Cascading effect in South East Asia and its impact on liner feeder services (Malaysia & Myanmar)

Abstract

The liner shipping environment is a highly completive environment with low freight rates and a narrow profit margin. Acquiring bigger vessels to gain Economies of Scale (EOS) through spreading of the fixed cost across more containers is one popular way that many shipowners adopt to keep operating cost low and remain competitive. Such actions led to rapid growth in container vessel size along the years. This created a cascading phenomenon where the bigger vessels are displacing smaller ones. Cascading also impacts the trade lanes where the newest and biggest vessels will be deployed on main trade lanes, displacing the current large ships. These displaced large ships will then be redeployed into secondary routes and eventually to the liner feeder service routes, displacing smaller vessels. Surplus tonnages that are older or too small will be scrapped. A three-part study was conducted to investigate the degree of the cascading phenomena in the South East Asian countries as well as to evaluate the current liner shipping network in these countries to determine if cascading will cause an end to the liner feeder services in South East Asia. The study was broken down according to country. Each work package consists of 2 countries namely Malaysia & Myanmar, Thailand & Indonesia and Vietnam & the Philippines. Collectively, the 3 packages will cover the South East Asian countries. The key area of this paper is on the political/legal, economic and technical aspect of the country, its shipping and port activities. It highlights both the macro and micro view when determining the degree of cascading experienced in each country and the current liner network system before recommending on possible strategies for Main Liner Operators (MLOs) and Feeder service operators. Finally, it will link the points up to determine if cascading and the current liner environment will cause the end of liner feeder network in Malaysia and Myanmar. From the primary and secondary research, it reflects that cascading is restrictive towards causing the end of liner feeder service network system in Malaysia and Myanmar. In fact, due to the various stages of the political, economic, and technical development experienced in each country, it shows that the hub and spoke system is an important aspect of the liner ecosystem in South East Asia. Hence, both MLOs and feeder operators are important. This paper provides the maritime professionals, especially those involved in liner shipping, with an in-depth understanding of cascading and the status of liner network in Malaysia and Myanmar. Subsequently, the recommendations may assist in their strategic decision towards operating in a more cost-effective and efficient way.