As the Hong Kong dockworkers’ strike for better pay and working conditions enters its fourth week, some analysts believe there could be long-term economic repercussions for the city and port.
Since March 28, lines and shippers have suffered serious delays or been forced to reroute services to avoid calls at facilities operated by Hongkong International Terminals, a subsidiary of Hutchison Port Holdings and the target of the action.
The port’s reputation has been built on bureaucratic efficiency and service excellence, helping cement Hong Kong’s status as a global business hub with unparalleled access to booming markets in mainland China. But some of the port’s container shipping advantages have been clawed back in recent years.
Rival facilities both in China and elsewhere in Asia have improved service levels. The deployment of larger container vessels threatens to increase direct calls in China by lines as they rethink hub and spoke strategies that have previously relied on transshipment at Hong Kong. And the port’s handling charges are still significantly higher than those available on the mainland, even though the appreciation of renminbi has closed the gap to around 15 to 20 percent.
Unionized dockworkers employed by third parties to work HIT’s berths claim they have not had pay rises for 10 years. The problem for the port and many of the businesses that rely on its success is that any increase in port operating costs threatens to further erode Hong Kong’s ability to compete in the regional and global marketplace.
Lines face complex choices when it comes to arranging port calls and network structures, taking account of customer requirements, complex supply chains and, of course, cost and terminal capacity availability. So, while the current strikes are unlikely to prompt carriers to make major network decisions that exclude Hong Kong calls in the short-term, what happens thereafter is unclear.
Nimish Mathur, a senior research analyst at Drewry Maritime Equity, said makeshift arrangements and diversions will be used while the strike persists. But if workers do eventually reach a settlement that increases handling charges, then strategies could be reassessed by lines already struggling with excess vessel capacity and keen to keep a firm lid on cost inflation.
“Longer term, the carriers will certainly start getting back to the drawing boards and assess Hong Kong port’s cost feasibility and how the new compensation structure impacts the costs at terminals,” Mathur told the JOC. “Resolution of the strike will likely entail higher costs for the port operator and a pass-through to customer lines.”
HIT essentially made the same point, announcing that one of its external labor contractors —Global Stevedoring Service Co. — would not be renewing its contract with HIT. Its approximate 170-member work force will be laid off in June after its contract expires.
“The labor issue that has been going on for more than three weeks now affects everybody in the city,” HIT said. “Hong Kong faces serious competition from equally efficient regional ports that have lower operating costs. If all parties do not consider the proposals with an open mind and try to understand the challenges that the industry is facing, workers across the entire logistics industry will suffer.”
Even before the strikes commenced and volumes were diverted, neighboring Shenzhen seemed certain to take Hong Kong’s position as the world’s third-busiest container port this year. Hong Kong handled 23.1 million TEUs in 2012, posting negative growth, while Shenzhen nudged volumes up to 22.9 million TEUs.
Hong Kong’s share of gateway volumes in the Pearl River Delta has declined dramatically in the past decade as Shenzhen and Guangzhou have made gains. Shenzhen’s greater exposure to European trade lanes and imports to China could accelerate the process when the European economy finally recovers.
Mathur believes it is a question of “when” Shenzhen overtakes Hong Kong rather than “if” because of the latter’s cost disadvantage and a lack of capacity. “Hong Kong suffers from space constraints, and existing facilities are operating near full capacity utilization, for example at HIT. Secondly, Hong Kong is costlier compared to mainland ports,” he added.
Paul Tsui, chairman of the Hong Kong Association of Freight Forwarding and Logistics, is more optimistic than many about Hong Kong’s ability to retain its role as a leading global port and logistics hub in the long-term.
He believes labor cost increases are more than being matched year-over-year in China, at least in terms of growth rates. He said: “Right now, the salary increment in China is even higher than Hong Kong at roughly 8 to 10 percent annually with all sorts of benefits needed to be paid in addition to the salary. These add on another 35 to 40 percent. In addition, the staff turnover rate in China is quite bad.
“The strike at HIT is an isolated case and therefore should not be affect the general environment in Hong Kong.”
Whether the current strike is eventually viewed as catalyst for a change of liner strategy or a short-term operational blip remains to be seen. What is certain is that Li Ka-shing, Asia’s richest man and the owner of HPH Trust, is unlikely to lose out if more cargo starts being diverted from Hong Kong to ports in Southeast China. HPH Trust operates a roster of facilities over the border, including Shenzhen’s Yantian International Container Terminals, one of the main beneficiaries of current boxship diversions from HIT.
Contact Mike King at firstname.lastname@example.org.