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Transhipment business model no good for Hong Kong

Posted to Far East Maritime (by on May 7, 2013

Low value business brings little economic benefits to a port set up as a gateway to China.

Some ports lend themselves, via geographic location or strategy, to transshipment. Singapore, for instance, had a throughput of 31.6 million TEUs in 2012, but more than 90 percent was comprised of containers in transit.

Geographically, Singapore is perfectly situated on a major east-west trade route and has a dizzying array of feeder services filling the mega ships that serve Asia-Europe and the transpacific.

While Singapore’s container port was built with this transshipment in mind, Hong Kong was established as an entreport to China and to handle mainland exports to the world. When manufacturing in Hong Kong jumped over the fence and began to set up in places like Dongguan and Foshan in the Pearl River Delta, the container port at Kwai Chung was quick to ramp up its facilities.

Up until the early 2000s, Hong Kong share of the direct exports from the PRD to the consuming nations in North America and Europe was barely challenged. But the terminal operators at Kwai Chung saw an opportunity and began building port facilities in neighbouring Shenzhen for the same reasons the factories moved out of Hong Kong – land, labour and operations were cheaper.

As the terminals grew in the Shenzhen areas of Shekou and Chiwan, and were built and expanded in Yantian, the volumes of direct containerized exports being shipped through Hong Kong began to decline. It was simply cheaper to ship goods via Shenzhen and studies unsurprisingly revealed that shippers of low value ocean cargo based their port decisions on cost.

Hong Kong’s share of the lucrative direct export market has continued to decline and is now at 30 percent, according to Hutchison Port Holdings boss John Meredith. Exacerbating the decline at the moment is the weak demand for China goods in the developed world, but that will be partly offset by the growth in demand from emerging economies. More serious is that manufacturing is moving inland or out of China, and neither of those is good for Hong Kong. Or for Shenzhen, for that matter.

The port is fast heading into a future that will see it becoming a transshipment port like its Southeast Asian rival but without the geographical position or any strategy that will make it successful.

Now look at the Hong Kong dock workers strike against this context. Contracted workers at Hongkong International Terminals were demanding a 20 percent pay increase but eventually settled for a 9.8 percent raise before agreeing to go back to work this week, a “glass half full” result, according to a union boss.

The focus of the strike quickly became political because of the prevailing economic and social conditions in Hong Kong, but it was ultimately about workers wages that have been steadily squeezed along with the margins of Hong Kong terminals. We aren’t privy to the winning tenders of the contractors, but rest assured they would have been extremely “competitive”.

With such strong competition on its doorstep, and regionally, Hong Kong simply cannot afford to raise costs anywhere, especially as the only area recording growth is the low economic value transshipment sector.

Dockers should be thankful for the 9.8 percent wage increase, but even as they filter back to work, their jobs remain under threat, just like Hong Kong’s factory workers back in the 1970s.

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