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July 10, 2006

Navigating the swirling currents of change

Reprinted from The Straits Times

By Rockford Weitz, John C. Perry and Scott Borgerson

In the last half-century, Singaporeans have capitalised on their sheltered deep harbour and favourable geographical location astride key shipping lanes to help their tiny island nation evolve from a resource-poor former colony into one of the world's pre-eminent maritime economies. Singapore's port leads the world in container throughput; its merchant fleet ranks among the global top 10; and its maritime cluster enjoys success in ship repair, oil rig construction, oil refining, bunkering and marine services. The Port of Singapore Authority has expanded the island's presence worldwide, vying with Hong Kong's Hutchison Port Holdings and Dubai's DP World for global supremacy in container terminal operations. With its maritime sector accounting for at least 7 per cent of GDP, South-east Asia's richest country has a per capita income exceeding that of many advanced nations.

But profound change in the maritime world threatens the status quo. Singapore's response to the change will determine its future prosperity.

Change is an ever-present reality for ports and shipping. As hulls shifted from wood to iron to steel, propulsion systems evolved from wind to steam to internal combustion. The 1869 opening of the Suez Canal marginalised Cape Town and placed Singapore on the shortest route between the Atlantic economies and Pacific Asia. Rubber and tin became important commodities, showing how new technologies can change markets.

Modern history has witnessed an increasing scale and pace of change, introducing new challenges and opportunities for maritime economies. The emergence of containerisation and the giant bulk carrier caused transport costs to plummet, contributing to the great shift of global trade flows from the North Atlantic to the North Pacific. Singapore responded vigorously to harness the opportunities presented by these developments, reclaiming land for expanded port facilities, deepening harbour channels, investing in state-of-the-art gantry cranes. Strategic vision and disciplined management have borne fruit.

Singapore, however, cannot become complacent as the tides of history continue to bring change to its shores. The industrialisation of the developing world, particularly China, has soaked up excess shipping capacity and swelled the order books of shipbuilders. Growing energy demand has raised the importance of liquefied natural gas as a traded commodity, fuelling rivalry for offshore gas reserves. The maritime sector has experienced unprecedented consolidation as shipping lines merge or form alliances and major port operators strive to build ever-larger global networks. Rival container ports have emerged. Next door, Malaysia has turned what 10 years ago was a mangrove swamp into the Port of Tanjung Pelepas, luring major shippers Maersk and Evergreen away from Singapore. China also looms as a burgeoning competitor with Shanghai port threatening to supersede Singapore.

Perhaps most importantly, ice-free Arctic passages and an expanded Panama Canal could fundamentally alter today's shipping patterns over the next few decades. According to several studies, the Arctic ice cap shrank last year to its smallest size in the past century. Since Arctic routes between the world's core economic areas are, on average, 5,000 nautical miles shorter than transit through the Suez and Panama canals, the Arctic Ocean could become the seaway linking those economies, all of which are in the northern hemisphere. Shipbuilders hitherto reluctant to build ice-class ships are now responding by offering them to serve Arctic navigation, particularly to reach Russian energy reserves. Panama's plans to add another set of locks large enough to accommodate the biggest container ships constitute another possible redirection of major shipping routes. These emerging sea lanes raise complicated questions for Singapore because they could diminish the geographical advantage it has enjoyed since 1869, and benefit rival ports located further north.

As Minister Mentor Lee Kuan Yew astutely observed in a 2001 interview: 'Being relevant to the world and as the world changes, being relevant in spite of those changes, is the business of living. The countries that make themselves relevant become better off; their people become better off.' Singapore has shown great skill in navigating its economy through the seas of globalisation. How it responds to the challenges of the changing maritime environment will determine the future relevance of its maritime cluster and its position in the world.

Rockford Weitz is a Ph.D candidate at the Fletcher School of Law and Diplomacy, Tufts University, where Professor Perry directs the Oceanic Studies Programme. Dr Borgerson is a recent graduate of the programme.

Posted by fletcher at July 10, 2006 02:33 PM