SHENZHEN, China — The efficiency gained from merging Hong Kong’s four container terminals into a cost and profit sharing joint venture is aimed at reversing a steady decline in container throughput that has dropped the once busiest port in the world to No. 7.
In August, the port recorded its 19th consecutive month of falling year-over-year volume, and has grown its annual container throughput in just four out of the last 10 years. Modern Terminals CEO Peter Levesque said the efficiency provided by the Hong Kong Seaport Alliance (HKSPA) operation was crucial in improving the competitiveness of the port and halting the falling volume.
“We are talking about creating more efficiency with the operations we have, and sharing that with carriers, having ships come in and out faster,” Levesque told the JOC’s TPM Asia conference in Shenzhen on Oct. 9. “The focus of the HKSPA is to create a new value proposition for global carriers that brings volume back to Hong Kong. With a better cost structure, we will be able to compete with other teams shipment hubs and make commercial deals that incentivize business back to Hong Kong.”
The Hong Kong Seaport Alliance was launched in April and brought together Modern Terminals, Hongkong International Terminals (HIT), Cosco-HIT Terminals (Hong Kong), and Asia Container Terminals in a contractual joint venture aimed at improving terminal utilization, cutting down on inter-terminal truck hauls, and reducing other handling costs.
Levesque said the major concern from the carriers at the beginning was that the terminals were coming together to raise rates, but he emphasized that the alliance was not a rate-cutting exercise.
“We came together because it was more efficient to do so, and most of that efficiency is being transferred to the carriers and that is giving them an incentive to come to Hong Kong. We are not talking about taking tariffs down. We are not talking about tariff cuts and rate decreases,” he said.
Passing on the savings
Willy Lin, chairman of the Hong Kong Shippers’ Council and the Hong Kong Productivity Council, said any cost savings derived from the greater efficiency should be passed on to shippers in the form of reduced terminal handling charges — among the highest in the world in Hong Kong. “We will have to see what it actually means to shippers and if they can save more," he said. "Whether if the liners are handled more efficiently in Hong Kong, the shippers can have a discount through the port.”
Silvia Ding, Maersk Line's senior vice president and global head of ocean product, said, “As a principle, any initiative that can take the cost out of a system is positive.”
Despite becoming operational in April, the terminal alliance was launched without gaining approval from the Hong Kong Competition Commission, a decision Levesque supports although he still regards it as an issue.
“We have been working with the commission since April, but we launched anyway because we believe it is the right thing to do for Hong Kong,” Levesque told TPM Asia. “Under the first conduct rule for the Competition Ordinance, if you can prove that the efficiencies that you gain that go to carriers outweigh the benefits of the terminals competing against other, then you are exempt from that rule.
“We were completely convinced that that was the case, so we formally launched on April 1. We are thoroughly convinced that when the commission is done reviewing it, they will come to the same conclusion,” he said.
Lin said shippers welcome competition and he was not convinced four terminals becoming one achieved this. “That is a bit confusing,” he said. “We will wait for the Competition Authority to come out with a verdict, because it will have a long-term effect.”
If approval hinged on lowering carbon dioxide (CO2) emissions, the Hong Kong Seaport Alliance would be a shoo-in. Levesque said by combining their operations, the Hong Kong terminals could cut 40 percent of the inter-terminal truck moves, removing 90,000 truck moves a month and eliminating 300,000 tons of CO2 emissions from the Hong Kong atmosphere.