Hong Kong’s stunning natural harbor has made it a natural center of trade for centuries. The world’s third-largest container port, behind only Shanghai and Singapore, Hong Kong handled 24.4 million 20-foot-equivalent units last year.
Its 20-year reign as one of the world’s largest container ports can be attributed to two things. First, its free-port status and excellent handling facilities have attracted a critical mass of intra-Asia and transshipment liner services. This hub status was further bolstered by the unprecedented manufacturing boom in neighboring China, with most shippers more than happy to funnel goods through Hong Kong’s super-efficient terminals and customs system rather than gamble on using domestic ports, even though doing so cost a premium.
Data (PDF): The JOC Top 50 World Container Ports .
But although Hong Kong retained its third-place position in the global port rankings last year, these twin pillars of its container strategy look less stable now than at any time in the last three decades.
Mainland China ports backed by regional administrations have mirrored their wealthy neighbor by improving service standards and investing heavily in the most modern handling gear in a bid to capture more of container traffic produced by South China’s factories.
China Customs, at least in some areas, is also no longer the Byzantine organization of lore, although it certainly hasn’t erased all the red tape.
These improvements and the construction of excellent infrastructure to the hinterland have helped Chinese ports win a growing share of South China’s exports and, more recently, imports. Shenzhen is now the world’s fourth-largest container port and could uproot Hong Kong in third position this year, while Guangzhou is up to No. 7 in the global league table.
Some industry observers believe the use of ever-larger container ships making more direct calls at China’s bigger ports instead of employing hub-and-spoke operations also will diminish the need for Hong Kong’s transshipment services in some trades.
Hong Kong’s demise as the world’s largest container terminal is no fait accompli, however. The difference in handling charges at Hong Kong and mainland China ports has narrowed recently because of the appreciation of the yuan, according to Macquarie Equities Research. Yantian, for example, is now on a par with Hong Kong in terms of cost per container, while ports in West Shenzhen are only offering discounts of 15 to 20 percent on Hong Kong, compared with 30 percent a few years ago.
Although South China ports are closer to the industry and more strategically located, Hong Kong still offers multiple advantages, a CMA CGM spokesman said. For some customers, Hong Kong’s flexible customs times and procedures outweigh the cost differential, particularly when processing speed is a factor in gateway choice. Service variety and frequency also are key factors, especially in the intra-Asia trades.
“The Pearl River Delta is the world’s largest cargo catchment area, and there is a need for multiple facilities to effectively service that need,” said Tim Smith, CEO of North Asia operations for Maersk Line. Maersk, the world’s largest container shipping company, also is Hong Kong’s largest single user, despite shifting some of its services to Nansha last year as part of a move to a three-gateway South China strategy that also includes Yantian.
There will continue to be a need for a large, efficient container port in Hong Kong for some time to come, Smith said. “We believe we will have to continue to serve all three ports in order to cover the overall South China market properly,” he said. “It is true that with the migration of manufacturing over time, more cargo is closer to other ports in the region, which affects Hong Kong’s relative position. However, it is still a highly efficient port, and its free-port status makes it attractive to transshipment cargoes.”
Larger ships operating more direct calls to Asian ports will not necessarily undermine Hong Kong’s hub status, Smith added. “While growth in some ports may lead to a scale justifying direct calls (instead of transshipping at Hong Kong), there will be new ports to service with feeder links, and there will often be reasons of network optimization to continue transshipping in Hong Kong and other ports,” Smith said. “We believe transshipment, as a means to enhance efficiencies, will stay important to carriers.”
Any major change to Hong Kong’s attractiveness as a transshipment center would involve a change in Chinese maritime law to allow non-Chinese-flag carriers to serve the Chinese coastal trades, the CMA CGM spokesman said. And that reform isn’t expected any time soon.
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Macquarie believes Hong Kong will evolve gradually to become more of a pure transshipment port as mainland infrastructure improves. “Hong Kong’s competitive advantage, according to the port companies, lies in its legal status as a free port, and it still has much less customs requirement in dealing with transshipment cargoes,” a Macquarie analyst told The Journal of Commerce.
Others point out Hong Kong can remain competitive for exports by changing with the times. As manufacturers in South China climb the value ladder, Hong Kong should further emphasize its business-friendly approach and huge concentration of top-end specialist logistics facilities to draw more valuable traffic to its quays.
To stay competitive against other ports in the region for export cargoes, Hong Kong needs to further improve its connectivity to the mainland, Smith said. Allowing truck drivers with mainland licenses to deliver containers to Hong Kong terminals would reduce reliance on barging. More compatible business practices with the mainland such as simplified and electronic customs clearance also would boost Hong Kong’s attractiveness.
Completion of the Hong Kong Zhuhai Macao Bridge and Hong Kong Shenzhen Western Express in 2016 will improve trucking options. The two projects “will significantly increase competitiveness across the Delta, as it will facilitate more efficient transportation of goods between Hong Kong and western China,” said Alwyn Mendonca, managing director of shipping agency GAC Hong Kong. “It will also ease some of the pressure along the Yangtze, which is currently the primary artery into the western and central provinces.
“Hong Kong certainly remains competitive with ports in southern China,” he said. “However, the secret to its continuing success will be to play to its strengths as a more mature shipping market, drawing upon its infrastructure, skill base, experience and full array of high-quality services that a maritime hub can offer.”
Contact Mike King at firstname.lastname@example.org.