Speech by Minister of Transport, Mr Chee Hong Tat at SIIA’s Asean and Asia Forum

Associate Professor Simon Tay, Chairman, Singapore Institute of International Affairs,

Excellencies,

Ladies and Gentlemen,

Introduction

1. Good morning. It is my pleasure to join you today for the 16th ASEAN and Asia Forum.

Global supply chain shifts and volatility

2. We are at a time of great uncertainty. The world that had prospered from decades of globalisation, economic integration and a stable rules-based international order has become increasingly beset by disruption, geopolitical fragmentation and prolonged regional conflicts.

3. First, we have seen escalating geopolitical contestation between the US and China - fundamentally marked by a lack of trust. From 2018 to 2023, the US imposed an average duty of close to 20 per cent, which is more than six times what it was before 2018, on two-third of its imports from China. Over the same period, China imposed an average duty of just over 20 per cent on almost three-fifth of its imports from the US. These duties limit consumers' access to goods, forcing them to pay higher prices.

4. This contestation unfortunately will not just stop at the duties I mentioned. The two largest economies in the world has also had a profound impact on the rest of the world, as global supply chains are becoming re-configured along geopolitical lines.

a. Many countries and businesses are pursuing strategies to derisk and reduce their production and sourcing reliance on China, by onshoring, near-shoring, or moving and diversifying operations to other countries.

b. Over time, this may lead to the re-orienting of trade between blocs of economies friendly with each other, resulting in trade fragmentation.

c. Trade fragmentation would also affect the way that goods flow and have an impact on key hubs like Singapore.

5. Second, we are also seeing prolonged regional conflicts, such as the Russia-Ukraine war and the Israel-Hamas conflict. While these conflicts are far away from where we are in ASEAN, they have a significant impact on the global supply chain.

a. For example, aircraft plying the Asia-Europe route have been forced to detour and avoid the airspace over Ukraine and Russia, due to the war in Ukraine.

i. This lengthens the aircraft's travel time by a few hours.

ii. Due to the increased distance to be travelled, aircraft have to carry more fuel, and as a result, carry less cargo.

iii. This, together with the increased demand for air cargo arising from the Red Sea crisis, which I will speak about shortly, has contributed to the increased costs for air freight, with some logistics providers estimating that air freight costs have increased by up to 50 per cent compared to the start of this year.

b. Likewise, the Israel-Hamas conflict has also spilled into a crisis in the Red Sea, which is part of a key maritime trade route between Asia and Europe. Vessels have been diverted to the longer route around the Cape of Good Hope, which adds up to 7 to 10 days of sailing times.

i. Ports are experiencing more off-schedule arrivals. This is further compounded by the fact that many of the off-schedule vessels arrive within a short window, causing a "bunching" effect across ports over the world.

ii. Vessels therefore face longer waiting times at the ports. With vessels remaining at sea for longer periods of time, this has a knock-on effect overall, as exporting countries face a shortage of vessels and container equipment.

iii. This has similarly contributed to increased costs for sea freight, with an estimated increase of more than 50 per cent currently, as compared to the start of this year.

Observations on how countries and businesses are adapting

6. One outcome of the geopolitical contestation has been increased manufacturing activity in the ASEAN region. With enhanced manufacturing activity and exports, the case for enhanced port and airport infrastructure and connectivity, that facilitates the flow of goods to the end markets is further strengthened. Several countries in the region have built on this to develop plans to position themselves as key supply chain hubs.

a. Some examples are:

i. Vietnam is looking at the construction of the Can Gio International Transhipment Port. The projected volume of cargo that will flow through this proposed transhipment port is forecast to be 4.8 million twenty-foot equivalent unit ("TEU") by 2030 and 16.9 million TEU by 2047. For comparison, the total container throughput for the entire Vietnam in 2023 was 24.7 million TEU. It is quite a significant addition to their capacity.

ii. Indonesia is planning to expand its Hang Nadim International Airport on Batam, which will involve the construction of another passenger terminal and a new cargo terminal. This will be integrated with the transformation of its Batu Ampar Port, which is envisaged to become a transhipment port, with its capacity more than tripled from the current 600,000 TEUs to 2.1 million TEUs in 2028.

b. It is not just countries that have been making investments to further develop their infrastructure. Companies in the supply chain sector have also planned or made acquisitions to build capabilities and become more vertically integrated. For example:

i. DP World of Dubai has shared that it has a pipeline of more than 15 acquisitions in Asia to increase its network across Asia and Middle East. This is part of their plan to expand their presence. They have acquired Savan Logistics, the operator of Savannakhet dry port in Laos, which will boost its connectivity to the region.

ii. Maersk, one of the largest container shipping line companies, has established an air cargo division and invested in freighter aircrafts. It also acquired LF logistics to expand its warehouse and logistics fulfilment footprint. This vertical integration across the supply chain allows them to offer their customers more end-to-end logistics solutions.

What it means for Singapore

7. With all these developments, what does it mean for Singapore? As a small country with an open economy, the world is our economic hinterland. At the same time, Singapore is also vulnerable to the impact of global supply chain shifts.

8. In the current uncertain and volatile climate, our fundamental principles are more important than ever.

a. First, we are committed to the principles of free and open trade, which plays an important role in creating a more secure and inclusive world. Singapore strongly supports this - a multi-lateral, rules-based international system. In the same light, we view increased connectivity and investments in supply chain infrastructure across the world, positively. It is important because we should not view these investments from a perspective of having a zero-sum mentality. They do add to the overall connectivity for the whole world, and it can lead to more trade, more investments, more economic activity and more growth to the entire world and region. A rising tide lifts all boats, and we believe that better infrastructure across the region will help enhance regional supply chain efficiency and resilience overall.

b. Second, and therefore, we must continue to be a trusted and reliable partner for businesses around the world to come to Singapore to invest and trade here.

i. When global supply chains were disrupted during the COVID-19 pandemic, Singapore differentiated ourselves by ensuring that our air and sea ports remained open.

ii. Now, amidst the Red Sea crisis, container shipping lines are relying on Singapore as a transhipment port to unload cargoes bound for Asian ports beyond Singapore before turning around and going back to Europe. Container lines are also using Singapore to perform more complex cargo operations, such as to rearrange containers on their vessels, to maximise the number of containers carried and facilitate operations at downstream ports.

We are able to do this because we have built up the connectivity as a trans-shipment hub port and acquired some buffer to allow for some quick expansion. The construction of Tuas port gives us additional berths to add-on and there will be more coming at the end of this year to allow PSA to have more capacity to serve more customers. This is, in my view, one of Singapore's key value propositions - we are a trusted and reliable partner, whether in good or difficult times.

c. Third, we constantly plan ahead to grow our capacity, capabilities and connectivity:

i. This long-term perspective is something we must continue to preserve. It is one of our strengths. We do not just focus on what we need to do today, we also want to be ready for tomorrow for the future. We are the world's largest transhipment hub, with connections to more than 600 ports in over 120 countries. We have started building Tuas Port. Construction of the port is progressing steadily, with 9 berths in operations and 2 additional berths to commence operations by end-2024. When completed in the 2040s, Tuas Port will be the world's largest automated container terminal, with a handling capacity of 65 million TEUs.

ii. Changi Airport is already connected to about 420 cities through almost 120 airlines today. But we are similarly planning ahead for the future. Construction on Changi Airport's Terminal 5 (T5) is expected to start next year. T5 will be able to handle up to 50 million passengers a year when it is operational in the mid-2030s. Changi Airport's cargo facilities will also be expanded to the Changi East Industrial Zone. This is expected to increase Changi's air freight capacity from 3 million tons to 5.4 million tons by the mid-2030s.

iii. Our homegrown companies are making plans to support the growth of our port and airport, while also expanding their global footprint and network. PSA, including PSA-BDP, has a global network at over 179 locations in 45 countries, offering services across the supply chain ecosystem. SATS has recently announced restructuring plans to continue to drive growth for the Singapore hub, while leveraging its global network at more than 210 locations in more than 27 countries, following its acquisition of Worldwide Flight Services (WFS) last year. These networks tap on the strengths of our companies in Singapore, and allow us to grow our global footprint by bringing what we are able to do here in Singapore to different parts of the world. In the process of doing so, we hope to add value to the countries we invest and operate in, and further strengthen integration and connectivity.

9. Beyond these three principles I touched on, I would like to share two further ways in which the Government and industry stakeholders can work together to further enhance Singapore's value proposition as a global supply chain hub.

a. First, to further drive optimisation and efficiency gains across the entire supply chain network in Singapore. The supply chain ecosystem is made up of many players, including the customers, freight forwarders, port and airport operators, carriers, with flows across air, land, and sea.

b. Today, some of the stakeholders have come forward to collaborate to optimise their processes through digitalisation.

i. For example, PSA, the Singapore Transport Association, the Container Depot and Logistics Association (Singapore) and Enterprise Singapore developed the OptETruck app, which allows the haulier community to exchange data, job pool and integrate solutions, for trips made by their trucks to PSA port terminals.

ii. Currently, each truck makes up to 12 trips a day on average. However, about 30 per cent are empty trips.

iii. With dynamic job allocation and job pooling done through the app, the number of empty trips made by a truck can be reduced by 50 per cent. This increases the efficiency and lowers the transport costs of the supply chain ecosystem, and generates broader benefits such as reduced road congestion, carbon emissions and make better use of the limited pool of drivers that we have.

c. We think that we can do more. Earlier this year, we formed an Alliance for Action. This is a concept that we tried out in Singapore where we bring government, industry and trade unions stakeholders together - what we call a tripartite partnership. So, they come together and form the AfA. The Alliance part is quite clear because it requires a partnership, but the action part means not to just look at concepts in theory but to translate ideas into action. So, the AfA looks to optimise inter-modal connectivity, which brings many entities, such as DB Schenker, PSA, Cargo Community Network, SATS, Singapore Airlines Cargo and Singapore Aircargo Agents Association.

i. The stakeholders are developing a prototype app to better facilitate inter-modal solutions.

ii. The proposed app will equip shippers and logistics providers with various functions that help to simplify and increase the efficiency of inter-modal logistics by providing greater data flows and insights.

o Currently, when shippers and logistics providers plan inter-modal routes, key information such as airline and vessel availability and schedules, are often accessed through different channels. For smaller companies, this may often be done manually. Also, when the data is not consolidated and not digitalised, you cannot make good use of data analytics or artificial intelligence. These are the limitations of the current system.

o After bookings are made, they will also need to track manually, to be able to respond to unforeseen circumstances, such as delays or change of details, in a timely manner. It is quite challenging for the people who are handling these operations. This information asymmetry generates inefficiencies and sub-optimal outcomes, which may also incur additional time and costs.

o The app prototype seeks to serve as an inter-modal control tower to provide shippers and logistics providers the information they need to make decisions in a simplified and timely way.

o It will provide real-time flight and vessel data, facilitate the booking of flights and sailings, real-time tracking of vessel and flight status, push out early alerts of potential delays, and also visibility of cargo status across the different modes.

o This can help shippers and logistics providers to plan and choose the most ideal routes and respond quickly to unforeseen circumstances, which will reduce cost and uncertainty, and increase the viability of inter-modal solutions with Singapore as a hub.

10. Second, the government is working with the industry to review rules and regulations to reduce regulatory compliance costs.

a. Earlier this year, I had announced that we will streamline land transhipment procedures so that instead of two permits - one for import and one for export - companies transhipping goods via land checkpoints will only require one permit. It sounds like a simple change but requires quite a bit of work back-end to sort out with the different agencies and the different systems.

b. But with this change it will help companies save cost and time. We estimate potential savings of up to $2 million a year, aggregated across the industry. This will benefit many of the SMEs too.

c. There could be even higher savings, if the volume of goods transhipped through our land checkpoints will increase over time.

d. The Alliance for Action is working together with government agencies such as Customs to review the regulatory process for supply chain flows, and will work towards further streamlining where possible. The idea is to remove as much of the red tape and inefficiencies in the system as possible, to achieve as much integration as possible, to provide as much data visibility as possible, so that we are able to help companies to save time and money.

Conclusion

11. Ladies and gentlemen, while we are in a time of great uncertainty as global supply chains shift, new opportunities for Singapore and ASEAN have also emerged. We will be able to capitalise on these opportunities to spur further growth by working together to enhance infrastructure and connectivity in the region. I believe that the ideas and insights from today's discussion can help to provide further catalyst to action. I look forward to the dialogue with all of you later to address some of the questions you may have. I wish you a productive and energising discussion. Thank you!