Port of Hong Kong sinking in the ranks

Date: Friday, February 22, 2019
Source: American Shipper

Fierce competition from nearby ports, high terminal handling charges and manufacturing moving out of China are bogging down the port’s container business.

In recent years, the Port of Hong Kong has been facing fierce competition from nearby ports, while its high terminal handling charges and other fees have been a deterrent for shippers. Additionally, the U.S.-China trade war is causing some manufacturing to move from China to other countries. Since Hong Kong is a transshipment hub that is heavily reliant on China’s manufacturing, this trade tension could further hurt the port’s operations.

As a result of the Port of Hong Kong’s downturn, four terminal operators at the port — Hong Kong International Terminals Ltd., Modern Terminals Ltd., COSCO-HIT Terminals (Hong Kong) Ltd. and Asia Container Terminals Ltd. — announced on Jan. 8 in a joint press release the formation of the Hong Kong Seaport Alliance.

The planned alliance is “a joint operating agreement designed to deliver more efficient service offerings to carriers that call Hong Kong, while enhancing the overall competitiveness of the Port of Hong Kong across the region,” the terminal operators said. “This collaboration is in direct response to a rapidly changing business environment, including the formation of new carrier alliances, carrier industry consolidation and the dramatic increase in vessel size over the last few years.” 

The companies said they plan to commence the joint operations of the alliance “progressively within 2019” and that they plan to use a common terminal operating system across their 23 berths.

In the wake of the terminal operators announcing their plans to form the Seaport Alliance, the Hong Kong Shippers’ Council lashed out against its formation.

“While details of how this alliance will operate are lacking, the council is extremely worried about overwhelming market position of the alliance,” the Hong Kong Shippers’ Council said Jan. 9.

The four terminal operators planning to form the Seaport Alliance account for more than 95 percent of container terminal business in Hong Kong. Willy Lin, chairman of the Hong Kong Shippers’ Council, said that with this high market share, “the industry virtually has no choice,” adding that the alliance “could agree on noncompetition agreements over clients and pricing.”

Although Lin agreed that asset sharing could enhance asset utilization and productivity, he cautioned that “there is no mechanism to monitor, not to mention regulate, the competition behaviors of the members of the alliance.”

On Jan. 10, the Hong Kong Competition Commission issued a statement saying it was conducting an investigation into the planned alliance.

“The commission is carrying out this investigation as a matter of priority,” it said. “The opening of a formal investigation does not prejudge its outcome.”

In terms of competition, the chart below, which was built using data from the Hong Kong Marine Department, shows that the Port of Hong Kong has continued its decline on the list of the world’s top 10 busiest container ports, while various other Chinese ports have inched up in the rankings over the years.

 

Han Ning, a director within the Drewry Maritime Advisors business unit and the firm’s country manager for China, told BlueWater Reporting in January that the Port of Hong Kong could be falling in the ranks because of improved facility and connectivity in competing ports in the Pearl River Delta.

“Historically, Hong Kong handles a lot of feeder cargo from the Pearl River Delta,” she said. “With improved facility and connectivity, other competing ports could handle more, bigger vessels too. Hong Kong has been losing market share in regional competition.

“In recent years, it seems liners prefer direct services instead of transshipment,” she added. “Hong Kong is a transshipment hub, and its transshipment business has been impacted accordingly.”

The Hong Kong Marine Department said that transshipment cargo accounts for about 60 percent of the Port of Hong Kong’s container throughput.

Most of the port’s overall container cargo is handled at the Kwai Tsing Container Terminals, located in the northwestern part of the harbor, while some is handled in midstream and other wharves. In 2017, the Kwai Tsing Container Terminals handled about 16.2 million TEUs, while around 4.5 million TEUs were handled at midstream and other wharves, according to the Hong Kong Marine Department.

To enable ultra-large container vessels to access the container terminals at all tides, a dredging project was completed to deepen the approach channel to Kwai Tsing Container Terminals from the navigation depth of 15 meters to 17 meters, according to the Hong Kong Marine Department.

According to data from BlueWater Reporting, the largest vessels currently calling the Port of Hong Kong are two 20,568-TEU-containerships that are deployed on the Asia-Europe trade. These are the Murcia Maersk, which operates on the 2M Alliance’s AE1/Shogun service, and the Maastricht Maersk, which operates on the 2M Alliance’s AE2/Swan Service. Both vessels have a design draft of 16.5 meters.

However, looking ahead, Ning said that the Port of Hong Kong will face more competition from other regional ports, including Yantian, West Shenzhen and Nansha (within Guangzhou).

These ports place more emphasis on global services than the Port of Hong Kong. For instance, 61.1 percent of the liner services calling the Port of Hong Kong only sail within Asia, compared to 51.7 percent of the liner services calling Shekou, which is located in western Shenzhen, 27.9 percent of the liner services calling Nansha (Guangzhou), and 14.1 percent of the services calling Yantian, as illustrated in the chart below, which was built using data from BlueWater Reporting’s Port Dashboard tool.

 

Meanwhile, the chart below on the left shows the top 10 container ports in 2017, based on total container throughput for the year, and built using data from the Hong Kong Marine Department. Coming in at fifth place, the Port of Hong Kong recorded year-over-year container volumes growth of 4.8 percent in 2017, but this was still a slower growth rate than the top four ports, as well as the ports of Busan and Guangzhou, which ranked sixth and seventh, respectively.

 

 

The above chart on the right shows how the world’s top 10 container ports for 2017 faired in 2018. The Port of Hong Kong’s container volumes in 2018 were surpassed by the ports of Busan and Guangzhou, resulting in the Port of Hong Kong falling from fifth place to seventh, while the Port of Guangzhou moved up to fifth place.

For the above chart on the right, figures with an asterisk are preliminary estimates provided in Volume 2019 Issue 3 of Alphaliner’s weekly newsletter. Figures for Hong Kong, Shanghai and Singapore came from the port authorities; figures for Busan and Dubai came from DynaLiners Weekly newsletters issued by Dynamar (the fifth and sixth issue, respectively, for 2019); and Guangzhou’s figure came from an emailed statement by Guangzhou Port America CEO John Painter.

“It is no secret that Guangzhou has been providing incentives to the shipping lines and logistics operators since the end of 2017 in order to win market share,” Drewry said in its Q4 2018 Container Forecaster Report that was issued in December. “Whether it needed to is perhaps debatable. The port complex lies on the west side of the Pearl River Delta, close to many new export factories, as well as to a rising population of domestic consumers. The west side of the Pearl River is less congested than the Shenzhen ports over on the east side, and its clear advantage over Hong Kong is that it averts the need for an expensive cross-border truck haul.”

Additionally, using the Port of Hong Kong appears to be rather expensive in comparison to other ports.

“Hong Kong shippers are still paying the highest THCs [terminal handling charges] in the world. Besides, Hong Kong shippers hardly see any justification for the over HK$600 documentation fee, the HK$135 depot fee and many other ridiculous charges,” Hong Kong Shippers’ Council Chairman Willy Lin said in a Jan. 9. press release. “It is necessary to ensure that benefits from productivity improvement are passed down to shippers and that costs of shipping through Hong Kong are lowered. Shippers will always make their routing decisions based on total shipping costs.”

“Some shipping lines have lowered their terminal handling charges for shipments import and export through Mainland China ports and have canceled or lowered some of their surcharges in the past few years, but charges in Hong Kong are just going up in both charge levels and numbers,” according to Lin.

Thirdly, the U.S.-China trade war is causing a manufacturing shift from China to other countries, which could continue to bog down the Port of Hong Kong’s container volumes.

Drewry said in its Q4 2018 Container Forecaster Report that given the shift of manufacturing of some products from China to Southeast Asia, growth in Southeast Asia should remain “reasonably buoyant” in 2019.

Looking ahead, Drewry expects year-over-year container growth in Greater China in general to be slower than ports in Southeast Asia in the coming years, as illustrated in the chart below, which was built using data from Drewry’s Q4 2018 Container Forecaster Report. 

“Beijing struggles to redress not only its relations with the U.S., but also its own domestic economy,” Drewry said. “The slowdown in China’s economy started well before the trade war with the U.S. came to a head.”

 

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