THE challenges of a port industry revolves around some key buzzwords such as economics, cost effectiveness, productivity, vessel turnaround time, regulations and bureaucracy. Before 1995, Sri Lanka was the hub for South Asia, Singapore was the hub for South-East Asia while Hong Kong was the hub to the Far East.

One common thread that ran through these ports was not the fact that they were all islands. They were designed and implemented by the British who understood the need for duty free and commercial free activities when they colonised all three places.

Over the years, Singapore and Hong Kong became the largest ports of the world while Sri Lanka handled more boxes than any port in India.

These ports grew as hubs because of their entreport status, frequency and certainty of sailing to all destinations and they had the feeders to connect to the region. Most of all, these ports invested heavily on the infrastructure, equipment and manpower.

Since 1995, when the gross capacity in Malaysia was two million boxes, Singapore was growing at the rate of two million boxes. In 1995, we identified that successful ports not only had a critical mass but were supply driven in terms of capacity and had a skilful workforce that could turn around vessels speedily.

The first ingredient for the port industry is basic infrastructure. One of the reasons why we are the 17th largest trading nation in the world is that Malaysia is blessed with some of the best infrastructures in the world.

We have good roads that have reduced travelling time by half. We have a rail system that connects the north and south of the country, 33 airports with five of them catering to international flights, adequate power and a comprehensive telephone system including ample mobile lines.

The challenge in 1995 was therefore to build a modern terminal with the capacity and capability to handle the shipping lines' needs. Today we have Port Klang as the 12th largest port in the world and Port of Tanjung Pelepas (PTP) within the top 20.

A lot of us today take for granted this infrastructure. A good question to ask is: instead of 500,000 Bangladeshis working in Malaysia, why can't the factories be set up in Bangladesh? The answer lies in the lack of basic infrastructure.

We are only reminded of our excellent infrastructure when we pick up our foreign friends who marvel at our new airport, our comprehensive roads, Cyberjaya and Putrajaya, Sunway Lagoon, The Mines Resort before they hit the city to see the KL Tower, the Twin Towers and Suria KLCC.

The abundance of five-star hotels and the availability of international cuisines are also the infrastructure that visitors and investors need.

This leads us to realise the vision and the mission of the leaders and the enormous efforts by our civil service especially the Economic Planning Unit, the Finance Ministry, the Works Ministry and the Transport Ministry in implementing this vision.

The second challenge is the capacity and the capability to handle larger vessels. For the former, we need 15-m draft berths that can handle 110,000 deadweight tonnes and a yard sufficient to store the boxes efficiently and effectively. We also need state-of-the-art equipment like quay cranes that can reach across 22 boxes on the ship.

The need for skilled workforce is a cliché that people mention almost rhetorically. When we first started Westport, a remark was made that anybody can build a port but not everyone can operate it.

Building the wharf and buying the cranes is the easy part if you have the funds. The real challenge is in getting your systems to render operating procedures and a workforce that comprehends its role and responsibility.

Here we are pleased to say that Westport designed a fast port system which has continuously broken world records on discharge per hour from 189 boxes to 210 boxes, 264 boxes and lately 362 boxes which was achieved by seven quay crane drivers moving almost a box per minute.

Similarly we have discharged 20,000 tonnes of grain per day and 4,000 tonnes of liquid bulk in an hour.

We will only appreciate the need of a skilled workforce when we review our choice of dental clinics and hospitals. Our choice is based on the dentists and doctors and not the facilities.

Another example of this is people do not watch TV stations, they watch the programmes. As such the software is the attraction and the hardware is only a means to the end.

The fourth challenge involves the concept of a berth on arrival for the shipping lines. When we are on an aircraft and the captain keeps circling the air, it is because the runway is not yet available.

In the port industry, waiting for three or four days for a berth used to be quite normal. As such shipping lines favoured ports with supply-driven facilities that guaranteed berth on arrival. There are ports in Asia where shipping lines still wait five days for a berth.

The next most important item or the fifth challenge is fast turnaround time. This is similar to transit times at the airport.

We are irritated if we spend more than one hour in transit. We prefer direct flights. Thirty years ago before containers were invented, ships used to spend 10 to 20 days at the ports to discharge cargo. This explains the notoriety of the sailors who needed red-light districts like Bugis Street.

With containerisation, turnaround time was reduced to 24 hours. With sufficient equipment and productivity, this was virtually reduced to 12 hours. This became a need purely because it cost US$30,000 a day to run a container vessel.

Bureaucratic controls and regulations are also another major challenge. This explains why shipping lines prefer to go to Colombo and then use feeders to reach the Indian ports.

This also explains how Singapore arbitraged on the inefficiencies of the other ports in South-East Asia and how shipping lines favoured Hong Kong and feared the communist Chinese ports.

This scenario changed tremendously as soon as the respective governments began to realise that bureaucratic and regulatory controls strangle ports.

Today Chinese ports like Dalian, Yantian and Shanghai have experienced phenomenal growth virtually by deregulation and a more friendly customs, immigration, health and marine authorities.

In Malaysia too, the customs and immigration authorities rallied to the call of the ports and removed several barriers and are today the best example of Malaysia Incorporated -or private sector, public sector cooperation.

While the tariff structure is the seventh challenge of the port industry, it is too simplistic to say that the cheaper the better. Economics must be combined with efficiency, otherwise it has no value. It is no use having cheap port prices and spending three days to turn around your ships.

Customers are prepared to pay for service. This explains the purpose of first class, business class and economy fares on airlines or first class and second class rail services. Most of all, people are willing to use courier services although they may cost 20 times more than the post office.

As such tariff regulation is an archaic principle used by ports when they were monopolies and profits were not required for further expansion.

There is a school of thought that Malaysian ports should not encourage transhipment cargo as it does not serve the Malaysian industrialists. This is a naive perception, which is like saying Changi airport should only cater for passengers in and out of Singapore.

Transhipment or transit facilities create "a hub and a spoke" for the airlines and shipping lines to discharge boxes and pick up boxes at other destinations, almost in a relay form.

Without transhipment facilities, main lines need not call at a port but will pick up boxes using feeder ships to the bigger ports with transhipment facilities.

Westport's phenomenal growth from 20,000 boxes to 2.5 million boxes in six years includes 60% transhipment volume which is the best testimony a shipping line can give to a port. This has in turn led to more than two million boxes in Malaysia going direct to their destination instead of being sent to another port.

Port profit and viability is the ninth most important challenge. Any fool can have 100% market share without profits but he will not have a return on investment for future growth.

A million TEU facility cost virtually RM750mil. Port infrastructure has a long gestation period. You need profits to remain supply driven and yet live in uncertainty if the volume does not grow owing to one crisis or another.

Astute forecasting and intimate knowledge of the market is essential prior to any investment. Westport's performance is therefore particularly significant because it was baptised by the Asian crisis and the economic crisis followed closely by the aftermath of Sept 11, the Afghanistan War, the Iraq War and lately by SARS.

Any sign of conservatism and hesitation will be felt during the subsequent recovery, if the ports do not have the guts to invest for the future.

In 1980, there were only 20 million container boxes in the world and today there are 250 million boxes. World trade has grown at an average of 10% for the last 50 years despite gloom and doom theories.

Port growth is usually 2 to 2½ times the GDP of the country. Ports will grow as long as the population grows, gets educated and buys a house and needs the utilities. Ports will also grow because of the fast technological changes which makes most of the office and household goods obsolete.

Ports will grow as long as people need three TV sets in their house or keep changing mobile phones or PCs. As such the 10th challenge is to remain supply driven and build the facilities for future volumes.

Containerisation began in the 1960s. In the first 35 years, Malaysia had only 2.5 million boxes. In the last six years, this has grown to 8.5 million boxes - from 1% of the world's volume to 3%.