Hong Kong: Impressive Destination, Unfinished Journey
A truly global hub and still arguably the center of Asian trade and logistics, Hong Kong nevertheless faces many challenges.
… the Port of Hong Kong saw in 2016 its lowest TEU throughput for more than a decade. Not even a late surge in throughput in December could prevent the less-than-rosy results. By the numbers, Hong Kong saw a monthly 1.8 million TEU, 14 percent increase from the same period just one year ago. But, 2016’s totals (19.6 million TEU) represented an annual drop of 2.5 percent. More worrying is that some of these individual terminals experienced as much as a 20 percent surge in December, but much if not all of that was a function of the Hanjin ‘hangover.’
A weeklong visit to Hong Kong reveals many things about this exotic city with its centrally located port and logistics hub. With more than 7 million residents tightly packed into 427 square miles, Hong Kong ranks as one of the most densely populated places on earth. It is also one of the busiest, and its trading economy is the world’s 8th largest with international trade facilitated by the world’s 5th busiest container port, the world’s number one air cargo destination and a strong base of shipowners, cargo owners and traders.
The autonomous, Special Administrative Region of the People’s Republic of China also boasts many other advantages that have attracted a strong maritime presence. Over time, Hong Kong has seen a steady expansion of its maritime services cluster, including such businesses as ship management, ship broking, ship finance, maritime insurance and law. All of that, in turn, has produced enviable economic benefits in way of local job opportunities and a high standard of living.
With 340 container liner services per week connecting to about 470 destinations worldwide, the port boasts nine container terminals with a total of 24 berths at Kwai Chung and Tsing Yi Island, all operated by private entities. Exports represent a relatively small portion of Hong Kong’s box traffic.
Like Charleston, South Carolina, one of Hong Kong’s biggest reasons for optimism is its geographic position. In October, for example, local South Carolina Port Director Jim Newsome told MLPro, “Right now, we think the Southeast is the best place to be in the port business because we have an import growth based on population and export growth and expanding manufacturing.” Similarly, Hong Kong is situated just four hour’s flight from virtually all of Asia’s key markets and within five hours of half of the world’s population. For comparison, though, you can fit five ‘Charlestons’ into the port of Hong Kong, with room to spare.
There’s more: Hong Kong today hosts the world’s fourth largest shipping register, trailing only more recognizable players like Panama, Liberia and the Marshall Islands. Almost 2,500 vessels were under Hong Kong flag by April of last year, representing a whopping 104 million gross tons, and more than 150 million deadweight tons (DWT) – about 8 percent of the world’s total. What’s not to like?
As it turns out, there is ample reason for concern. For example, the Port of Hong Kong saw in 2016 its lowest TEU throughput for more than a decade. Not even a late surge in throughput in December could prevent the less-than-rosy results. By the numbers, Hong Kong saw a monthly 1.8 million TEU, 14 percent increase from the same period just one year ago. But, 2016’s totals (19.6 million TEU) represented an annual drop of 2.5 percent. More worrying is that some of these individual terminals experienced as much as a 20 percent surge in December, but much if not all of that was a function of the Hanjin ‘hangover.’
Of bigger concern is the close proximity of another seven of the world’s top 10 boxports – all of them located next door in Mainland China. Not too long ago, none of those neighboring ports could boast those kinds of numbers. Such has been the explosive regional growth, some of which came at Hong Kong’s expense.
Local stakeholders are only too aware of the situation; some worried and others, who have operations in more than one area port, philosophical about the changing logistics trend. As for the Hong Kong government, they are hard at work making sure that infrastructure is not the reason that traffic continues to decline, if only slightly.
Looking Ahead, Not Behind
Leveraging a deep-water, silt-free natural harbor located close to the Chinese mainland, Hong Kong’s evolution into a dominant Asian sea transport hub isn’t surprising. But just because Hong Kong Port was the world’s fifth busiest container port in 2015, handling 20.1 million TEUs, doesn’t mean it can sit on its hands. Indeed, 2015 container traffic was down 9.7 percent from 2014.
Nearby Shanghai, Singapore, Shenzhen and Ningbo-Zhoushan all boast bigger numbers, and the mainland Chinese ports are expanding quickly. For its part, Hong Kong hangs its hat in part on its renowned efficiency and the fact that all container terminals are privately owned and operated. Periodic physical enhancements and new cargo techniques have markedly raised local handling efficiency.
Containers are not Hong Kong’s only seaborne trade commodity. During 2015, Hong Kong handled 257 million tons of seaborne and river cargo, of which 70 percent was carried by oceangoing vessels. This includes break bulk, oil, gas, grain, minerals and timber. More than one-half of that, significantly, was transshipment cargo, much of which eventually goes to the Chinese mainland. And, as those Chinese ports get more efficient, it is likely that some of this transshipment cargo will go away.
At the same time, regional, competing ports have developed rapidly in recent years. Shanghai, for example, is the world’s busiest seaport, while Shenzhen was the world’s third busiest port, with 24.2 million TEUs handled in 2015. The Port of Ningbo-Zhoushan surpassed Hong Kong to become the world’s fourth busiest in 2015, with its throughput increasing to 20.6 million TEUs. Hong Kong meanwhile showed the least amount of growth over the course of the past 11 years and is one of only two top 10 ports to show a decline in TEU throughput from its best year. Singapore was the other.
A local green initiative, looking to cut stack and industrial emissions in the port of Hong Kong has 17 Hong Kong major freight liners have signed up the Fair Wind Charters (FWC), a voluntary commitment to switch from high-sulphur bunker oil to 0.5 percent sulphur diesel when berthing in Hong Kong. FWC is the world’s first shipping-industry led fuel switching initiative. That’s nice, but it also costs money and perhaps gives an (unfair) advantage to other regional ports – Mainland China, for example, where the air quality is notoriously bad – and where they don’t necessarily practice similar environmental stewardship.
The (Modern) HK View …
As part of MLPro’s one week visit to Hong Kong in late November, a lengthy briefing was presented by Modern Terminals (MT) and its local General Manager of Strategy & Business Development, Gavin Dow. MT moved 5 million TEU’s at its Hong Kong berths in 2014, or roughly one-quarter of Hong Kong’s throughput. In fact, MT’s local throughput has most recently been up, whereas Hong Kong throughput as a whole has been moving south. The 10th largest port operator in the world, MT has been in Hong Kong since 1972, but also operates terminals on the mainland. And, that last factoid may be particularly important.
MT is faring well in a less-than-favorable boxship environment, but significant challenges remain for local terminals, and the port that hopes that their market share will rebound to previous levels. One of those challenges involves local investment – both in terms of money and land. And, while the terminals themselves have made a lot of investment in last few years, the government has not necessarily matched that effort. For one thing, the terminals are ‘land constrained’ and they need as much as another 70 hectares. To be fair, the government is trying to solve this issue, and negotiations were underway to do just that in the latter part of 2016.
The land issue is particularly important because container handling yards – like shipyards – need ample ‘laydown’ space in order to operate efficiently and reduce container ‘dwell time.’ And, said Dow, the combined [local] maximum operating capacity is around 23-24 million TEU’s. As a general rule of thumb, 80 percent of maximum capacity is also considered the point of “maximum efficiency.” With the cumulative Hong Kong port throughput bumping up against 20 million TEU’s annually, some stakeholders consider the port to be at maximum efficiency already. For its part, MT is even looking at multi-level truck parking as a viable solution.
Also pushing Hong Kong to keep its foot on the gas pedal is the significant improvement in efficiency at ports like Shenzhen, where local operators are closing the gap quickly. As more countries look to privatize existing port operations and develop new ones, the development of ports on the Chinese mainland and the wider region has challenged Hong Kong’s local supremacy. Actually, Hong Kong port operators are already active there. Modern Terminals is one of them. Investing in and operating several container terminals in Shenzhen, and the Yangtze River Delta, MT can afford to hedge its bets when thinking about regional business.
Hard at work at improving its already impressive Hong Kong presence and efficiencies, MT does the exact same thing on the mainland. And, improvements are arguably easier to see there than they are at a mature terminal in Hong Kong already operating at an enviable clip. Still another Hong Kong terminal operator, Hutchison Port Holdings (HPH) Group, has an impressive network that leverages 48 ports in 25 countries, and handled in excess of 80 million TEUs worldwide in 2015.
Helping the local case is the fact that Hong Kong is a ‘free’ port. Even so, some Chinese ports are operating at half the price of Hong Kong, but, says Dow, “Sticker price isn’t the only variable.” Nevertheless, BIMCO, the world’s largest international shipping association, said recently that container shipping lines received an average rate 7 percent ($42 USD) lower in 2016 than in 2015. Hence, while price isn’t the only variable, it remains unquestionably important.
MT uses every tool at its disposal in an effort to improve its performance, including the switch to the Navis terminal operating software (TOS) software from an in-house proprietary system. Dow said in November, “Some business went away in 2014, but some came back, especially 2016. Navis was a big part of that – with demonstrated efficiencies on throughput.” Beyond this, he said, midsize terminals like MT are looking to collaborate with others; sharing data and safety stats as a way to improve business practices.
In the meantime, and for shippers who care, MT’s Hong Kong operations are all ISO 14001 certified, utilizing environmentally friendly all-electric and/or LNG equipment. Last, but certainly not least, is talk of the relaxation of Mainland China’s cabotage rule for mainland commerce. If that happens, the exodus of cargo to mainland ports could accelerate. That’s anything but certain, but local Hong Kong terminal operators and the local government itself are watching that development closely.
The Good News
Like any other container port, Hong Kong and its private operators have a keen eye on infrastructure, especially when it comes to beefing up berths to support the new post-Panama reach cranes. Those improvements continue at a breakneck pace because Hong Kong’s chief advantages leverage not only its naturally deep harbors and centrally located geography, but also finely honed efficiencies that still outpace its now bigger rivals.
In other sectors, the Kai Tak Cruise Terminal entered service in June 2013 with rooftop and tourism-related facilities for visitors and locals, and providing embarking and disembarking services for cruise passengers. The terminal’s capacity of customs, immigration and health quarantine operation clearance can serve 3,000 passengers per hour. That sector has doubled its volume in terms of both passenger throughput and ship calls in only three years. Local officials are doubling down on making sure that trend continues.
Separately, and critical to the container business, the Hong Kong-Zhuhai-Macau Bridge (HKZMB), a large-scale cross-border infrastructure linking the three places, is expected to be completed in 2017. Cargo movement between Hong Kong and western Pearl River Delta will be further enhanced, eventually reducing local road traffic, air emissions, and shortening trucking transits to and from the local container terminals from today’s 4 hours to just 45 minutes. When finally realized, those are real gains.
A planned third runway for the world’s busiest air freight hub, nominally unrelated to maritime commercial business, will solidify Hong Kong’s position as the world’s number one air freight hub. A tour of Cathay Pacific’s amazing air cargo freight handling center at the airport revealed enviable logistics technology and efficiencies. It is here where the maritime cluster could take some lessons.
No less important is China’s Belt & Road initiative, an effort that envisions the integration of the region into a cohesive economic area through infrastructure and the broadening of trade. It is something that will eventually impact the local maritime cluster; to what extent, that remains to be seen.
Conventional wisdom says that Hong Kong’s market share of maritime traffic (percent of regional trade in TEU’s) will likely continue to decline, even if its actual numbers begin to rise. That’s not necessarily bad news. Every port will eventually reach maximum capacity. As the global demand for transport increases, there will be plenty of TEU’s to go around for all ports. And, it would be a mistake to assume that Hong Kong won’t continue to be a key, if not the central hub in the region. They will.
(As published in the January/February 2017 edition of Maritime Logistics Professional)