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HK bravado will be left on the docks as costs box in port's future

'Hong Kong as always will be ready for the challenge.'

Study on Hong Kong Port

Economic Development and Labour Bureau

IT WAS IN big bold letters, too, right at the bottom of the draft executive summary of this study, just in case you were in any doubt as to what the authors meant by 'decisive and timely action is needed to regain [the port's] competitive advantage'.

And, if you were still in doubt, then rest assured that the 'Hong Kong Government - at the most senior levels - is committed to the port and will take a leading role in securing these results'.

There you go. Our chief executive, still a sizeable shareholder in the family shipping business, is determined. Given his pledge that he is 'resolutely against collusion between business and the government', I suppose we must also take it as given that his commitment to the port has nothing to do with the fortunes of the family business.

But let us look at some hard cold facts instead. The bar chart shows you that ports in southern China are fast catching up with our own in throughput and the study itself confirms that Shenzhen now has the edge in five of seven categories of comparative advantage while catching up in the remaining two. In addition, it estimates that the cost of building a terminal across the border is only 70 per cent of the cost in Hong Kong. Regain competitive advantage indeed. It begins to look like the Kuomintang's hopes of regaining the mainland.

And then look at the table of comparative costs between Hong Kong and Yantian, the key focus of competition in the industry. First we get the basic ocean freight rate per 20-ft equivalent unit (teu), US$2,000 for each port - no sign of collusion there.

Next is fees, which include such things as destination delivery charge and fuel adjustment factor, in other words piffling and not so piffling ways of squeezing some extra money out of users. If Hong Kong can reduce its charges here, so can Yantian. Then we get the truck-to-port-terminal cost, with Hong Kong hugely more expensive than Yantian. This reflects not only the extra distance to the Hong Kong port but also bottlenecks at the border and certain border crossing costs from which entities across the border benefit.

We might try to rebalance Hong Kong's costs by doing something about these costs (and the Kuomintang may regain ...) but we cannot do anything about the distance. What we will probably do is invest in massive infrastructure works at the border and in costly further expansion of road networks between the border and our port. This, however, raises another question. How much would we really do to improve Hong Kong's cost competitiveness if we pay $10 to save truckers one dollar. I think this will prove a false economy.

Finally, we have the terminal handling charge (THC), with Hong Kong again much higher than Yantian. Let us make a distinction here. Container handling charge (CHC) is what the terminal charges the shipping company, while THC is what the shipping company then charges the shipper. Nothing stops the shipping company from bulking up that THC after paying the CHC to the terminal and it is common practice.

Leave alone whether Mr Tung may really disfavour it, the study itself concedes that 'reductions in CHCs in Hong Kong may not translate into reduction in THCs' and 'shipping lines have increased their bargaining power relative to port operators'. Thus scratch another possible way in which we could reduce costs.

In the end, all those brave, bluff words about commitment and being ready for the challenge may amount to no more than telling the tide it cannot come in.

Mr Tung likes to talk about structural adjustments in our economy. Well, this is one. Get ready for the possible hard truth, Sir, that the days of a big port in Hong Kong are numbered and that any money you throw at defying this structural adjustment will be just that much money wasted.

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