This article first appeared in The Edge Malaysia Weekly on October 30, 2023 - November 5, 2023

THE movement of cargoes and containers in and out of Port Klang can be seen as a barometer of the country’s economic health as it is the gateway to the nation’s trading activity.

According to the Port Klang Authority (PKA), container throughput for exports grew 8.74% quarter on quarter (q-o-q) to 758,267 twenty-foot equivalent units (TEUs) in 2Q2023, while container throughput for imports increased 5.69% q-o-q to 752,704 TEUs.

The container throughput performance at Westports Holdings Bhd has been encouraging so far despite the slowing global economy. In 2Q2023, the company handled 2.7 million TEUs, compared with 2.55 million TEUs in 1Q2023, a 5.49% increase.

On a year-on-year (y-o-y) basis, Westports handled 7.38% more containers in the first half of this year at 5.24 million TEUs, compared with 4.88 million TEUs in the previous corresponding period, as economic activities in the Far East resumed post-Covid-19.

This performance led to the port operator’s executive chairman Datuk Ruben Emir Gnanalingam’s more favourable outlook for the economy compared to earlier this year.

“We have been cautious the whole year because we felt that the macroeconomic aspects of the global economy were not strong, but there’re so many mixed signals. So, you can’t tell how it [the economy] is going to behave,” says Ruben when met at the port earlier this month.

“You have high inflation and then you have high interest rates, but unemployment is still low, so you are not really losing consumption, which normally happens when this [high inflation followed by high interest rates] happens.”

To put things into context, the Malaysian economy grew at a slower pace of 2.9% y-o-y in 2Q2023, compared with 5.6% y-o-y in 1Q2023. However, on a q-o-q basis, the economy grew 1.5% in 2Q2023 compared with 0.9% in 1Q2023.

Nevertheless, it must be noted that Penang is the biggest exporter among the Malaysian states and most of its merchandise exports are electrical and electronics (E&E), which use air transport instead of sea. The bulk of the E&E trade data may not have been captured in Westports and Port Klang’s container throughput numbers.

According to data provided by the Department of Statistics, Malaysia’s domestic export value fell 13.8% y-o-y in 2Q2023 to RM267.59 billion from RM310.28 billion in 2Q2022.

However, Westports’ container volume performance so far this year should provide an encouraging outlook for the economy as a whole. This is because the central region, which Port Klang serves, still has the biggest share of the country’s GDP.

Ruben, who is also group managing director of Westports, notes that container volumes to and from the US and Europe have been down this year, but “not in a very crazy way”.

“You have to remember during the Covid-19 years, volume grew a lot in many places because of extra goods moving around for pandemic reasons and also because of work-from-home and whatever other reasons. So, goods were moving, and therefore any slowdown that we’ve seen was probably just an adjustment back to normal,” he says, adding that he does not see a recession in the short term.

“The whole year I was cautious of potentially seeing one [a recession] but as the year progresses, it doesn’t seem that one is coming. I hope I’m not jinxing it by saying this but the whole year, I was saying it might come. But now, I don’t know if it is going to come.”

Ruben says a lot of the macroeconomic indicators were not giving the natural signals of contraction in consumption, as they had done in the past, nudging him to think new economic balances could be emerging.

For the six months ended June 30, Westports’ net profit rose 20% to RM378.35 million from a year earlier due to the absence of the one-off prosperity tax imposed in 2022. The group’s revenue inched higher to RM1.05 billion as the normalisation of supply chains post-pandemic resulted in a lower need for containers to be in storage.

Westports has been waiting for the concession agreement for Container Terminals 10 to 17, or collectively called Westports 2, to be signed with the federal government so it can embark on its expansion.

In March, Minister of Transport Anthony Loke said the ministry was aiming to finalise the concession agreement in the second half of this year. However, as the year nears its end, the agreement has yet to be signed.

On Aug 30, Westports announced that PKA had disclosed that the proposed Westports 2 project had been presented to the cabinet on July 25.

The secretary-general of the Ministry of Transport will represent the government of Malaysia in executing the agreement with PKA and Westports, after the agreement has been reviewed and confirmed ready for execution by the Attorney General’s Chambers. It is unclear at which stage the agreement is at.

To recap, the proposal for the expansion of Westports beyond the existing concession area dubbed Westports 2 has been in the works since at least 2016, with the approval in principle given by the federal government in July 2017.

The Selangor government also approved in principle the planning of the reclamation of land for Phase 1 of Westports 2 in February 2021. Phase 1 of Westports 2 is for the development of Container Terminals 10 to 13.

It is clear that the changes in government between 2020 and 2022 had an impact on Westports’ expansion. At the same time, Singapore’s Tuas Megaport has been in operation for a year, after the first phase was officially opened in September 2022.

When asked whether he is at all concerned that Tuas Megaport has been in operation, while the concession agreement for Westports 2 has not even been signed with the government, Ruben says he is more focused on getting it right than being the first to expand.

“I think some parts of it [the delay in implementation of Westports 2] may have been a blessing in a way. If you look at our volume over the last few years, we haven’t really grown either. And therefore, having that tract of capacity when you are not really growing may not have been that good of a deal,” he adds.

Ruben points out that had the concession agreement been signed with the government earlier and construction started during the Covid-19 pandemic, construction costs could have ballooned.

“We’ve seen shortage of materials or shortage of supply of many things globally, during and post-pandemic as well, and this has affected many expansion types of projects and inflated their costs in a very big way. So, I am not that frustrated. I think some parts of it maybe, but if we look at it, if we had started earlier, we might probably have ended up in a situation where it had inflated costs, which is unbearable,” he says.

Westports 2 is expected to cost about RM12.6 billion over the next 20 years. About RM2 billion to RM3 billion will be spent upfront in the first three to four years on land reclamation and dredging.

Ruben says now is probably the right time to start the project as supply chains have returned to normal, with global logistics and cargoes moving more freely.

Westports 2 would double Westports’ container throughput capacity from the current 14 million TEUs, which makes it the largest container terminal in Malaysia, ahead of Port of Tanjung Pelepas (PTP) with a capacity of 13 million TEUs.

Last year, Westports handled 10.05 million TEUs for a utilisation rate of 71.8%. The remaining capacity is enough for Westports to serve its customers over the next four years before Westports 2 is operational.

There are a lot of capacity expansions in Southeast Asian ports over the next 15 to 20 years. The Tuas Megaport, besides consolidating Port of Singapore’s capacity in one terminal, represents an additional capacity of 10 million TEUs, bringing the TEUs to 60 million by 2040.

Besides doubling Westports’ capacity to 28 million TEUs by 2035, PTP is also investing RM3 billion over the next five years to increase its capacity by another 3.5 million TEUs.

This means over the next two decades, there will be an additional 27.5 million TEUs of container handling capacity in the Strait of Malacca. This does not include the proposed Carey Island Port near Port Klang and other smaller ports along the strait.

In Southeast Asia, other countries are also planning for more container handling capacity at their respective ports. Vietnam is developing a US$5.45 billion port in the Cai Mep estuary near Ho Chi Minh City that is envisioned to have a capacity of 4.8 million TEUs by 2030. Thailand is developing Phase 3 of Laem Chabang Port, which will see the main port of the kingdom having a container throughput capacity of 18 million TEUs by 2029, from 11 million TEUs currently.

Despite the huge addition in container throughput capacity in the region, Ruben is unperturbed by the increased competition for transhipment containers. He says the pie is big enough for more growth to come through this region.

“Our expansion will be fulfilled by our clients, and theirs will be fulfilled by their clients too. I think there is enough growth from the region to expand in terms of cargo movement here, to allow further growth for all parties,” he adds.

Ruben in many ways is like his late father, Tan Sri G Gnanalingam, who founded Westports in 1993 and passed away on July 11 this year at the age of 78. However, as someone who grew up in the digital world, he differs from his father in that he uses more data than “gut feeling” in making decisions.

Nevertheless, Ruben says there should not be any difference in his management style compared with that of his late father, as he not only learnt everything about the port industry from his father, but they had been experimenting with different styles of management when he was executive chairman of Westports.

“He was very good with his gut, and I was very good with stats. I hope I don’t get worse with the stats, but I now have to build the gut part also. He could use his gut because he had the experience, while I much prefer looking at the data before making any decisions,” says Ruben.

“I think that is the biggest difference between how he managed and how I manage. And I think going forward, I have to learn that part a little bit more. But I’m not going to let go of the stats. He lived in an era where stats were not available. That’s why he had to rely more on his gut.”

Last Thursday, Westports’ share price had fallen 8.22% year to date to RM3.34, valuing the group at RM11.4 billion. 

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