly through certain conditions such as collaboration and alliances.

In port, resources play an important role in contributing to port growth as well as in achieving competitive advantage of a port (see figure 2). From the matrix, a port that struggle to achieve sustained growth and competitive advantage should employ unique tangible resources combined with core and precise intangible resources.

[Picture 1]

Port Growth

Growth, no matter how big or small, is the objective of any firm including port and is the sine qua non of port industry success, whereas sustainable growth and competitiveness are the strategic ambition of any port.


In economics, growth is always reflected to the increase in the production of goods and services, and sometimes incomes, over time through economic activity. Penrose (1956) stated that the factors that determine the size of the increments of expansion that any industrial firm can undertake within a given period of time are factors that determine the rate of growth of the firm. For port, growth should be defined as the increase in size, volume (quantity) or value, strength (quality) of productivities, services, and competitiveness vis-à-vis its competitors that a port can achieve within a particular time.

The common factors of ports’ problems that affect their growth and efficiency are the lack of resources available to them such as land availability for expansion, deep-water requirements for handling larger ships, capability to accommodate increased port traffic, environmental constraints and local opposition to port development (Notteboom and Rodrigue 2005). One of the factors, i.e. to have greater depth to accommodate modern containership drafts, have emerged the ports growing to be hub or transshipment in-function, placing them at technical advantage.




Port Growth Opportunities

Port growth opportunities can be seen as any potential or possibilities of action and change or favorable events or circumstances that may help a port to grow or increase competitive advantage. They may include such as the marketplace openings or an unexploited space by competitors where a port has potential to increase her market share (see figure 2). According to Hamel and Prahalad (1994), a firm (port) should focus on unserved customers whether the need is articulated or unarticulated in order to pull off these unexploited opportunities that may result to port growth.


Hoyle (1999) gives an example of Port of Mombasa in Kenya that has opportunities to grow due to the port has deep-water and located at a strategic international maritime transit that unique to other ports in the region. For overall, the port has competitive resources that contributing for future development of the port i.e. location, history, environment, and inland infrastructure availability. That is why Manda Bay is chosen as a suitable place for port development due to its strategic location and availability of land for expansion with relative low cost (Hoyle 1999). Singapore uses strategy by investing in Indian port to avoid the lack of land availability for expansion facing by them (Faizal 2003); this kind of alliances allows Port of Singapore to utilize other resources (Indian port) which is called external resources for enhancing their growth and sustaining their competitive advantage. Port of Ningbo will continuously get bigger market as a result of having natural advantage such as deep-water (Cullinane et al. (2005).

Port of Hong Kong and Singapore get opportunities for growth from the impact of increasing in production cost experienced by industries. The rise of the cost has forced manufacturers moving their operation to region with lower cost such as South China and Southeast Asia region. To capture this opportunity, inadequate facilities should be overcome by the ports in the region. Hong Kong and Singapore have benefited to this condition as many ports in South China and Southeast Asia, as their competitors, failed to provide satisfactorily facilities to handle the cargoes (Fung 2001).

IV. The Port of Tanjung Pelepas

The Port of Tanjung Pelepas (PTP) is located at the south western tip of the state of Johor in Malaysia facing the world major shipping route, the Straits of Malacca. With its vision to be the preferred port of choice in Southeast Asia, the port starts its operation in 1999 to complement other Malaysian ports that already established before it such as Port Klang, Penang Port, and Johor Port, just to mention major ones. However, the port officially launched by Dr. Mahathir Mohamad, Prime Minister of Malaysia, on 13 March 2000 with the mission to provide unrivalled port services globally.

In its first year of operation, the port handled 20,696 TEU. In 2006, the port handled 4,77 million TEU and increased to 5,5 million TEU in 2007. This throughput achievement has put the port to be ranked as top 20 of the world’s major container ports or the third busiest port in the region following Port Klang and Port of Singapore as the second and the first busiest ports in the region respectively.

4.1 Port’s Internal Resources

4.1.1 Nature, Location, and Accessibility

Lack of land availability for future development and growth is not a matter for the port since the port is located on a green field site that allows the port for future expansion. Having naturally sheltered deep water of 15-19 meters, no tide restrictions, turning basin of 600 meters, and 12.6 km of access channel for two-way traffic have given the port with unique natural advantages.

The port location that just 45 minutes from the crossroads of Singapore Strait and Malacca Strait, where East-West international trade lanes located, as of the world’s busiest shipping lanes (see figure 3) creates a significant locational advantage to the port that is ideal for both regional and global transshipment and distribution activities. This locational advantage is an inimitable factor to its competitors.
This strategic location combined with well-developed transport infrastructures such roadway, railway, seaport and airport give the port an excellent accessibility. The road and rail system is linked to broad highway networks that open inland accessibility for the whole peninsular, Singapore, and to other countries through Thailand. This excellent multimodal connectivity, inland and sea, offers unique feature for integrated logistics network of the port.


Figure 3: Port of Tanjung Pelepas position at the International Shipping Routes [Source: Supply Chain Leaders 2008]

4.1.2 Infrastructure

With recent infrastructure has put the port as the top 20 world container ports. As their vision to be the preferred port of choice in Southeast Asia, the port is expanding to Phase II of the port development. The expansion will include an additional 2.88 Km of linear wharf capable of accommodating an additional 8 new berths. The first 4 of the 8 berths have been completed. This brings PTP annual capacity to 8 million TEU (PTP 2008).

Current port’s berths (6 berths) have 15 meter draft alongside but all future berths (Phase II) are set in 17-19 meters of naturally deep waters with a wide approach channel and a turning basin 600 meters wide. These features allow the easy maneuvering of even the largest containerships approaching the port and fast berthing for the ships at the port.

Current major infrastructure of the port is as follows:
1. 10 berths forming 3.6 Km of linear wharf where 6 berths have 15 meters draft and 4 berths have 17-19 meters draft alongside
2. A turning basin 600 meters
3. 32 quay-side cranes and two mobile harbor cranes and 80 units Rubber-Tyred Gantry (RTG) cranes
4. Total area of 1.2 million square meters of container yard capacity that can accommodate 200,000 TEU
5. The port also offers over 1000 acres of commercial and industrial free zone land that are integrated with the port. Of this, approximately 400 acres has been designated as Free Commercial Zone (FCZ) reserved for distribution, logistics, and warehousing activities ideal for consolidation, International Procurement Centers, regional distribution centers, and distribution services. The remaining 600 acres of Free Industrial Zone (FIZ) is reserved for light, medium and heavy manufacturing industries.
6. The port also offers pilotage and towage services with tugboats fitted with fire fighting equipment and 40 ton bollard pull with 3200 horsepower engines.
7. The port also have fresh water supply at berths via pipelines.

4.1.3 Technology

In addition to outstanding location and accessibility and the world-class state-of-the art port infrastructure, the port is also equipped with advanced integrated information technology system. Some of the systems used in the port are:
1. Smartrail System. Rubber-tyred gantry yard cranes are retrofitted with SmartRail (advanced satellite-guided automatic steering and position determination system) virtually eliminating human error by using the Differential Global Positioning System (DGPS) for pinpoint positioning accuracy to avoid misplaced containers and reduce waiting time for loading discharge.
2. Container management System. The core system is utilized for yard & vessel planning and for facilitating precise container movement.
3. Gate Control and Monitoring System (GCAMS) that ensures smooth flow for all gate transactions and integrates Customs Gate Control Systems with the Port Container Management Systems to maximize efficiency.
4. Port radar System. The systems ensure safe and efficient management of all vessel traffic movement at PTP while enhancing effectiveness during emergency situations.
5. Vessel Clearance Systems (VCS) that allows paperless declarations to various governmental agencies and online approval processes.
6. Safety and Security. The Port’s Vessel Tracking System known as RADARS (Radar Information Processing and Display) provides vital information such as the status of every container in the port at any given time to the Marine Department for smooth traffic flow and added safety.

4.2 Port’s External Resources

The Straits of Malacca have been an important maritime route to many types of vessels since hundreds years ago. The number and type of vessels pass through the straits is now increasing drastically. According to Zubir (2007), at the moment, there are 220 vessels per day from both directions use the strait for their routes. From this number, more than 30 per cent of the vessels are containerships; this is according to a report by The National Maritime Portal Malaysia, Ports World (2000). Zubir (2007) also reported that every year more than 50,000 cargo ships use the straits. This figure is closely to a statistics released by The International Maritime Organization (IMO) that installed a vessel traffic system around Port Klang which found the number of vessels passed through the Straits of Malacca for 1999 only was 59,314 vessels (Ports World 2000). Most of these vessels, mainly containerships, will be berthed at several ports in the straits to load and unload containers at the ports, some will merely transit for certain purposes such as fill up fuel and water, and others will simply pass through the straits for their short cut navigation.

As the consequence of trade and containerships increase, the throughputs activities at several ports in the Straits of Malacca are also significantly increase from year to year (PSA 2007, 2008b and Port Aid 2008). The average increase of container throughputs for Port of Singapore is 2.06 million TEU per year, meanwhile the average increase of container throughputs for the world is sharply increase at 6.7 million TEU per year. For example, if we look at the throughputs activities in 2006 (table 1), the top 4 major container ports in the Malacca Straits, we will find that there was an increase of 10.40 per cent compared to year 2005.


Table 1: Throughputs volume of Port of Tanjung Pelepas and of its rivals
Port
Rank* Region, Country and
Port Name Throughputs Percent
2006 2005 Growth

Straits of Malacca
1 Singapore Singapore 24,792,400 23,190,000 6.91 10.40
2 Port Klang Malaysia 6,300,000 5,543,530 13.65
3
Tanjung Pelepas Malaysia 4,770,000 4,177,120 14.19
4 Penang Port Malaysia 849,730 795,289 6.85
Total 36,712,130 33,705,939
*based on 2006 Throughputs
Data Source: Port Aid (2008), PTP (2008), PSA (2007, 2008b), Penang Port Commission (2009)

The port of Tanjung Pelepas located with well-developed transportation infrastructures network such roadway, railway, seaport and airport. The road and rail system linked the port to a broad highway networks accessible for the whole peninsular, Singapore, and to other northern ASEAN countries through Thailand. It is also very close to other seaports forming a sound seaport system that can complement each other. Furthermore, the port also located very near to two major hub airports in the region, i.e. Senai Airport in Johor and Changi Airport in Singapore. The port’s location also near to the Iskandar Development Region (IDR), a project by the Malaysian Government to develop South Johor into a metropolis area and to be the most developed spot in Malaysia.



4.3 Port Capabilities

If we look at the port capabilities in handling the container throughputs (see figure 4), from 1999 to 2007 the port experienced a very sharp increase of the throughput volumes from only 20,696 TEU in 1999 to 5,5 million TEU in 2007. This achievement put the port as the third busiest port in the region.


With current infrastructures and the current plan for expansion, the port will be capable to handle 8 million TEU annually, to put containers into 29,785 TEU slots with the capacity of the storage 200,000 TEU. Beside that, the port is also capable to handle the biggest containership currently operated, Emma Maersk, of 11,000 TEU with 14 meters draft, and will be able to handle future containerships whose draft less than 19 meters. However, with a little dredging works, the port will be able to handle any size of future container vessels. The port is also capable to govern pilotage and towage services for any size of vessels at their turning basin of 600 meters wide.


V. Comparing Resources and Performance of the Port vis-à-vis Its Rivals

Achieving sustainable growth and competitive advantage is becoming major concerns of any port. However, many ports’ authorities fail to experience diversity in identifying and capturing opportunities and then transforming them into strategies for the port growth. Some ports focus on market share opportunities as their basis for growth, while other ports put very much attention only to their competitors’ achievement rather than their own capability. Most of the world major ports give deep and serious attention to their resources as a basis for growth and achieving competitive advantage.

To analyze the growth opportunities of the port, we compare the port’s resources with its major rival ports in the region. The comparison includes tangible and intangible resources of those ports such as container throughputs, capability of container handling, storage, facilities, and costs involved in operation, future expansion, and human resources, as well as future issues such as land and hinterland availability, and so forth.

If we look at current achievement of the ports in the region, no one would deny that the Port of Singapore, as the world busiest port, will remain as the greatest port for several years to come. The performance gap between the port of Singapore and its rivals is still too far. However, growth opportunity is not meant that other ports have to beat the leading port but rather how a port can bridge the gap. The following chart (figure 5) shows the position of Port of Tanjung Pelepas in terms of annual throughput activities relative to its rival ports based on data from 2002 to 2007.

A port’s achievement (container throughput) is greatly depending on the following aspects of a port: resources and capability, market, cooperation, opportunity, and competitive advantage. Despite those other aspects, this paper wants to highlights more on resources and capability (competency) of the port as one of the most influencing aspects for port growth.

Let us compare resources and capability of Port of Tanjung Pelepas (PTP) and its three rival ports in order to understand the opportunity for growth of the port. After that we can follow the analysis with the financial aspect that may incur from the resources and capability. Then we discuss some issues of future development of the port that also may affect growth opportunities of the port.

Table 2 shows selected important resources of the four ports and their annual container handling capability that may affect their performance (container throughput). In terms of number of container terminal, we know that the Port of Singapore has four container terminals namely Brani, Keppel, Tanjong Pagar, and Pasir Panjang Terminal; Port Klang has two terminals; Penang Port has also two terminals; whereas PTP has only one terminal.

Table 2: Resource and Capability comparison of PTP and its Rivals
No of
Berth Depth
(m) Quay Length
(m) Quay
Crane Storage Area
(Ha) Annual Handling
Capacity ('000 TEU)
PTP 10 16 3600 36 120 8000
Singapore 54 16 16000 190 600 35000
Klang 26 15 6200 61 690 12100
Penang 5 11 1230 11 42 1000
Data source: PSA (2009), PTP (2009), Northport (2007), Westport (2009), Penang Port Commission (2009b)

From resources and capability as shown in table 2, we take four aspects namely number of berth, number of quay crane, area, and annual handling capacity and then we also take total annual throughput to compare with those of PTP resources and capability to show how its rivals’ strength and competitive advantage. In table 3, PTP’s strength represents as 1 (one) for the all criteria.

[Table 3]

As aforementioned, resource and capability is not the only aspect affecting total throughput of a container port. However, this paper limits its analysis only to this aspect. As we can see in table 3 above, in terms of number of berth, Port of Singapore has almost four times more than that of PTP and Port Klang has almost two times more than that of PTP, while Penang Port has half times less than that of PTP. However, crane availability at the berth shows different thing. From the table we can see that Port of Singapore has more cranes at their berth compared to other ports. This figure might say that Port of Singapore can handle more containers than that of other ports. Area might be a sound strength if it is backed up with the efficiency of loading and unloading activities at the berth. From this table also we know that Port of Singapore has capacity 4.4 times bigger than that of PTP. An interesting point to note if we compare annual container throughputs and annual handling capacity of the ports, we will find that Port of Tanjung Pelepas (PTP) reached 69 per cent of its annual capacity while Singapore port reached 77 per cent, Port Klang 58 per cent and Penang Port 90 per cent.

In terms of Terminal Handling Charges (THC), shippers using Port of Tanjung Pelepas (PTP) and Port Klang pay MYR335 for 20-foot equivalent unit (TEU) container and MYR500 for 40-foot equivalent unit (FEU) container, while shippers using Penang Port pay MYR295 and MYR440 for TEU and FEU respectively. As a comparison (see Figure 6), shippers pay MYR414 per TEU and MYR614 per FEU for THC if they are sending their containers through Port of Singapore, while in Hong Kong, they will be charged MYR886 per TEU and MYR1,305 per FEU for the same service.

Taking this figure, we can say that in terms of cost leadership as a basis for competitive analysis (Porter 1998), Penang Port has the highest competitive advantage for this category followed by PTP and Port Klang. However, if we look at their comparison between annual container throughputs (Figure 5) and annual handling capacity (Table 2), Penang Port’s achievement is already at 90 per cent of its capacity while PTP, Port Klang and Port of Singapore are at 69 per cent, 58 per cent, and 77 per cent of their handling capacity respectively. It’s meant that competitive advantage will switch to PTP and Port Klang in terms of cost leadership. Of course, THC is not the only charge influent the cost leadership and cost leadership is not the only basis for assessing competitive advantage, but at least we have rough initial forecast of the competitive advantage of the ports.

If we compare ports’ revenue and profit (see Figure 7 and 8), we will see that PTP’s revenue and profit increases sharply compared to its Malaysian rival ports especially after 2004. Before this year, PTP spent much of their capital for investment to strengthen their resources and capability in handling containers. Roughly, comparison between revenue and profit before tax (PBT) explains operating expenses of the port. In terms of revenue and profit, the Port of Singapore remains unbeatable by its rivals with its resource superiority. To compete with the Port of Singapore’s resources and capability, PTP needs to expense a lot of capital for years to come. With its current history and performance, we believe that PTP is capable to at least reduce the gap between Port of Singapore and their port and will be the second largest container port in the peninsula.

From Figure 8, we can see that before year 2004, PTP spent much of their capital to investment. In 2003, PTP experienced a loss of MYR84 million as a result of investing expenses. Only four years after commencing operations in 1999, PTP has grown its profit and in 2008 PTP become the largest container terminal in Malaysia and the fastest growing port in South East Asia (MMC 2005).


VI. Growth Pathway of the Port

The Port of Tanjung Pelepas (PTP) has successfully positioned itself as one of major port in South and Southeast Asia together with Port of Singapore and Port Klang. This paper has shown that PTP as a ‘young’ port in the region successfully captured opportunities for growth based on their resources and capabilities. Among their unique resources are location, infrastructures, and their core-competency as well as their link to exceptional external resources.

(Discontinued)

Note: Please send me an e-mail for full paper at: subhanaceh@yahoo.com

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