Logistics by Land, Sea and Air
Logistics are a vital part of any manufacturing operation, and an integral part of Singapore’s economy. Despite its importance however, the companies in this industry, and the things they do, are not widely known.
By John Yip
Much ado about movement
What do you think of when someone asks you about the business of logistics? If the first images that come to mind are big ships, jumbo jets, and monster trucks, then you’re not too far from the mark.
But that is only a small part of the logistics industry — or more specifically, just the traditional freight services that physically transport goods from one place to another. Modern logistics operations is a fair bit more sophisticated than that, due to advances in technology and changes to global competitive dynamics.
A more comprehensive way to describe logistics today would be to think of it as the process for getting resources, like products, services, and people, to where they are needed, when they are desired.
Logistics is a vital part of any manufacturing operation. It involves a broad range of activities, freight transportation, warehousing, material handling, protective packaging, inventory control, order processing, marketing and forecasting.
And it’s not just finished products that get moved around the world. In a globalised economy, where the manufacturing and assembly facilities of a single manufacturer may be scattered all over the world, it takes careful planning to ensure that raw materials and semi-finished goods are delivered to the next link in the supply chain — on time, and at the lowest possible cost.
The logistics industry has always been an important part of Singapore’s economy, given the country’s history as a port city, and its unique geopolitical position at the crossroads of all major shipping and aviation routes in South and Southeast Asia.
That strategic advantage is further enhanced by a reliable physical and IT infrastructure that offers excellent connectivity with the rest of the world. The logistics industry contributed about S$11 billion to the local economy, or 8% of Singapore’s GDP (Gross Domestic Product), in 2003. There are over 3,000 international and local logistics companies in Singapore, and together they provide employment for about 93,000 people.
Despite the relatively large size of the local industry, it has managed to grow at a brisk rate of about 7% to 9% per annum since 2000. If all goes according to plan, the logistics sector is expected to grow to S$38 billion within 10 years, and account for 13% of Singapore’s GDP by 2012.
The interesting thing about the local logistics industry is that, despite its size and importance to Singapore’s economy, the major companies that operate in this sector remain relatively unknown.
The most intuitive way to explore this sector is to divide the operators into three main groups, namely those involved in maritime, aviation and land logistics. Together, these companies form the bulk of traditional logistics operations in Singapore. It is important to take note however, that given the rising trend of integrated logistics services, it is becoming increasingly meaningless to pigeonhole logistics companies into these three sections.
Modern Singapore has always functioned as an important port-of-call for merchant and cargo shipping since its founding in 1819. Today, it is the world’s busiest seaport in terms of shipping tonnage, as well as the world’s second largest container port.
The total seaborne cargo that passed through Singapore amounted to 335.1 million tons in 2002, and a record number of 23.2 million twenty-foot equivalent units (TEUs) were handled by Singapore’s container ports in 2005. To put this into perspective, it means that as much as one-fifth of the world’s transhipment activities pass through the country every year — a staggering achievement for a city-state of merely four million people.
Seaborne cargo coming in-and-out of Singapore are handled by the six terminals at Tanjong Pagar, Keppel, Brani, Pasir Panjang, Sembawang and Jurong. These terminals are managed by PSA Corporation Ltd and Jurong Port Pte Ltd.
PSA operates the terminals at Brani, Keppel, Pasir Panjang, Sembawang and Tanjong Pagar, which deal in container and conventional cargo, while Jurong Port handles mainly bulk and conventional cargo. Bulk cargo refers to dry and liquid goods such as cement, sugar, cement clinkers, petrochemicals and copper slag, i.e. cumbersome commodities that require specialised equipment to load and unload them quickly and efficiently onto cargo vessels.
Both these port operators are regulated by the Maritime and Port Authority of Singapore (MPA), which has sole regulatory responsibilities over the country’s port and maritime affairs.
Singapore Changi Airport is one of the world’s leading airports for air cargo, and registered a record air cargo throughput of 1.83 million tons. It has been consecutively named as the “Best Airport in Asia” for several years running, a position that is backed by its efficient cargo handling services.
All air cargo is handled by the 47-hectare Changi Airfreight Centre (CAC), which operates entirely inside a Free Trade Zone (FTZ). This makes it easier for logistics operators to easily move, consolidate and re-pack cargo within a shorter timeframe, resulting in significant cost savings that can make a crucial difference to an operator’s competitiveness. The CAC contains eight airfreight terminals, five cargo agent buildings and 10 freighter aircraft parking bays.
The airfreight terminals are operated by two ground handling companies – the Changi International Airport Services (CIAS) and Singapore Airport Terminal Services (SATS). SATS provides 85% of the ground handling services, while CIAS undertakes the remaining 15%.
SATS is a subsidiary of Singapore Airlines, and it provides cargo, mail and express & courier services to airlines operating at Changi Airport. The most important international courier providers in Singapore are DHL International, TNT Express, Federal Express, UPS and Menlo Worldwide, Airborne Express and OCS. Then there are local courier services such as DPE International and Singapore Post.
These companies take up offices in the five cargo agent buildings run by the Civil Aviation Authority of Singapore (CAAS), which are also used to provide warehouse space for over 200 international and local freight forwarders.
By far and away the most traditional of logistics services, this section of the logistics industry is dominated by a wide variety of small transportation and warehousing companies. Competitive pressures have forced most of these companies to seek new ways to add value to their services in order to stay in business.
Nonetheless, warehousing and distribution are crucial parts of a manufacturer’s supply chain — goods and semi-finished components all need to be stored somewhere while in transit to another location.
The key then to helping land logistics companies operate more productively is to set up the infrastructure that would facilitate the integration between storage and transportation, as well as to better connect land logistics operations to Singapore’s seaport and airport.
To cater to this need, four major Distriparks, managed by PSA, have been set up in Keppel, Tanjong Pagar, Pasir Panjang and Alexander. As can be quickly seen, these Distriparks are all located near the various port terminals in Singapore.
The Distriparks are equipped with high-ceiling buildings that support automated storage and retrieval systems, wide roadways and ample parking spaces for loading and unloading cargo, as well as CCTV cameras and IT systems that are there to ensure the security of the cargo.
Other than PSA, many logistics companies have their own dedicated distriparks located throughout Singapore. These include YCH Distripark, which is a part of the YCH Group and Trident Districentre, partly owned by Neptune Orient Lines, one of the largest transportation companies in Singapore
With very little to differentiate between the services offered by one logistics company from another, most of competition between the traditional operators is based on price — contracts are awarded to whichever company offers the lowest price.
As you can imagine, in a logistic sector as crowded as Singapore’s, the level of price competition has become quite brutal. But this trend coincides with the increasing trend for multinational manufacturing companies to outsource their logistical functions to rationalise production costs.
Therefore, the long-term solution for local logistics companies is to branch into “third-party logistics” (3PL), or even “fourth-party logistics” (4PL), which basically refers to the management of the outsourced logistics of a manufacturing company.
Such developments require a strong IT infrastructure to be put in place, and to this end, Singapore has begun to achieve significant headway with the introduction of e-logistics services.
In other words, the industry itself is growing increasingly sophisticated, as it pulls itself up the value chain. That in itself implies that the educational profile of the industry’s workforce will be changing rapidly in the years to come — professionals with front-line experience in supply chain management will likely to be in greater demand.
Such expertise is still very much a niche specialisation, but if the current projections for the industry’s growth are met, it may one day become a worthwhile skill set to have.