by Jean-Paul Rodrigue
Despite facing growing competition and uncertainty due to geopolitical events, Singapore has maintained its prominence in maritime shipping, with its status as a primary transshipment hub evident in its sizeable port activity. The 2023 Red Sea crisis resulted in a temporary surge in Singapore’s traffic, but also underlined its vulnerability to geopolitical events. Though its future prospects remain solid, particularly with its geographical advantages and the development of the Tuas mega container port, the city-state will need to adapt to a constantly changing international environment.
Singapore’s prominence in global maritime shipping is no accident. Located at the entrance to the Strait of Malacca, Singapore’s geographical advantages were just as critical during the days of the British Empire as they are now — allowing it to be a significant trade platform along major shipping routes.
For over half a century, Singapore has remained economically open and politically stable, despite changing economic and geopolitical conditions. This stability enabled the growth of substantial port activity, with over 95 per cent of traffic involving cargo transiting through, rather than being destined for, Singapore.
Over decades, Singapore has become Southeast Asia’s dominant transshipment hub — a small yet crucial link in global maritime networks. The growth in container port traffic clearly reflects this trend. In 1990, Singapore handled 5.2 million twenty-foot equivalent units, a volume that increased to 17 million in 2000, 28.4 million in 2010 and 39 million in 2023, making it the second busiest port in the world. During this period, the Port of Singapore Authority (PSA) became the world’s largest container terminal operator. Starting its international expansion in 1996, PSA now operates 60 terminals in 2024.
From 2018 to 2022, container traffic barely changed, suggesting that Singapore may have reached its potential as a hub. During this period, transshipment activities handled by the Port of Singapore faced growing competition from nearby hubs like Tanjung Pelepas in Johor, Malaysia, which has effectively competed and gained a share of the business. Transshipment is a footloose activity driven by the decisions of carriers and terminal operators. While operating as a terminal operator offers competitive advantages, Singapore remains vulnerable to the vagaries of global economic and political events as it generates limited local traffic.
During the financial crisis of 2008–2009, Singapore experienced an annual decline of 13.5 per cent in container traffic as global demand slowed due to financial stress, largely caused by asset inflation in North American real estate. Singapore faced further challenges in 2015 and 2016 as East Asia became a more mature hub for offshoring and more direct shipping services emerged. This led to an 8.7 per cent decline in transshipment traffic between 2014 and 2015, with limited recovery in 2016.
The onset of the COVID-19 pandemic initially resulted in a decline in activity in Singapore, but the surge in traffic in 2021 and 2022 did not significantly impact activity in the city-state. The focus has now shifted to direct services, prioritising movement of full containers from East Asia to Europe and North America while returning empty containers back to East Asia as soon as possible.
The Red Sea crisis in 2023 marked a shift in container transshipment for Singapore. As ships got hijacked or damaged along the Red Sea, many shipping lines decided to bypass the area, choosing the Cape Route around Africa instead. While the Suez Route between Shanghai and Western Europe takes about 27 sailing days, the Cape Route requires about 10 additional sailing days. The additional containership capacity ordered in 2021 and 2022 was utilised to offset the longer travel times caused by the detour, rather than for expanding operations.
Though the crisis was far from Singapore, its consequences are coming closer to home. The Cape deviation undermined transshipment activities in major hubs such as Dubai, Port Said and Gioia Tauro, which suddenly found themselves in a more peripheral location.
The outcome was a partial shift in transshipment activities downstream to hubs such as Tanger Med and Algeciras — at the entrance of the Mediterranean — and upstream to hubs such as Singapore. For the latter, traffic surged 6.1 per cent between January and July 2024 compared to the previous year, adding 1.4 million twenty-foot equivalent units. In this new but temporary context, Singapore became one of the last Asian transshipment hubs with low deviation on the Cape-expanded East Asia–Europe route.
This geopolitically derived situation conveys a temporary advantage for Singapore, increasing its centrality and container traffic. But this short-term benefit involves a long-term economic challenge. From a maritime supply chain perspective, East Asia is now significantly further away from Europe. A similar event happened between 1967 and 1975 when the Suez Canal was closed after the onset of the Six-Day War. At that time, supply chains were less integrated and China played a marginal role in global trade.
Currently, longer lead times and geopolitical instability are prompting large retailers and manufacturers to reassess their sourcing and procurement strategies. The trend toward ‘friendshoring’ could also reduce trade and transshipment activity for Singapore.
There remains significant inertia, particularly concerning European supply chains involving Chinese trade. China has strong incentives to maintain its export-oriented manufacturing sector and related trade routes, which benefits Singapore. Although the current port congestion may be temporary, Singapore’s prospects as a transshipment hub remain solid — provided the Red Sea crisis is resolved in a way that secures the long-term stability of this shipping lane. But if instability persists, a global shift may unfold, one where East and Southeast Asia are further away from major European and Mediterranean markets.
Singapore’s geographical advantages remain significant and the recent development of its Tuas mega container port facility is a strong indication of the city-state’s goal of capturing growth and retaining its role as a major transshipment hub.
The peer-reviewed analysis was first published in the EastAsia Forum on 31 October 2024 and can be cited as follows: Rodrigue J-P. (2024). Singapore stuck between a shipping hub and a hard place, East Asia Forum Quarterly, October 2024. https://doi.org/10.59425/eabc.1730368800
