Sounds Great -- It Floats

Why Thailand's plan to build a national merchant fleet is laden with risk

There's no shortage of sailors in Thailand. The country has long provided thousands of crewmen for vessels owned by global shipping giants from Singapore to Athens to Copenhagen. But when it comes to its own fleet, the country has just a handful of small, regional shipping lines that ply the waters between Thai ports, Singapore, and other nearby destinations.

That may soon change. Thailand's take-charge Prime Minister, Thaksin Shinawatra, has for years called for Thailand to build globally competitive companies that can serve as national icons, as the Japanese and Koreans have. So the billionaire former entrepreneur is pushing a scheme to upgrade Thai ports and create a new flag carrier as part of a $41 billion package of infra- structure projects.

In mid-August the Ministry of Transport began drawing up plans for the new shipping line. A group of local shipping companies and government representatives are expected to propose a deal in the next month or so. If it gets Cabinet approval, the line could be seaborne by the end of next year. Shipping industry insiders say the company would be 70%-owned by private Thai shipping companies, with the small state-owned Thai Maritime Navigation Co. holding the rest. "Our objective is to create a Thai national fleet to reduce our dependence on foreign shipping companies," Thai Deputy Transport Minister Phumthan Wechayachai told Bangkok shipping executives on Aug. 21.

Why build a shipping line? Bangkok is concerned that despite its growing global trade, Thailand is losing hundreds of millions of dollars in freight charges to foreign carriers. A national fleet, officials believe, would keep much of that money in Thailand. They're emboldened by the success of Malaysian International Shipping Corp. (MISC) and Singapore's Neptune Orient Lines (NOL), flag carriers from neighboring nations that are highly profitable.

There are possible problems, though. For starters, Thaksin's timing may not be right. Shipping is a notoriously cyclical business, and freight rates appear to be backing off of record highs. "Building a new shipping line at the peak of the cycle looks to me like a recipe for disaster," says Andrew Stotz, Thailand strategist at Macquarie Equities Research.


And if Thai manufacturers use a state shipping company that's not world-class, their exports could become less competitive. Building a shipping line is "an amazingly retrograde step," says Howard W. Dick, a management professor at the University of Melbourne who studies Asian shipping. "Setting up flag-carrier national shipping lines or airlines was what countries did 30 years ago." If a new company doesn't have the right technology, financial management, and supply-chain expertise, Dick says, it can't be profitable. "Anyone can sail a ship from Bangkok to New York, but the key is to make money doing it," he says. Thai officials are not commenting.

Some experts suggest Thailand would do better to concentrate on niche markets rather than trying to build a world-beating giant. NOL and MISC have done well because they have focused their efforts, says Arjun Batra, managing director of Drewry Shipping Consultants in London. MISC, for instance, is owned by Malaysia's state oil company, Petronas, so the bulk of its capacity is in oil and gas tankers. Indeed, it's the world's largest carrier of liquefied natural gas. NOL, meanwhile, mainly serves East Asia's manufacturing sector. Last year NOL sold its tanker subsidiary to MISC because it felt tankers took it outside its core market. "Competing on trunk routes like Asia-North America or Asia-Europe against [big global carriers], which have such enormous cost advantages, might be hard," Batra says. If the Thais get it right, though, they won't lack for qualified sailors.

By Assif Shameen in Singapore

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