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Hong Kong shipping and logistics

How Hong Kong’s port can stay competitive, and ahead of rivals in the Greater Bay Area

Jonathan Beard says with the Hong Kong port slipping out of the world’s top five, terminal operators should work together where possible, and focus on competing with ports in the Greater Bay Area and beyond

PUBLISHED : Saturday, 01 September, 2018, 5:00am
UPDATED : Saturday, 01 September, 2018, 12:39pm

The vision of a “Greater Bay Area”, an economic hub encompassing 11 southern Chinese cities, has caught the imagination of regional governments, corporations and commentators.

The plan offers Hong Kong’s economy a wealth of new opportunities, but also poses challenges and uncertainties. Hong Kong’s container port, a critical part of the city’s economy and identity, is all too aware of the headwinds it faces.

Indeed, the international ranking of the port has fallen over the years – from first to fifth place – behind Shanghai, Singapore, Shenzhen and Ningbo in overall throughput. This year, Hong Kong is slipping out of the top five. Clear, firm and swift measures are needed to arrest this decline.

The bay area container port market was the first in China to open up and is one of the most competitive in the world. The rapid expansion of new, high-specification ports and the expertise of international operators have spurred the evolution of the bay area port cluster, delivering considerable benefits to importers and exporters, and the economy at large.

Hong Kong can be rightly proud of the role it has played in such developments. However, the threats to the Hong Kong port’s continued role as a major hub and gateway to the world remain as intense as ever.

The Hong Kong port’s cargo volumes fell 3.9 per cent in the first six months compared to last year, while other bay area ports, notably Guangzhou (Nansha), surged by over 9 per cent. Meanwhile, the Guangzhou government gives aggressive support, funnelling financial incentives to the Nansha port, related shipping lines and the nascent maritime cluster.

Can China’s Greater Bay Area initiative really work?

A cursory reading of the Hong Kong port’s Master Plan 2020, which dates from 2004, shows many of Hong Kong’s challenges are not new. However, we have been slow to address them, while change has been quicker than anticipated.

The shipping market is increasingly about scale. A wave of mergers and acquisitions among shipping lines, the coalescence of liner operations into three main alliances, and the growth in ship sizes (the largest ship calling at Hong Kong today is more than twice the size of that in 2004) have increased the complexity of operations and created a need for much larger, higher-specification ports.

A ship calling at Hong Kong today typically holds containers for several shipping lines which then need to be distributed to different terminal operators for the next connection.

This creates the need for inter-terminal transfers, a process of transferring a container via ground transport. The number of such transfers in Hong Kong has risen 15 per cent over the past year to 674,000 20-foot equivalent units – a daily average of over 1,800 TEUs.

Given the absence of a coordinating port authority or single operating system, Hong Kong’s terminal operators handle inter-terminal transfers surprisingly well. However, Hong Kong needs to coordinate better, and it needs to scale up its operations, by performing certain functions as one.

The competition Hong Kong needs to be worry about is not one Hong Kong terminal operator versus another, but the Hong Kong port cluster versus the Greater Bay Area port cluster for the regional market, and Hong Kong versus Busan, Kaohsiung and Singapore for the international market.

Hong Kong’s older terminals are also short of space for larger vessels and the larger volumes of containers exchanged on each call. Our terminal operators have worked wonders with what little space they have, running at some of the highest densities in the world and at levels Singapore still aspires to.

However, Hong Kong’s terminal yards are, on average, 25 to 30 per cent below the benchmark for modern facilities. This has been a pressing issue for many years, yet land use planning around the port remains fragmented and frustratingly inefficient.

South China’s import-export cargo increasingly connects to Hong Kong via barge rather than truck. This reflects both the regulatory inefficiencies that inflate the costs of cross-border trucking, as well as improving efficiency in the barge sector.

Still, more could be done. The Hong Kong port was not designed to handle this volume of barge transshipment. For greater efficiency, we need dedicated barge berths right next to the terminals, that is, within the port zone. Again, there has been some progress, such as new berths, but impediments and unnecessary inefficiencies remain.

At times, Hong Kong seems to be competing with one hand tied behind its back. But the solution cannot be the type of subsidisation that has supercharged the development of Nansha.

Rather, terminal operators and other stakeholders should focus on removing operational inefficiencies: running as one terminal wherever possible, planning land use around the port better, and pushing for a level playing field for the Greater Bay Area – be it minimising public subsidies, maintaining common environmental standards or enhancing cross-border cargo movements.

Hong Kong will have to advocate commercially and environmentally sustainable competition across the area.

The stakes are high in the bay area container port market, and competition will be fierce over the next few years. To remain competitive, Hong Kong will have to step up its game.

Jonathan Beard is head of business advisory and head of transport and logistics in Asia for Arcadis, a design and consultancy company