It is no secret that the cost of handling a container at Kwai Chung terminals is the highest in the world. But even with a handling charge of about $1,300 to $1,400 per box, managers in the shipping industry expect the port to hold on to its position as a regional hub. The container terminals are privately operated and investors have invested heavily in equipment and manpower to provide efficient port services and fast turnaround times for vessels. The heaviest investment is in the terminal itself. Operators have to pay a cash premium of several billion dollars to the Government before they can operate the business. It is difficult to put an actual figure on the terminal tariff per box handled because rates differ from carrier to carrier, and are pegged to volume discounts. However, it is generally accepted the terminals charge about $1,300-$1,400 for handling a box once. According to Hong Kong Liner Shipping Association chairman Neil Russell, Hong Kong is not likely to lose its position as a regional hub yet because it will continue to thrive on strong exports and imports for the mainland. But he complains that Hong Kong's terminal tariffs are too high and need to be more competitive. He thinks Hong Kong might fare better if the Hong Kong dollar is delinked from the US dollar. 'Personally, I favour the floating of the Hong Kong dollar because Hong Kong remains the odd man out in the region,' Mr Russell said. During the Asian financial crisis, Hong Kong's exports and re-exports suffered. They were more expensive due to the dollar peg when other Asian economies such as Thailand, Malaysia and South Korea allowed their currencies to slide. In March, the Government unveiled a series of initiatives, including cost-saving measures and elimination of bureaucratic procedures, to boost shipping in Hong Kong and to ensure the SAR maintained its dominance as a maritime centre. According to Peregrine analyst Thomas Deng, Hong Kong's main competition from Shenzhen port, grouping Yantian, Shekou and Chiwan ports, comes on two fronts - lower costs and improving quality have enhanced their attraction to international shipping lines. Once these ports reached a critical mass, more lines would call at their berths, he said, but it would take a long time before mainland ports reached the standard of Hong Kong. Alan Lee, managing director of Sea-Land Orient Terminals (SLOT), said that because the infrastructure in Hong Kong was expensive and terminal operators had to pay the Government high land premiums - much higher than the cost borne by terminals elsewhere - it was to be expected that the terminal tariffs would be higher. However, due to fierce competition from neighbouring ports, Hong Kong terminal operators have not been increasing rates in the past few years. Instead, the rates have been falling. 'In future, we will need higher tariffs to pay for the construction of Container Terminal 9 (CT9),' Mr Lee said, but declined to reveal the building cost. A consortium - comprising Asia Container Terminals (ACT) led by SLOT, Hutchison Whampoa's Hongkong International Terminals (HIT) and Wharf's Modern Terminals (MTL) - is in charge of building and operating CT9. CT9, which has a design capacity to handle 2.6 million teu (20 ft equivalent units), will comprise six berths with a total length of more than 1,900 metres. This compares with CT8's 1,300 metres. The ACT consortium would contribute 40 per cent of CT9's development costs and will take over MTL's two berths at CT8. MTL will occupy four berths and HIT the remaining two berths. All the CT9 berths are expected to be completed in 2005. A source said that although the construction cost of CT9 was estimated at about $12 billion at today's prices, the cost on completion could rise to $15 billion. Terminal operators HIT and MTL have indicated that their terminal tariffs are about to be increased to enable them to meet the high cost of building CT9. But the proposed terminal tariff increases will have to be negotiated with individual shipping lines and consortiums when their service agreements with the terminals expire. Mr Lee said: 'If Hong Kong is charging the highest terminal tariffs in the world, why would shipping lines continue to call at Hong Kong port and pay the price, instead of just moving to neighbouring ports?' The answer is simply that containers continue to flow through Hong Kong port, although not in the double-digit volumes experienced between 1989 and 1995. The port's role as a regional container hub is not diminishing, although the perception is such because throughput growth has slowed to single-digit figures. Unlike companies that saw business drop by about 40 per cent during the Asian financial crisis and economic recession, terminal operators have seen less of a decline in business. Mr Lee said growth this year was expected to be about 3 per cent, excluding container barge traffic to avoid double counting. However, the Port and Maritime Board predicts 5 per cent growth, including barge traffic. Mr Lee said if people were saying that Hong Kong port was losing its competitiveness to southern China, they should realise that 70 per cent of Hong Kong's cargo traffic came from the mainland each year. The remaining 30 per cent came from Europe and other Asian countries. Even if this year's estimated throughput growth of 1.3 million boxes were to go to Shenzhen port, its infrastructure would be unable to cope with it. At the most, Shenzhen could take 600,000-700,000 boxes. The remainder would flow through Hong Kong.