final report assessing the issues, challenges and prospects of

Final Report

Assessing the Issues, Challenges and Prospects of

Selected Secondary Ports in Peninsular Malaysia

Nazery Khalid, Margaret Ang & Elvia Cory Abu Hasan

Centre for Maritime Economics & Industries (MEI)

22 September 2011

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Assessing the Issues, Challenges and Prospects of selected Secondary Ports in Peninsular Malaysia

Nazery Khalid, Margaret Ang Guat Hee and Elvia Cory Abu HasanCentre for Maritime Economics and Industries (MEI)

_____________________________________________________________________

Abstract

Secondary ports – defined as ports which are not as big in size, capacity and throughput volumes as the nation’s major ports – in Peninsular Malaysia contribute to the economic growth of the country by facilitating trade and providing a link between producers and consumers located in the areas an hinterlands served by the ports with their markets and suppliers. In this way, the secondary ports complement the role of the nation’s main seaports and support the distribution of goods and materials throughout the country. Despite their important role, there is no policy or plan to promote the development and growth of secondary ports. This study outlines the issues, challenges of selected secondary ports in Peninsular Malaysia based on their throughput volume handled and development. Although the six ports studied are different in terms of size, capacity, cargos handled and strategies, there are commonalities among them in terms of the issues and challenges they face, their aspirations to grow and their need for assistance from the Government to develop. The study finds that the ports have recorded good growth in the last several years judging from the upward trend in their throughput volume handled and their capacity expansion. It is ascertained that their operators would like to get support from the states and Malaysian Government to facilitate their development further. Based on information obtained from field trips and a stakeholders meeting, the study identifies the strengths, weakness, opportunities and threats of each of the six ports. It then recommends a set of policy options which will hopefully lead to an orderly development of the ports, the promotion of their growth and better integration between them and the nation’s trade supply chain and trade network. Among the recommendations are to provide financial assistance for dredging and the expansion plan of the ports and to include the development of secondary ports in the National Port Policy. The study concludes by stating that with strong support from the Government, the secondary ports can be systematically developed and their handling capacity and overall competitiveness can be enhanced. This will enable the ports to realize their full potential and allow them to play a more significant role in facilitating the nation’s trade and economic growth. .

Keywords: Peninsular Malaysia, secondary ports, issues, challenges, prospects

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Table of contents page

1. Introduction 7

2. Profile of selected secondary ports in Peninsular Malaysia 14

3. SWOT analysis 30

4. Issues and challenges 33

5. Recommendations 38

6. Conclusions 40

7. Areas of future studies 41

Acknowledgement

References

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Executive Summary

Secondary ports in Malaysia contribute to trade facilitation and enable producers from the hinterlands of the country to feeder their goods through these ports to the main seaports. The secondary ports also facilitate the transportation of goods from their sources to consumers, businesses and industries in the hinterlands they serve.

Given that 95% of the country’s trade is carried by seaborne means, and given Malaysia’s dependence on trade, the role of secondary ports in facilitating trade and economic growth should not be understated. These ports complement the roles of the nation’s major seaports by acting as ‘pick-up points’ for cargos from the hinterlands which are far away from the major seaports. Cargos amassed at the secondary ports are then feedered to major ports using barges or small feeder vessels. This ‘order’ is inevitable given the limited features (such as shallow drafts) and facilities (such as la lacking in big cranes) at the secondary ports which can only accommodate small vessels.

While there are copious amounts of literature in the field of Maritime Economics on the main ports of Malaysia, there are few studies, if at all, on secondary ports. In the course of doing literature review on the subject, the study team failed to find any comprehensive studies on secondary ports in Malaysia.

This modest study covering selected secondary ports in Peninsular Malaysia aims to address this gap in the literature. Ports covered in the study are ASA Niaga Port, Lumut Port, Tanjung Langsat Port, Dermaga Tanjung Lembung, Teluk Ewa Jetty and Melaka Port. The study outlines the issues and challenges faced by these ports, evaluates their prospects for growth and provides policy options to develop them in a systematic way to enable them to further contribute to the nation’s trade and economic growth.

The key findings of the study are as follows : :

i. There is no policy promoting the development of secondary ports either as a whole or individually. There is however a mention of individual secondary ports in the master plans of development corridors such as Iskandar Development Region in the state of Johor (which mentions Tanjung Langsat Port) and Palm Oil Industrial Corridor in Sabah (which mentions Lahad Datu Port).

ii. While several secondary ports report to designated port authorities, others do not report to any agencies or bodies, either state or Federal.

iii. There are secondary ports which have considerably good features and facilities which enable them to cater to large vessels and handle relatively big volumes cargos, and even offer international services. These include Lumut Port and Tanjung Langsat Port.

iv. There are secondary ports which have rudimentary facilities and just basic features, and some have seen better days. They do not host many vessels and handle low volumes of cargos for a limited number of users.

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v. The majority of the operators of the secondary ports welcome any form of assistance from the state and Federal government to develop their ports and to boost their growth.

vi. Some of the secondary ports do have the potential to move up the value chain and grow into becoming large local ports, given their strategic location, reasonably impressive features and facilities, potential to expand their connectivity and growth potential of the hinterlands they serve.

vii. The presence of private jetties and landing places in Port Klang and Lumut pose competition and a threat to navigation safety of secondary ports in those areas.

The performance of the secondary ports covered in the study was assessed by looking at their throughput figures. From the analysis of their throughput figures, a clear trend of growth can be seen among hem. This is indicative of not only their ability to handle bigger volumes and of their improving efficiency and productivity but also of the growth in the economies of the hinterlands they serve.

A SWOT (strengths, weaknesses, opportunities, threats) analysis carried out revealed that the secondary ports face various common issues and challenges. There are common strengths, weaknesses, opportunities and threats faced by these ports. Common strengths include good location among shipping lines and specialization in type of cargos handled. Common weaknesses include shallow drafts and lack of funding to grow. Meanwhile, they have the potential to grow their business from growing intra-Asian trade and developments in their hinterlands. They face threats from private jetties and competition from one another and from regional secondary ports.

For the sake of practicality, the study recommends a set of policies that should apply to all secondary ports in order to enable them to be developed in a cohesive manner to complement the major ports and the nation’s trade and economic development, and also to boost their own growth. The study recommends the following policy options :

i) Include secondary ports into the national port policyii) Provide financial assistance for dredgingiii) Provide financial assistance for expansioniv) Include development of secondary ports in state and national development strategies

/ master plansv) Consolidate the private jettiesvi) Enhance security and safety around secondary portsvii) Create a platform for secondary port owners and operators to have dialogues with

one another and to engage the regulatory authorities and relevant agencies viii) Include representatives from secondary ports in national bodies such as National

Port Commission, National Maritime Council and/or Malaysia Logistics Council.

It is hoped that the recommendations can lead to the systematic development of the secondary ports, enable them to optimally harness their resources, realize their full economic potential and contribute to the growth of their vicinities and host states.

The paper concludes that secondary ports have a role to play in facilitating the nation’s trade and economic growth of the areas and hinterlands they serve. With strong support from the

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states and Federal Governments, the secondary ports will be better poised to grow, attract more and bigger ships and handle more throughput volumes. They can also be better connected to the nation’s major seaports and be better integrated into the national transport, trade and economic supply chains. This will enable them to play a more significant role to facilitate the nation’s trade and economic growth.

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1. Introduction

According to the Marine Department Malaysia, there are a total of 60 ‘minor ports’ in Peninsular, 11 ports in Sabah and 36 ports in Sarawak. Although Marine Department does not define the term ‘minor ports’, it is taken as ports which are smaller than the nation’s major seaports such as Port Klang, Port of Tanjung Pelepas, Penang Port, Johor Port, Bintulu Port, Kemaman Port, Kuantan Port, Kuching Port and Kota Kinabalu Port. In short, minor ports are nowhere near the size and capacity of the nation’s main ports,

The minor ports in Peninsular Malaysia are monitored by regional Marine Departments which then report to the Marine Department Malaysia. The minor ports in Sabah and Sarawak are under the jurisdiction of state government agencies, namely the Jabatan Dermaga Sabah and Lembaga Sungai-Sungai Sarawak, respectively.

Most of these minor ports handle conventional cargos, with the exception of a few that are established for specific types of commodities. Examples of such ports are Port Dickson in the state of Negeri Sembilan, Sungai Udang Terminal in Melaka and Kemaman Port in Terengganu which handle oil- and petroleum-related cargos. Several minor ports are just jetties with limited cargo handling and berthing facilities. They are too small to be considered as ‘ports’ and are way beyond comparison with the largest of the minor ports, much less with the nation’s major seaports.

For practical purpose, this study focuses only on minor ports in Peninsular Malaysia that handle considerable volume of cargos and capable of handling international trade. They are termed ‘secondary ports’ to differentiate them from the minor ports listed by Marine Department Malaysia. The study excludes fishing ports, oil terminals, naval bases, riverine ports and passenger jetties from its coverage.

The performance of the secondary ports, in terms of the volume of cargos handled and their developments, varies from one port to another. The largest of the secondary ports, which include Lumut Port in Perak, Tanjung Langsat Port in Johor and ASA Niaga’s Barter Trade Jetty in Port Klang, handle the biggest volumes among them and have enjoyed more rapid development in recent years compared to other minor ports. They are growing from strength to strength, expanding their facilities and are even handling bigger volumes of international trade. However, the smaller secondary ports such as Suria Merin Terminal in Port Klang only receive specific cargos to facilitate the business of their owners.

1.1 Objectives

The objectives of this study are to :

• provide an overview of the institutional framework, features and business strategies of selected secondary ports – as defined by the study team - in Peninsular Malaysia;

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• assess their performance based on the growth of the throughput volume and development of these secondary ports in recent years;

• identify the issues and challenges faced by the secondary ports;

• ascertain their prospects for growth, and

• provide policy options on how the secondary ports can be systematically developed in a way that improves their connectivity with major ports, trade supply chain and other transport modes, and making them more efficient and competitive to enable them to enhance their contribution to the nation’s economy.

1.2 Problem statement

Secondary ports in Malaysia help facilitate trade and business growth and provide a link between consumers and producers. However, there is a dearth of literature on the nation’s secondary ports. Also absent is a national policy to develop these ports in a systematic way and to enhance their roles as trade and business facilitators and as key points which enable goods to flow to and from the nation’s hinterlands.

The key research questions to be answered are as follows:

• What are the issues and challenges that hinder the development and growth secondary ports in Peninsular Malaysia?

• What are their prospects for growth?

• What policy options can be introduced that can foster the systematic development and growth of the secondary ports to enable them to facilitate the nation’s trade and economic growth more efficiently?

1.3 Significance of the study

This study fills in the gap in the literature on secondary ports in Malaysia. The findings from this study can give a clear picture of the issues and challenges faced by selected ports in Peninsular Malaysia and their growth prospect. The policy options proposed in the study addresses the absence of a national policy to develop secondary ports in an orderly manner to enhance their contribution to facilitate trade and business growth.

Methodology

This research relied on information from both primary and secondary resources. The primary resources include conducting interviews with officials from secondary port owners/operators, regional Marine Departments, shipping companies, consumer associations and government agencies. The questions posted to the stakeholders are listed in Appendix 1. Field trips were undertaken to six secondary ports in Peninsular Malaysia to obtain information such as

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facilities, physical features, services, cargo handled, and connectivity with other ports and transport modes, to name a few. Information related to secondary ports obtained from secondary resources includes from Marine Department Malaysia and Ministry of Transport Malaysia.

1.5 Limitations of the study

Given the short duration of the study, the study team could only assess the performance of only six secondary ports in Peninsular Malaysia based on their physical development and throughput growth. Even within this confine, it was not feasible to make direct comparison between the six secondary ports as they have different features and handle different types of cargos.

The feedback obtained from representatives from secondary port operators and shipping companies were taken as representative of the views of other secondary port operators. This was done for the sake of practicality to enable the study team to develop policy options to promote the growth of the secondary ports.

1.6 Terminologies

The working definitions for the terms used in this study are as follows:

• ‘Ports’ : Based on the definition in Malaysia’s Merchant Shipping Ordinance (MSO) 1952, “a port or place declared to be port under any written law in force in the State of Sabah or Sarawak as the case may be and includes all such navigable rivers and channels leading thereto as are declared to be part of” ( as stated in Section (A433/78-A393/77) of MSO 1952).

• ‘Performance’ : in the context of this study, the productivity of secondary ports based on their throughput volume and physical development measured by infrastructure development, capacity increase, and increase in the number of port equipment such as cranes and port vehicles, among others.

• ‘Main ports’ : ports which handle sizeable volumes of trade and have considerable capacity and good international connectivity. Examples of such ports are Port Klang, Port of Tanjung Pelepas, Penang Port, Johor Port and Bintulu Port.

• ‘Minor ports’ : ports which are smaller in size and capacity than main ports. Such ports include Kuching Port, Miri Port, Kota Kinabalu Port and Sandakan Port.

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• ‘Secondary ports’ : minor ports which have the capability and capacity to serve international trade, which are the focus of this study. Fishing ports, oil terminals, naval bases, riverine ports and passenger jetties were excluded from this study.

• ‘National Port Policy’ : a national policy promoting the development and growth of ports. Malaysia has yet to come up with such a policy.

1.7 Literature review

1.7.1 Ports in Malaysia

The Ministry of Transport (MOT) Malaysia groups the ports in Malaysia into two categories, namely major ports and minor ports. As listed below, the 12 major ports are further classified according to the governance authority. Of these, seven are Federal ports and the remaining five are state ports.

Major ports Minor portsPort Klang

Port of Tanjung PelepasPenang PortJohor Port

Kuantan PortKemaman Port

Bintulu Port

Kuching PortRajang Port

Miri PortKota Kinabalu Port

Sandakan PortLahad Datu Port

Tawau Port

Source : Ministry of Transport Malaysia

According to Marine Department Malaysia, there are approximately 50 minor ports and 40 jetties in the country which are under the jurisdiction of the Marine Department Malaysia (Marine Department Malaysia, undated). However, according to Marine Department Malaysia, ports in Sabah and Sarawak are under the purview of respective state governments.

All minor port facilities and services had been privatised by the state government and pilotage was necessary for vessels entering and leaving the ports (Portsworld, undated). Minor ports generally facilitate berthing, storage and warehousing facilities, and they handle a wide range of commodities which include general cargos, dry bulk commodities and refrigerated cargos, to name a few (Stopford, 1993).

Stopford (2009) stated that there are four levels of port development, explaining the roles of small ports and tracing their development towards becoming major ports and regional cargo distribution centres. Figure 1 shows the four stages of port development, starting from small local port to large local port and then on to large regional port and to regional distribution centre. However, this ‘chronological development order’ does not always apply to all ports. In Malaysia, not all small ports have grown to become large ones, and there are instances of ports which were originally built on a large scale such as Port of Tanjung Pelepas in Johor. However, the Stopford model helps put into perspective the size and scale of operations of

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small ports compared to their bigger counterparts, and the complementary role that the secondary ports play to main ports.

Figure 1 . Four levels of port development (Stopford, 2009)

The Stopford model was used to categorise the selected secondary ports observed in this study to determine the stage of development of those ports. In the context of this study, the secondary ports’ development level ranges from Level 2 to Level 3 (see Figure 2). Melaka Port, Dermaga Tanjung Lembung and ASA Niaga Jetty fall into Level 2 which can be considered as the small local port. Lumut Port and Tanjung Langsat Port is in Level 3 large local port. Teluk Ewa Jetty is in between Level 2 and Level 3.

In using the Stopford model as a point of reference, this study does not recommend moving the secondary ports observed to Level 1 to become local small ports. Instead, the model is used to identify which secondary ports have the highest degree of complementarity with the main ports in Peninsular Malaysia and what policies should be introduced to promote their development and growth.

Level 1Small local ports

Level 2Large local ports

Melaka PortDermaga Tanjung Lembung

Teluk Ewa JettyASA Niaga Port

Lumut PortTanjung Langsat Port

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Figure 2 . Categorization of selected secondary ports in Peninsular Malaysia, adapted

by the authors from Stopford’s model of levels of port development

In emphasizing the importance of developing ports to meet the increasing shipping market, Varsami and Popescu (2009) provided a list of factors that should be considered in port development plans. These include increasing port capacity and infrastructure, improving port operations and port access, and protecting the environment. It is advisable for secondary ports in Peninsular Malaysia to focus on the areas mentioned by the authors to improve their performance, attract more users and handle greater volume of trade.

1.7.2 Port performance and productivity

The performance of ports is measured primarily through turnaround time and tonnage handled per ship per day in the ports (Kek, 1993). In the context of this study, ‘performance’ is measured by way of throughput volume handled by the secondary ports observed. Given the short duration of the study, it was not possible to measure their performance in areas like speed and efficiency of handling cargos. In his Triple-P model, Tangen (2002) defined performance as ‘the total assessment quantitative factors (productivity and profitability) and qualitative factors (quality, delivery, speed and flexibility)’ (see Figure 3). He also defines ‘productivity’ as the ‘ratio of output quantity divided by input quantity’. By way of these definitions, the productivity of ports can be measured through vessels turnaround time (hours per vessels) and through the five quantitative and qualitative performance factors. Tangen stated that these performance factors have significant effects on the operations of ports and that the positive internal effects of the performance factors create high total productivity for the ports.

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Effectiveness

Performance

Profitability

ProductivityOutput

Input

Quality, delivery, speed, flexibility

Price recovery

Figure 3. The triple-P model for performanceSource: Tangen (2002)

In the context of secondary ports in Peninsular Malaysia, as in the case with other types of ports, the major performance indicator is the throughput or volume of cargos handled. Ports can only handle larger volumes of cargo year after year if they have the features, equipment and facilities to accommodate more and bigger ships (hence more cargos) and the productivity to ensure quick turnaround time of vessels and efficient handling of cargos. These are among the key traits of competitive ports that shipping lines look for in deciding which ports to call at.

Based on Tangen’s model, ports which have good productivity and performance in handling ships and cargos – as measured by their quality, delivery, speed and flexibility in providing services - tend to be profitable ports as they are able to generate good revenues from their ability to attract port users and handle more cargos.

The model showing productivity's relation to performance objectives shown in Figure 4 (Slack et al, 2000) illustrates the operational definition of productivity as the ratio of input and output. The model outlines the characteristics of high performance ports – as measured by their high total productivity to quickly turn around ships by loading and unloading cargos onto and off them – which port users look for in helping them to decide their port of calls.

Figure 4. Productivity's relation to performance objectives Source: Slack et. al. (2001)

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Efficiency

Based on the model, ‘performance’ of ports is defined as the total assessment to indicate the level of excellence which includes both productivity and profitability. ‘Efficiency’ represents how well the input, resources and services at ports are utilized. Meanwhile, ‘effectiveness' is used to describe when the output is focused. The model provides a useful and reliable tool to measure the performance and productivity of secondary ports in Malaysia.

2. Profile of selected secondary ports in Peninsular Malaysia

This section describes the features of the six secondary ports observed in this study, obtained from field trips made to the ports between March and June 2011.

2.1 ASA Niaga Port

2.1.1 Features and facilities

ASA Niaga Port is operated by ASA Niaga Barter Trade Sdn Bhd and started its operation in 1997. It is located 1 km from the nation’s main port and national load center, Port Klang. It obtained International Shipping and Port Facilities (ISPS) Code compliance status in 2011.

The port is currently the biggest barter trading terminal in the state of Selangor based on volume handled. It is licensed by Port Klang Authority to handle all types of barter trade goods between Peninsular Malaysia and Sumatra except containers, hazardous goods, cigarettes and liquor, and is gazetted as a port under Section 23 of the Customs Act 1967. Table 1 shows the key features of the port.

Table 1 . Features of ASA Niaga Port

Item Features

Capacity UndisclosedDraft 5 metres

Operating hours 24 hoursFacilities • Seven concrete jetties

• Royal Malaysian Customs checkpointEquipment • Cranes and equipment for loading and unloading cargo Storage • Five covered portal frame buildings for storage of imported

sawn timbers• Five acres of containers yard• Barter trade distribution and storage centre

Accreditation • Striving for MS ISO 9002• ISPS Code compliant

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Regulatory body Port Klang Authority

Source: ASA Niaga

2.1.2 Throughput analysis

The volume of barter trade activities at ASA Niaga Port decreased from 2008 to 2009, and declined slightly from 2009 to 2010 (see Figure 5). Goods traded at the jetty are mainly perishable goods including seafood, vegetables, rice, foodstuff, milk and snacks. According to the port’s executives, almost all foreign barter trades in Port Klang are conducted using Indonesian-flagged vessels.1

ASA Niaga has been expanding their business to other sectors to reduce its dependence on barter trade. It has forayed into catering to ferry passengers by developing ASA Niaga Harbour City in Port Klang to cater to the increasing demand for ferry services and the increase in ferry passengers commuting between Malaysia and Indonesia, especially from the Sumatran side to Peninsular Malaysia.

Figure 5. Throughput of ASA Niaga Barter Trade Jetty, 2008- 2010

Source: ASA Niaga

2.2 Lumut Port


Lumut Port was established in 1995 by the State Government of Perak through the Perak State Development Corporation (PSDC) and Halim Rasip Holdings Sdn. Bhd.

1 Personal communication on 3 March 2011.

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Through change in shareholding structure, the port is now owned by PSDC and Integrax Berhad.

The port mainly handles dry bulk and liquid bulk cargos, namely coal, clinkers, limestone, petroleum, bio-fuels (palm oil) and palm kernel. It features two berthing facilities, OCG Jetty 1 (with length of 160m capable of handling vessel up to 20,000 DWT) and OCG Jetty 2 with berthing (berthing length 120m, maximum handling capacity of 8,00 DWT). There is an independent oil terminal at the port with pipelines connected to the two jetties facilitating the carriage of diesel oil, kerosene, gasoline, LPG, crude palm oil, crude kernel oil, palm fatty acid, olein and stearin.

The port receives no funding from the Perak state or Federal Governments but the Perak state government provided a grant for land on which the port resides. Lumut Port is a gazetted port by the Royal Malaysian Customs, featuring two complementary terminals, namely Lumut Maritime Terminal (LMT) and Lekir Bulk Terminal (LBT), that comply with the ISPS Code. LMT is located inland facing Sungai Manjung while LBT faces the Straits of Melaka (see Figure 6). Both terminals are operated by Lumut Maritime Terminal Sdn. Bhd and serve international trades with South-East Asia, Bangladesh, India, Sri Lanka, Pakistan, Africa, Middle East and also European countries.

Figure 6. Location of LMT and LBTSource: Lumut Port

Located next to LMT is Lumut Port Industrial Park (LPIP) which was established thanks to the facilities and constant development in Lumut Port that managed to attract companies and shippers to use the port. LPIP is an industrial estate featuring tenants involved in activities such as fabrication, boat building, bio-diesel and petroleum products, to name a few. The key features of Lumut Port are listed in Table 2.

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Table 2 . Features of Lumut Port

Item/ information

Lumut Bulk Terminal Lumut Maritime Terminal

Capacity 12 million MT (million tonnes) per annum

Able to handle two barges at any one time with capacity of up to 6 MT

Draft 20m 12mOperation time

24 hours 24 hours

Facilities • Linear berth of 540m with 45m of mooring dolphin

• Able to berth a Panamax-class vessel

• 480m linear berth with 30m mooring dolphin

• 54m barge berth that are able to handle two barges at one time

Equipment • Grab ship unloaders • Conveyors• Quay cranes• Pipeline wayleaves • Tank areas for direct vessel-to-

plant/tank transfer

• Conveyors• Grabs• Drums• Hoppers

Storage Open storage area with a capacity of up to 2 million tonnes of cargo

Covered storage, open yard, reserve yard

Regulatory body

Marine Department Malaysia, Northern Region

Marine Department Malaysia, Northern Region

Source : Lumut Port

2.3 Tanjung Langsat Port


Tanjung Langsat Port is located at the southern tip of Peninsular Malaysia. The port enjoys strategic location (see Figure 7) within Iskandar Malaysia, the ambitious development corridor in the state of Johor and within the South Johor Economic Region (SJER) which comprise the fast-developing districts of Johor Bahru, Senai, Pontian and Pasir Gudang. The port is wholly owned by Johor Corporation, the investment arm of the state of Johor. Designed to complement the state’s other and bigger Port of Tanjung Pelepas and Johor Port, Tanjung Langsat Port started its operation in 2003.

The port specializes in handling liquid bulk cargos (mainly petroleum and hazardous cargos) from the industrial area around Pasir Gudang and also from the adjacent Tanjung Langsat Port Industrial Park. It has five jetties and two specialised cargo wharfs. It is currently undergoing an ambitious expansion plan; once the plan is completed in 2012, the port will have the capacity to handle up to 12 million tonnes of cargos and will be able to cater to half-laden Very Large Crude Carriers (VLCC).

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Tanjung Langsat Port is located within Flagship D, an area called the Eastern Gate Development of Iskandar Malaysia, a massive economic corridor within the South Johor Economic Region. The focus of this area is on heavy industries including ports, logistics and warehousing. Flagship D also features development in the chemical, oleochemical, electrical and food processing industries which are poised to benefit the port speciality terminal. Once its current expansion project is completed in 2012, the port will have the capacity to handle up to 12 million tonnes of cargos.

A plan was announced in October 2011 for the port to handle containers, coming on the back of a denial by Johor Port Authority in June 2011 of the port handling boxes. The plan is mooted amid calls by manufacturers in the busy Pasir Gudang industrial area to have an alternative port to ship their goods as Johor Port which serves the area is already congested. They are also anxious of incurring higher stevedorage charges if they were to ship through Port of Tanjung Pelepas, located 80 km away from Pasir Gudang.

Figure 7. Connectivity of Tanjung Langsat PortSource: Tanjung Langsat Port

Adjacent to Tanjung Langsat Port is the Tanjung Langsat Industrial Complex (TLIC), an extension area of Pasir Gudang Industrial Area. TLIC comprises an area of 4,198.52 acres or 1,619 ha. offering operating space for domestic and international

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companies involved in light, medium and heavy industries. Figure 8 shows the liquid bulk and specialised berth at TLP.

Tanjung Langsat Port is a beneficiary of financial assistance from the Federal government, thanks to its suitability that supports the national agenda of making Malaysia an oil and gas hub and the inclusion of the oil and gas sector as a National Key Economic Area (NKEA). Through the Performance Management Delivery Unit (PEMANDU) and State Planning Economic Unit, the Federal government has set aside RM17 million for the development of the infrastructure works at the port. These include dredging of its inner berth No. 7 costing RM10 million, building a coastal road nearby at a cost of RM5 million, and constructing pipe racks amounting to RM2 million.

Figure 8. Tanjung Langsat Port’s liquid bulk (left) and specialized berth

Source: Tanjung Langsat Port

As a measure of TLP’s attractiveness as a dedicated oil and gas terminal, the port has managed to pull players in the industry to set up facilities within its premise. These include Asiaflex Products Sdn Bhd (Technip) and K iswire Neptune Sdn Bhd which produce flexible pipes and steel wire ropes respectively for the oil and gas industry.


Underscoring the growth of the port’s business, there has been a significant increase in the throughout volumes at the port from 2008 to 2010, as seen in Figure 9. This increase was made possible by the opening of new storage facilities at the port. The

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growth in throughput was contributed mainly by petrochemical cargos, thanks to the following factors :

• the success of TLIC to attract ten multinational companies to set up operations there with a total investment of RM4 billion.2 Cargos from these companies contributed to the port’s cargo volumes.

• the development of of Langsat Terminal (One) Sdn Bhd (Lgt-1), a joint venture tank terminal by Dialog Group Bhd, MISC Bhd and Puma Energy Asia BV near the port. Launched in February 2010, Lgt-1 has added to Tanjung Langsat’s cargo volumes.

Executives of the port expressed confidence that throughput at the port is expected to further increase once the port’s expansion project is completed in 2012. They are optimistic that the commitment made by the Johor State Government to provide financial assistance to deepen the port’s draft and upgrade facilities and infrastructures such as roads around the port would enhance the port’s capacity and subsequently contribute to the increase in its cargo volumes. This is in line with the state Government’s ambition to make South East Johor, where Tanjung Langsat Port is located, as an oil and gas hub by 2013 and to position the port as a leading petrochemical logistics hub.

262,052

4,729,114

735,411

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

2008 2009 2010Year

Vo

lum

e o

f ca

rgo

(to

nn

es)

Figure 9. Throughput of Tanjung Langsat Port, 2008-2010 (in tonnes)Source: Tanjung Langsat Port

2 10 multinationals invest RM4 billion in Tanjung Langsat. Bernama Online. 23 February 2011. Retrieved from < http://www.iskandarmalaysia.com.my/news/100223/10-multinationals-invest-rm4-billion-in-tanjung-langsat> on 20 June 2011.

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http://www.iskandarmalaysia.com.my/news/100223/10-multinationals-invest-rm4-billion-in-tanjung-langsat

http://www.iskandarmalaysia.com.my/news/100223/10-multinationals-invest-rm4-billion-in-tanjung-langsat

2.4 Dermaga Tanjung Lembung


Dermaga Tanjung Lembung (DTL) was built by Langkawi Development Authority (LADA) in 1995 to cater the increasing amount of cargo in the popular resort island of Langkawi. A consortium consisting of Langkawi Development Authority (LADA), Yayasan Amanah Saham Anak Langkawi (ASAL) and DR Group Holdings Sdn. Bhd. set up a company named Langkawi Port Sdn. Bhd. (LPSB) to manage operate and maintain DTL via a concession agreement. DTL features a wharf area, roll-on roll-off (RO-RO) facilities (to and from Kuala Kedah Jetty on the Peninsular Malaysia mainland), a warehouse and a weighbridge (see Figure 10).

Figure 10. Dermaga Tanjung Lembung layoutSource: Dermaga Tanjung Lembung

Beside being the cargo centre for Langkawi and servicing the Kuala Muda area in Kedah and Kuala Perlis area in Perlis, DTL also serves international markets namely Indonesia, Thailand and Singapore. The cargos handled at DTL are general cargos, building materials and perishable goods.

Table 3 lists the features and facilities at DTL.

Table 3. Features and facilities of Dermaga Tanjung Lembung

Item Information

Capacity UndisclosedDraft 5mOperation time

8.00 a.m. – 10.00 p.m

Facilities • General Cargo Berth : 480 m

• Dry Bulk Cargo Berth : 165 m

21

Equipment • Cranes • Forklifts • Weighing bridge • 7 warehouses including 1 frozen and 1 chilled warehouse • Short term and long term storage • Rental space for re-packaging of cargoes • Handling movement of cargoes • Roll on roll off system

Storage • Open storage area with a capacity of up to 2 million tonnes of cargo

Regulatory Authority

• Marine Department Northern Region

So urce : Dermaga Tanjung Lembung

Figure 11 shows the number of ship arrivals at DTL which does not show a clear pattern. The consistent number of ships arrivals over the period belies the fact that throughput at the port increased during the same period. This could be attributed to the larger capacity of ships calling at the port which carried more cargos.

2496 2550 24832694

2446 24632294 2206 2096

2610 2504 2349 2243

0

500

1000

1500

2000

2500

3000

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Unit

Year

Ship calls at Dermaga Tanjung Lembung

Ship calls at port

Figure 12. Ship calls at Dermaga Tanjung Lembung 1998-2010So urce : Dermaga Tanjung Lembung

22


Figure 13 shows the throughput at DTL from 2008 to 2010.

178726220108

273231

247152246102

221260229480

285169281064265430261081

-50000

50000

150000

250000

350000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Volume of cargo (metric tonnes)

Year

Throughput of Dermaga Tanjung Lembung

Figure 13. Throughput at Dermaga Tanjung Lembung (in metric tones), 1998-2010Source : Dermaga Tanjung Lembung

As seen in Figure 13, the throughput of DTL showed an increasing trend from 2000 to 2010. According to DTL executives, the increase in throughput in certain years was mainly due to events such as Langkawi International Maritime and Aerospace Exhibition (LIMA) and international boat races and shows. Cargos handled include boats, military equipment and other items for exhibition and items related to the staging of those events.

Figure 14 shows the increasing trend in the number of vehicles handled at DTL.

27647

34224 36308

40491 41188

44564 45834

51767 50751

60871

57567

62858 65766

0

10000

20000

30000

40000

50000

60000

70000

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

UNIT

Year

Vehicles handle at DTL, 1998 - 2010

Figure 14. Number of vehicles handled at Dermaga Tanjung Lembung, 1998-2010Source : Dermaga Tanjung Lembung

23

Number of vehicles handled at Dermaga Tanjung Lembung, 1998-2012

The increase in the number of vehicles handled can be attributed to the economic growth in Langakwi. The island has benefited from the aggressive promotion of tourism by the Federal government and from the holding of major international events at the island.

2.5 Teluk Ewa Jetty


Teluk Ewa Jetty (TEJ) is located in the northern coast of Langkawi and is operated by Kedah Cement Jetty Sdn Bhd (KCJSB), a subsidiary company of La Farge Malayan Sdn. Bhd and Penang Port Commission (PPC) which also acts as the regulatory authority of the port. TEJ mainly handles the import of raw materials and parts for cement manufacturing for Kedah Cement plant nearby and facilitates the export of cement from the plant to Myanmar, Hong Kong and Bangladesh.

Fully owned by the Federal government, TEJ was built in 1982 and started operations in 1984. Before 1 January 1999, the Teluk Ewa Jetty was under the purview of Marine Department. The privatization of TEJ’s operations to KCJSB came with concession period of 30 years. Under the orivatization agreement, KCJSB collects all charges at TEJ in accordance with the PPC By-Laws (Scales of Rates, Dues and Charges) 1998 except for harbor dues.

Figure 15 shows the layout plan of TEJ which features six different types of berths equipped with loading and unloading facilities. Also within the port’s vicinity is Langkawi Development Authority’s Barter Trade Jetty which has been unused in recent years.

Figure 15. Layout plan of Teluk Ewa JettySo urce : Teluk Ewa Jetty

There is a cement manufacturing plant of the La Farge Group near TEJ. The materials and commodities needed for the plant are imported through TEJ which also

24

acts as a gateway for the plant’s exports, namely cement and clinkers. TEJ also handles imported coal for Tenaga Nasional Berhad’s Teluk Ewa Power Station. Table 4 lists TEJ’s features and facilities.

Item Information

Capacity Undisclosed but can handle bulk carriers up to 50,000 DWT and barges up to 100m long

Draft 3-10.5 metresOperation time 24 hoursFacilities Six berths handling cement, raw materials, tankers and a sub-jetty.Equipment Equipment that

Grab Bucket Unloader Shore loading chute

Storage Stores cement meant for manufacturing plant in vicinityRegulatory Authority Penang Port Commission (Teluk Ewa)

Table 4. Features and facilities of Teluk Ewa JettySource : Teluk Ewa Jetty

TEJ has six berthing facilities, each equipped to handle different types of cargos and features loading and unloading services. Details are featured in Table 5.

Berth Type of berthBerthing

Displacement (MT)

Maximum Length Overall (LOA) (meters)

Maximum draft (meters)

1 Cement 23,400 145 10.0

2 Raw materials 23,400 145 10.0

3 Raw materials 6,000 100 6.0

4 Tanker berth 6,000 100 6.05 Sub-jetty 3,700 100 3.56 Cement 32,000 200 10.5

Table 5. Features of berthing facilities at Teluk Ewa JettySource : Teluk Ewa Jetty

The cumulative average of vessel turnaround time (hours/vessel) at Teluk Ewa Jetty between 2003 to 2010 is shown in Figure 16.

25

47.5

53.9

39.637.7

35.1 36.3 35.237

20

25

30

35

40

45

50

55

60

2003 2004 2005 2006 2007 2008 2009 2010

Turnaround time (hours/vessels)

Year

Cumulative Average of vessels turnaround time in Teluk Ewa Jetty (Hours/vessels)

Cumulative Average of vessels turnaround time (Hours/vessels)Figure 16 . Cumulative average of vessel turnaround time (hours/vessel) at

Teluk Ewa Jetty, 2003-2010Source : Teluk Ewa Jetty


As seen in Figure 17, the throughput at TEJ showed a gradual increase in the last decade. Teluk Ewa Jetty is used mainly for transporting raw materials and spare parts for the cement plant in Teluk Ewa as well as for exporting cement. Growing throughout at TEJ reflects not only the flourishing business at the cement plant but also the growing economic activities in Langkawi during the period. Increasing construction activities on the island, arising from growing population and growth in tourism activities and international events such as Langkawi International Maritime and Aerospace Exhibition (LIMA), contributed to the increase in the demand for cement in the island. This has translated into growing throughput at TEJ which acts as the gateway for Langakwi’s cement manufacturing sector.

26

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Volume of cargo (MT)

Year

Throughput of Teluk Ewa Jetty

Figure 17. Throughput of Teluk Ewa Jetty (metric tonnes), 2000-2010 Source: Teluk Ewa Jetty

Figure 18 shows vessel turnaround time, which is a key indicator of port productivity, at TEJ between 2003 and 2010. The slight improvement of overall turnaround time within that period can be attributed to the expansion of facilities at the jetty. A berth with a length of 157m was built in 1993 to add to the length of TEJ’s wharf of 330m and the length of the sub-jetty of 150m to accommodate the increasing amount of cargos handled. The addition of equipment to match the additional berth length contributed to the improvement in turnaround time.

27

0

10

20

30

40

50

60

70

80

2010 36.3 41.4 45.2 41.4 27.6 40.2 36.9 34.9 36.4 35.2 39.8 29.5

2009 33.6 45.7 40.8 33.3 34.3 30.2 35.9 30.5 31.7 40.7 32.3 34.3

2008 42.33 37.7 35.9 33.6 34.27 32.9 37.6 34.8 31.2 33.6 39.5 42.6

2007 31.2 33 33.4 34.1 45.2 35.3 36.2 34.2 36.3 39.1 32.8 30.2

2006 42 35 43.9 38.2 33.5 35.5 39 41.2 32.8 31.7 46.3 32.9

2005 48 38.1 40 46.3 41.2 38.1 31.9 38.8 39.6 35.1 40.5 37.8

2004 57.6 52 43.5 48.9 51.4 50.8 51.9 52 59.5 63.4 46.3 68.9

2003 32.7 44.7 62.2 43.2 40.2 45.6 50.9 54.1 54.3 61.2 46 34.8

No. Of Vsl 56 41 46 44 42 50 52 50 50 45 51 58

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Figure 18. Vessel turnaround time (in hours) at Teluk Ewa JettySource : Teluk Ewa Jetty

2.6 Melaka Port


Melaka Port, also known as Tanjung Bruas Port, is one of two minor ports in the state of Melaka; the other one being Sungai Melaka Jetty. It features 170m of berthing length and water depth of 5m, and has warehousing, liquid tank farm and private storage facilities (see Table 6). Located besides the Tanjung Kling Free Trade Zone Berth, the port mainly handles passengers and break bulk cargos such as maize, starch, flour, salt and steel coil. Built in 1980, Melaka Port was initially under the care of Marine Department Malaysia until it was taken over by Port Klang Authority in 1983 by extension of the latter’s jurisdiction.

Melaka Port Authority (MPA), a statutory body formed in 1963, is currently the regulatory authority for Tanjung Bruas Port and Sungai Melaka Jetty. In 1992, the facilities and services of Melaka Port were privatised to Syarikat Perkhidmatan Pelabuhan Gabungan Sdn. Bhd. (SPPG) upon the request by the Melaka state government.

In 2007, Melaka Port Authority announced plans to develop Tanjung Bruas Port into a container port. The proposal did not materialize due to poor support from shippers, shipping companies and logistics players. The plan entailed deepening the port’s draft from 9m to 15m to enable it to handle vessels up to 60,000 tons from the maximum handling capacity of 10,000 tons then.

28

However, a consultancy study commissioned by the port showed that it was not viable to expand the port. Compounding this finding, Petronas, the national oil company, stopped using Melaka Port after constructing its own oil terminal in Melaka. Due to its location between two of the nation’s major ports, it is more economical and fast for shippers from Melaka to transport their goods and products by road to Port Klang (150km away) or Port of Tanjung Pelepas (210km away) instead of using Melaka Port as feeder.

Item Information

Capacity Volume undisclosed but capable of accommodating vessels up to 10,000 DWT

Draft 5m for inner berth and 9m for outer berthOperation time

24 hours

Facilities T-shaped berthing facility with berth length of 170m and connected to the shore by a 400m approach bridge

Equipment Break bulk and conventional cargo handling equipmentStorage • Liquid tank farm

• Warehouse

• Private storage/godownRegulatory Authority

Melaka Port Authority

Table 6. Features at Melaka PortSo urce : SPPG

Figure 19 shows the layout plan of Melaka Port which features private storage areas for several private entities including Petronas, Sri Gimpal and Sin Heng Chan.

Figure 19. Melaka Port’s layout planSo urce : SPPG

29


The throughput at Melaka Port declined from 543,623 DWT in 2008 to 444,761 DWT in 2010 (see Figure 20). This can be attributed to the preference of Melaka-based manufacturers to ship through Port Klang which has more shipping services and better connectivity.

543623

456766 444761

300000

350000

400000

450000

500000

550000

600000

2008 2009 2010

DWT

Year

Volume of cargo handled at Malacca PortVolume of cargo

Figure 20. Volume of cargos handled at Melaka PortSo urce : SPPG

The number of ship calls in Melaka Port is shown in Table 6. The declining pattern in trading vessels corresponds with the drop in throughout handled and can partly be attributed to the port’s inability to accommodate more vessels due to its limited handling capacity.

Year Trading Passenger TOTAL

2005 149 1,367 1,516

2006 119 1,138 1,257

2007 159 812 971

2008 147 808 955

2009 115 743 858

2010 104 584 688

Table 6. Number of ship calls at Melaka Port 2005-2010

Source : Ministry of Transport Malaysia

30

3. SWOT analysis

Based on the information obtained from the six secondary ports via primary and secondary sources, the strengths, weakness, opportunities and threats (SWOT) of each of the ports were identified. The SWOT analysis acts as a useful source of reference to develop policy recommendations related to the ports.

3.1 SWOT analysis of ASA Niaga Port

Strengths• Strategic location amid Port Klang and Straits of Malacca • Serving a niche market, namely barter trade• Good connectivity with roads and rail• Serving a populous and dynamic economic area •

Weaknesses• Limited space for expansion

Shallow draft •

Opportunities• Growing transshipment and import and export volumes • Growth prospect of intra-Asian trade•

Threats Presence of private jetties nearby the port which also handle barter trade. The small ships plying the waters of the jetties can pose a threat to navigation safety.

3.2 SWOT analysis of Lumut Port

Strengths• Strategic location along Straits of Malacca• Located next to Tenaga Nasional Berhad’s Jana Manjung Power Plant• Good port facilities and road linkages • Close proximity to oil palm plantations and limestone quarries• Serving a niche market, namely bulk cargos•

Weaknesses• Limited space for expansion • Unable to handle bigger vessels due to shallow drafts and high sedimentation

rate• Lack of connectivity with other modes of transport, especially rail and air

Absence of assistance from the Federal government to dredge channels•

Opportunities• Potential growth in transshipment cargos• Expansion plans for Jana Manjung Power Plant • Spillover from Vale’s plan to make Lumut its iron ore transshipment base•

ThreatsP Presence of private jetties posing a competitive threat and threat to navigation safety

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3.3 SWOT analysis of Tanjung Langsat Port

Strengths• Adjacent to Tanjung Langsat Industrial Complex that hoists several

multinational companies involved in petrochemical, oil and gas industry• Strategically located within Iskandar Malaysia development region• Good port facilities and road linkages • Proximity to Port of Tanjung Pelepas, Johor Port and Singapore Port• Receives assistance from Johor State Government•

Weaknesses• High operating losses and cashflow deficits• Underutilized storage tank facilities, and dry and liquid cargo wharves

Lack of intermodal connectivity Absence of assistance from the Federal government to dredge channels

Opportunities• Growing transshipment volumes • Growth potential within the Iskandar Malaysia region• Potential to handle containerized cargos owing to congestion at Johor Port in

Pasir Gudang •

Threats• Proximity to Singapore Port whose dominance as a megahub port in the region

poses keen competition• Potential competition from terminals in Tanjung Bin and Pengerang whose

constructions are in the pipeline•

3.4 SWOT analysis of Dermaga Tanjung Lembung

Strengths Strategic location within the Indonesia-Malaysia-Thailand Growth Triangle (IMT-GT)

Handling niche cargos, namely conventional cargos and vehiclesHandling growing volumes of barter trade Good road infrastructure and connectivity

WeaknessesNo space for expansionDraft is only 8m, prohibiting bigger ships to call No strategic plan under the state government to develop the port Lack of intermodal connectivity Absence of assistance from the Federal government to dredge channels

OpportunitiesThe only public port in Langkawi established as a centre for cargo handlingGrowth potential in barter trade

ThreatsIllegal landing points diverting from Dermaga Tanjung LembungCompetition from Teluk Ewa Jetty

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3.5 SWOT analysis of Teluk Ewa Jetty

StrengthsProximity to Kedah Cement plantStrategic location within the Indonesia-Malaysia-Thailand Growth Triangle (IMT-GT)

WeaknessesLack of maintenance of port facilities Shallow draft Lack of intermodal connectivity Absence of assistance from the Federal government to dredge channels

OpportunitiesGrowing demand for cement from Langkawi’s economic growthPotential to tap into growing barter trade in Langkawi ThreatsCompetition from Dermaga Tanjung Lembung and regional portsToo dependent on cement plant and cement as its main cargo

3.6 SWOT Analysis of Melaka Port

StrengthsStrategic location along Straits of MelakaProximity to Port KlangGood road connection WeaknessLimited capacity and capability to handle greater volume and more variety of cargoLack of economies of scale which drives shippers to opt using other modes of transport such as road and rail to ship their cargos through major portsLack of feeder services to and from major ports

OpportunitiesHave potential to be feeder to Port Klang or Johor Port

ThreatsLand reclamation in surrounding areas making the port’s draft shallower

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4. Issues and challenges faced by secondary ports in Peninsular Malaysia

Based on the SWOT analysis undertaken, the following is a list of issues and challenges faced by the secondary ports in Peninsular Malaysia covered in the study :

4.1 Lack of financing for expansion

It is established from this study that several secondary ports in Peninsular Malaysia do not receive any financial assistance from the state or Federal Governments or any institutional support in their planning and development. This presents provides a hurdle for the ports to expand their facilities and upgrade their features and capability to handle more and bigger vessels and handle bigger throughput volumes. Amid tough operating environment and financial conservatism arising from the global economic downturn, secondary ports have found it tough to raise financing from financial institutions and capital markets. They certainly would appreciate assistance in the form of financing from the likes of SME Bank or Bank Pembangunan or other sources of public funding.

That said, not all the selected secondary ports should be expanded aggressively and are worthy of public funding owing to the lack of feasibility of their business and limitations of their potential to expand and grow. It also has to be taken into consideration the potential impacts of expanding secondary ports on the socio-economic balance and the surrounding environment in evaluating the viability of spending public money on them. The development of secondary ports should be in harmony with the interest of the local communities and must not adversely affect their livelihood.

Several secondary ports seem worthy of financial assistance owing to their potential to grow and contribution to the nation’s trade and economy. Lumut Port fall into this category as it stands to gain significantly from the investment of Vale, the Brazilian giant which is also the world’s producer of iron ore, which plans to set up a regional distribution center there scheduled to be operational in 2014. To capitalize on the center, Lumut Port will need to expand and upgrade to handle iron ore pellets from the US$1.3 bil. plant that Vale plans to build in Teluk Rubiah near the port. Once the plant is in place, bigger bulk carriers \with higher volume of cargo will be expected to call at Lumut Port.

There is a strong case for Tanjung Langsat Port to be given further financial assistance using public funds based on its immense potential as a petrochemical bulk cargo hub. The port can currently cater to half-laden Very Large Crude Carrier (VLCC). The management of the port has expressed hope of getting financial assistance from the Federal government to expand and improve its features to be able to cater to fully laden VLCC. This is especially pressing in light of the development of a deepwater terminal in Pengerang and Tanjung Bin within the vicinity of Tanjung Langsat Port which will pose stiff competition.

34

4.2 Inadequate draft to cater to large vessels

This is the most glaring issue faced by the secondary ports. Most have shallow drafts which prevent large ships from berthing. Without constant dredging of the port channels, sedimentation builds and further compounds the problem of shallow draft. This consequently affects the throughput of the ports and their competitiveness, and prevents them from optimally realizing their potential.

The secondary ports covered in the study face the problem of shallow draft and high sedimentation rate. Take ASA Niaga Port for example which only has a draft of 5 m during high tide hence can only accommodate small vessels. In the waters of Port Klang, dredging can take up to five years but within two years, sedimentation from intense economic and development activities along the coast along the Straits of Melaka will require dredging to be undertaken after two years from the last dredging exercise.3

The limited draft at Melaka Port does not allow the port to accommodate bigger vessels. Land reclamation activities in Melaka will further decrease the draft at the area. This will significantly affect the competitiveness of Melaka Port. Tanjung Langsat Port also faces the same issue whereby the limited draft in its approach channel prevents large vessels to call at the port. The management of the port has highlighted this matter to the higher authorities with the hope that the government will provide financial assistance to dredge the channel.

While the secondary ports would no doubt benefit from government assistance to deepen their channels, it would not be realistic to expect the government to extend help to all of them. What more in the current climate of careful spending amid the global recession and the strong focus on cost-benefit and economic returns of projects financed using public funds. However, the government should consider the merit of the applications on a case by case basis. For example, there may be a strong case to deepen the harbor waters of Tanjung Langsat Port where there are developments in nearby areas such as the construction of a deepwater terminal in Pengerang and a privately owned coal-fired power plant in Tanjung Bin. Both developments will require port facilities capable of handling considerable volumes of liquid and dry bulk cargos. Tanjung Langsat Port can capitalize on these developments provided the port is developed to enable it to handle bigger vessels, Taking into account the multiplier effects that can be generated to the economies of the state of Johor and the nation from large bulk vessels calling a the port, Tanjung Langsat Port deserves to be considered for funding by the government to deepen its draft.

Financial assistance from the government for dredging can be in many forms instead of the traditional outright funding. For example, the Government may consider exploring providing grant, incentives or soft loans with a view to share the cost of dredging and the financial returns from more ships calling at the ports and handling of more cargos.

3 Personal communication with an executive of a Port Klang-based terminal operating company on 5 June 2011.

35

4.3 Lack of pilotage service

Pilotage is an essential service at ports as it ensures the safety berthing of vessels. Without pilot vessels at ports guiding vessels to berth, the vessels run the risk of grounding and colliding. The provision of such service is essential to ports which harbour ambition to enhance their competitiveness and attract larger vessels as such vessels face big risk of manoeuvring through the narrow channels. This is especially the case with secondary ports in Peninsular Malaysia which generally tend to have narrow waterways leading to their ports

Take the case of Tanjung Langsat Port which is under the purview of Johor Port Authority (JPA). Pilotage service is compulsory at the port and the service is provided by Johor Port Authority. However, the management of Tanjung Langsat Port said that the speed with which pilotage service is provided leaves much to be desired. The management lamented that its efficiency and effectiveness are hindered due to the lack of tug boats to help steer ships into the port. The port operator is rightly concerned that the port’s performance will not improve if it continues to rely on third parties to conduct pilotage service at the port, as is the case now.

This concern is warranted as any delays during berthing will discourage shipping lines from berthing there as they have low tolerance for such inefficiency. The port’s management believes that vessel turnaround time can be significantly reduced if it is allowed to have its own pilotage services instead of depending on the port authority.

Not all secondary ports depend on their port authorities for the provision of pilotage service. One such example is Teluk Ewa Jetty which has its own pilotage services as agreed with its port authority, the Penang Port Commission. Pilotage is compulsory at Lumut Port and the service is available 24 hours. However, allowing secondary port operators running their own pilotage services instead of port instead of port authorities is not without its disadvantages. These include the high cost and capital outlay and low utilization of resources.

4.4 Presence of private jetties near secondary ports

There exist private jetties near several secondary ports covered in this study. These jetties are allowed to operate under Section 33 of Customs Act 1967. They vary in size, handling capacity and level of professionalism of management. Some are of decent size and capacity and are well managed, while some only have rudimentary landing and cargo handling facilities. Trades at these jetties are mainly carried out by small and medium-sized boats and barges.

Figure 21. Typical vessels used in barter trade at private jetties in MalaysiaSource : Royal Malaysian Customs

36

Private jetties play a dual role, namely facilitating seaborne trades between regions in Peninsular Malaysia and facilitating bilateral trade between Malaysia and neighbouring countries such as Indonesia, SIngapore, Myanmar and Thailand, hence contribute to socio-economic development and revenue for the Government in terms of tax. However, some of them compete with some secondary ports covered in this study. The poorly managed jetties could even pose a threat to navigation safety of vessels moving in and out of secondary ports due to the proximity of the jetties to the ports.

It is established that there are several such private jetties in Port Klang and Lumut. In Port Klang, there are numerous private jetties and landing places. Most deal with perishable goods hence requires quick, accurate and efficient clearance system to ensure the goods arrive in good condition and within the stipulated time. To this end, credit must go to Royal Malaysian Customs for facilitating barter trade in an efficient manner in line with international standards for cargo handling. The following private jetties located along River Klang and River Langat in Port Klang are administered by Royal Malaysian Customs Selangor :

i) Awal Idaman Sdn Bhdii) Northport (M) Sdn Bhd iii) Perusahaan Pelaburan Putera Sdn Bhdiv) Lion Waterway Logistics Sdn Bhdv) Port Klang Cruise Centre Sdn Bhdvi) ATB Jetty Sdn Bhdvii) Syarikat Sebangun Sdn Bhdviii) Suria Marine Services Sdn Bhdix) Muhibbah Marine Engineering Sdn Bhdx) Hai San Ice Sdn Bhdxi) Double Bay Sdn Bhdxii) Syarikat Low Kim Chuan Dan Anak-Anak Sdn Bhdxiii) Sritama Industries Sdn Bhdxiv) Bukit Gombak Development Sdn Bhd

There is no regulatory authority to manage the operation of the smaller private jetties and more obscure landing places in Port Klang and Lumut. The situation can be described as a ‘free for all’ as these facilities do not seem to be accountable to any authority in the way they are designed and operated. This warrants attention by the regulatory authority to ensure no illegal activities such as smuggling and trafficking take place at these jetties and that navigation safety of vessels, especially in the busy Port Klang waters, is not compromised.

In the case of Lumut Port; although it handles a bit of international trade, it surprisingly does not face much competition from other ports of similar size within the region. According to the port’s management, the competition mainly comes from private jetties located along Manjung River nearby. Due to the proximity of their location to Lumut Port, its area for expansion is limited hence puts a restriction on its expansion plans. In this regard the management would appreciate Government intervention to stop issuing Temporary Occupation License (TOL) to private jetties in the vicinity. Ideally, the management would like manufacturers and importers in the Lumut area to use Lumut Port and treat the port as a load center. This is however easier said than done; the owners and operators of private jetties may object to this as they would be reluctant to see their investment in their facilities go to waste and their operations disrupted. It would be challenging to consolidating the jetties as they serve specific clientele and handle specialized types of cargo.

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4.5 Absence of long-term development plan for secondary ports

The secondary ports covered in this study do not have long-term development plans nor are they mentioned in any strategic development master plan such as the Malaysia Plan or the Industrial Master Plan (MLP). As such, the secondary ports are developed without taking into account the bigger plans of development of the vicinity or state in which they are located.

This being the case, several secondary ports have taken it upon them to chart their own development course. Take ASA Niaga Barter Trade Jetty which has plans to become a major port in the long term. While Port Klang Authority has no objection if ASA Niaga or for that matter other secondary ports wish to develop further to become major ports, the plan could run contrary to national interests. It has to be taken into account that the Federal government has already invested billions of Ringgit into developing Port Klang and the two main terminals at the port are not always optimally utilized. Given this, it would be futile to invest huge capital outlay on secondary ports to rival an established port like Port Klang and create competition that would not benefit either the secondary ports or the main ports.

Furthermore, not all the secondary ports lack of economies of scale needed to justify upgrading and expanding their facilities. For example, the small scale of business and manufacturing activities in Melaka does not make it viable for exporters and importers based in the state to use Melaka Port. They would prefer to ship and import through Port Klang or Johor Port, using the good highway connectivity between Melaka and those two ports. This is not surprising when one considers that Melaka Port does not have feeder services to those two ports. Although Melaka Port has taken the initiative to hire private consultant to conduct a feasibility study with a view to further expand and develop the port, the port has not been further developed or expanded as it is not economically viable to do so.

In general, the development of the secondary ports covered in this study is carried out by the owners and/or the state level. Ports under Level 3 of the Stopford model of port development (see page 11) are supported by the state governments where they are located. For example, the Perak State Government initiated the private port project and provides the grants for land to Lumut Port. Tanjung Langsat Port is wholly owned by Johor Corporation, a Johor State Government-linked corporation, also receives strong backing from the state. The performance and growth in business of Lumut Port and Tanjung Langsat Port owe much to the support from the State governments of Perak and Johor respectively. Although Lumut Port is under the purview of Marine Department Malaysia, its operating company LMTSB has developed the port on its own accord without much assistance from the Perak state government. There is no development strategy or plans for the port and Marine Department Malaysia merely monitors the port’s activities. Although the port has done well to grow, one can only imagine how much more competitive it could be with the help of a well laid-out long term development plan. Meanwhile, Teluk Ewa Jetty and Melaka Port are both developed independently and have not benefited from any state planning and support from the state governments of Penang and Melaka.

The case of Teluk Ewa Jetty and Dermaga Tanjung Lembung is especially noteworthy. The development of the island of Langkawi is under the purview of Langkawi Development Authority (LADA), established in 1990 under the Langkawi Development Authority Act 1990. The Ministry of Finance Malaysia is the lead agency of the Act, hence there is a high degree of alignment between the island’s development and the Federal government plans to promote and develop Langkawi as a tourism destination. LADA built Dermaga Tanjung Lembung on a reclaimed land and gazetted the secondary port as the only public port in Langkawi allowed tohandle cargos. This is to increase the development activities in

38

Langkawi as a tourism island by providing good quality transportation services to cater the increasing demand for goods and services to benefit the local community in Langkawi.

4.6 Low port tariffs

Another significant issue faced by the secondary ports is the low port tariffs set by the port authorities. The executives of several of these ports blame the on their low revenue of their ports on the low tariffs they are allowed to charge. They maintain that the tariffs they charge do not commensurate the actual cost of providing the services.

This creates a vicious cycle of low revenue – low capacity. Secondary ports with no means to increase their revenues due to the low pricing of their services will not feel compelled to expand and upgrade. The low port tariffs that do not reflect their cost of providing their services does not provide them with the financial means or the incentive to improve their capacity and service levels. As such, their capacity and levels of productivity and competitiveness are stuck and the ports cannot cater to more users or handle bigger throughput volumes. This prevents them from realizing their full potential and to contribute optimally to the economy of their host area and the nation.

Given this, there is a strong case to revise port dues at certain secondary ports in order to commensurate with the services provided at the ports. In addition, secondary ports requesting funding from the government for dredging should strive to state their case to convince the government that they deserve the assistance. In this regard, the ports’ management would do well to include the throughput and profitability forecast of their ports to provide comfort to the government that their applications for funding for dredging deserve consideration.

5. Recommendations

Given the importance and growth potential of minor ports, there is a strong case for a policy push to develop minor ports in Malaysia. This will lead to an orderly development and efficient management of these ports and can lead to better integrated of these ports with the nation’s main ports and trade supply chains and network.

Based on the facts established and the analysis, several policy options are recommended in the hope that secondary ports in Peninsular Malaysia can be developed in a systematic manner that would enable them to optimally harness their resources, realize their full economic potential and contribute to the growth of their states’ and the nation’s economy. The policy options and the merits of introducing them are listed below :

No Policy option Initiator/ Lead agency(ies)

Merits

1 Include the development of minor ports into state development plans, national development strategies/masterplans and/or the national port policy, if one is going to be conceptualized. Minor and main ports must be developed in tandem since they can complement one another through the feedering of cargos between them. This can also avoid duplication of resources and functions.

State Economic Planning Units

and Development Corporations

Economic Planning Unit,

PM’s Dept.

Ensures development of secondary ports is in harmony with the development of major ports, trade infrastructures and development of economic corridors and industrial areas

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Merits

2 Extend funding, incentives, assistance and support provided by the government to the main terminals to minor ports.

State and Federal

governments

Enables secondary ports access to funding to upgrade and expand to enable them to handle bigger/more vessels and higher throughput volumes

3 Provide funding for dredging to deepen the harbor waters of minor ports. This could be in the form of loans rather than outright grants to ensure accountability on the part of the recipient to utilize the financial assistance judiciously.

Economic Planning Unit

Ministry of Finance

Enables ports to have adequate drafts to host bigger vessels carrying more cargo load

4 Review existing regulations affecting the development of minor ports to determine if they are still applicable and relevant, given the ever-changing dynamics affecting their operating environment business concepts / models of ports have changed over time. For example, the ambiguity concerning the regulatory framework governing minor ports must be cleared, and the low tariffs of minor ports set by port commission must be reviewed.

Ministry of Transport

Brings secondary ports in line with modern day port practices and management to reflect their roles as key trade facilitators and an important component in the trade supply chain

5 Extend coverage of Vessel Traffic Management System (VTMS) to secondary ports which have achieved a certain level of traffic and can handle big vessels.

Marine Department

Malaysia

Boosts safety of navigation of waters where the ports are located, especially in buys routes such as Port Klang

6 Allow minor ports which have the capability to carry out their own pilotage instead of relying on the service provided by a port authority or other third parties.


Port authorities

Enables secondary ports to provide faster and more efficient pilotage service to their users

7 Create a platform for secondary port owners and operators, for example through the establishment of an Association or Federation of Secondary Port Owners/Operators.

Secondary ports owners/

operators

Provides an avenue for them to engage in dialogues with one another and with regulatory authorities and relevant agencies to safeguard their interests

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Merits

8 Include representatives from secondary ports in national bodies such as National Port Commission, National Maritime Council and/or Malaysia Logistics Council (MLC)

Malaysian Investment

Development Authority

MIMA, through Focus Group

Maritime Transport

Services under MLC

Enables them to air their grouse, insights and opinions and facilitates the engagement of secondary port owners/ operators in initiatives to enhance efficiency of the nation/’s.supply chain and boost its trade and economic growth

9 Explore trade and economic opportunities from regional economic groupings such as IMT-GT and IMS-GT which secondary ports can tap into

Malaysian External Trade Development Corporation

Identify business opportunities such as barter trade that secondary ports should focus on and the facilities/services they need to have or improve upon to capitalize on the opportunities

10 Promote sister port relations between the secondary ports with regional ports in the same class


Encourages strategic alliance that can be translated into win-win arrangements in areas such as capacity building, information exchange and throughput volumes

Implementing these recommendations should help minor ports grow systematically and put them in a better position to complement the role of the nation’s main ports. With a good plan in place and a bit of policy nudge, minor ports can play a more significant role to facilitate the nation’s trade and economic growth and linking producers and consumers. With the minor ports and major ports developing hand-in-hand and facilitating the movement of cargos between them seamlessly and efficiently, Malaysia can enhance its competitiveness as a trading and maritime nation.

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6. Conclusion

Secondary ports in Peninsular Malaysia play an important role in enabling producers from the hinterlands of the country to feeder their goods through these ports to the nation’s main seaports. These ports also facilitate the transportation of goods to consumers, businesses and industries in the economic areas and hinterlands they serve.

However, these secondary ports face various issues and challenges that prevent them from growing. Among them - bearing in mind that they differ in terms of size, cargo handled and level of business prosperity - are lack of intermodal connectivity; lack of features, facilities and manpower to handle more volumes and bigger vessels; lack of assistance from the state and Federal governments; lack of economies of scale; and competition and threats on safety from private jetties and landing places.

Despite facing these problems and limitations, some of the ports have the potential to grow, based on their throughput track records, and can play a more substantial and efficient role in enabling producers and manufacturers based in the hinterlands to ship their goods in a cost competitive manner. These ports also provide a link for consumers, businesses and industries to have access to goods and raw materials. Despite these limitations, some of the ports play an undeniably important role in enabling producers and manufacturers who based in the hinterlands they serve to ship their goods in a cost competitive manner. These ports also provide a link for consumers, businesses and industries to have access to goods and raw materials.

In facing these issues and threats, the majority of the operators of the minor ports would gladly welcome any form of assistance from state and Federal governments. Although the bigger secondary ports have done well on their own without any assistance from the Federal government to develop and boost their growth, they still would like to receive financial and institutional support from the government and feel they can do better and be more competitive with such assistance. Some of the secondary ports do have the potential to move up the value chain and grow into becoming large local ports, given their strategic location, reasonably impressive features and facilities, potential to expand their connectivity and growth potential of the hinterlands they serve.

With the nation’s trade-dependent economy looking set to register further growth in the years ahead, the roles of its ports, major or minor, will become more prominent. Expectations are high on the ports to facilitate the nation’s trade in an efficient and cost-competitive manner. With growth in trade and economic activities, the minor ports are poised to grow in tandem. Minor ports handling barter and intra-ASEAN and intra-Asian trade are especially poised to reap the benefits of growing volumes in these trades.

In developing secondary ports, it is crucial to take into account national interests such as making Malaysia a competitive maritime and trading nation, creating socio-economic development, promoting high income activities and reducing carbon footprint up to 40% (of GDP intensity) by 2020. As such, the development of secondary ports should not be left out from economic corridors and national development strategies and master plans. With the right strategies, resources and commitment, these ports can be developed in tandem with state and national level trade infrastructures. Their importance and potential for growth call for their planning and development to be done in a more orderly fashion and for them to be given assistance to realize their full potential as a conduit of trade and economic development.

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7. Areas for future studies

Future studies should cover the secondary ports in Sabah and Sarawak which may face different issues and challenges compared to their counterparts in Peninsular Malaysia. This will provide a comprehensive view on the state of secondary ports in the whole country.

Given the short duration of the study, the authors did not have the luxury to look at comparative cases of secondary port operations, management and administration in other countries and the issues and challenges they face. Studying the experience of secondary ports in various nations could yield helpful leads for Malaysia to take its secondary ports to greater heights.

It would be useful to assess the viability of introducing Vessel Traffic Management System (VTMS) in selected secondary ports to ensure navigation safety. Likewise, the possibility of introducing Automatic Identification System (AIS) transponder on barter trade vessels is also worth looking into to ensure navigation safety around secondary ports waters.

There is a strong case to review existing regulations on ports to ensure they are still applicable and relevant to secondary ports, given the rapid changes in trade and the evolving business concepts / models of ports.

It would be complimentary to this study for research to be undertaken on the prospect of growth and forecast of cargo throughput at Malaysia’s secondary ports based on economic and trade developments, and the multiplier effects – for example in terms of revenues, employment opportunities and development of supporting facilities, infrastructures and services – that the ports can generate.

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Acknowledgement

The authors would like to thank, in no particular order, the following organizations for their valuable assistance in facilitating the study :

• Ministry of Transport Malaysia• Seafarer Affairs and Port Division, Marine Department Malaysia• Marine Department Northern Region• Marine Department Southern Region• Marine Department Melaka• Port Klang Authority• Penang Port Commission• Lumut Maritime Terminal Sdn. Bhd.• ASA Niaga Barter Trade Sdn. Bhd.• Tanjung Langsat Port Sdn. Bhd.• Johor Corporation Sdn. Bhd.• Langkawi Port Sdn. Bhd.• Kedah Cement Jetty Sdn. Bhd.• Syarikat Perkhidmatan Pelabuhan Gabungan Sdn. Bhd • La Farge Group Sdn. Bhd.

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