17 July 2018
Maritime Services Industry in Hong Kong
- Hong Kong was the world’s 7th largest trading economy in 2017 with international trade immensely facilitated by its efficient port amid a strong presence of ship owners, cargo owners and traders. Over the years, Hong Kong has seen a continual expansion of its maritime service cluster, comprising ship management, ship broking, ship finance, maritime insurance and law.
- In 2017, Hong Kong is the world’s 4th largest shipping register following Panama, Liberia and Marshall Islands. Singapore held 5th position and China ranked the 9th. Besides, Hong Kong Shipping Register reported registered vessels totaling 114 million GT as of December 2017.
- Hong Kong overtook London’s spot for the first time in five years and became the second leading maritime centre in the world, according to the International Shipping Centre Development Index (ISCD) 2018 published by the Baltic Exchange and Chinese news agency Xinhua.
- The Hong Kong Maritime & Port Board, established in April 2016, is responsible for formulating strategies and policies to drive the growth of high value-added and professional maritime services in Hong Kong, foster talent development, and promote Hong Kong as an international maritime hub.
- The Hong Kong government set up a HK$100 million Maritime and Aviation Training Fund in 2014 in an effort to attract and groom talent for these two sectors.
- The Baltic Dry Index (BDI), a widely used gauge for the change in sea freight cost to transport commodities such as coal, iron ore, grains and fossil fuels for 23 major international routes, rebounded over the year to around 1,000 points in April 2017 from its historical low level of 290 in February 2016.
Hong Kong was the world’s 7th largest trading economy in 2017 as well as an international maritime centre characterised by a strong presence of ship owners, cargo owners and traders in Hong Kong on the one hand, and a vibrant maritime services cluster on the other. There has been a continual expansion in Hong Kong’s maritime service cluster over the years, which offers comprehensive and professional services ranging from ship financing, insurance and broking, to ship management and maritime law.
Hong Kong Shipping Register (HKSR) is a ship registration system separate from that of the Chinese mainland. More than 2,500 vessels were on HKSR as of December 2017, boasting a total of 114 million gross tonnes (GT). Besides, Hong Kong is the world’s fourth largest ship register following Panama, Liberia and Marshall Island in 2017, according to Danish Shipping Statistics.
Income derived from the international trade of ships registered in Hong Kong is exempt from profits tax. Besides, Hong Kong has also entered into double taxation agreements (DTAs) which cover shipping income with many places, including the Chinese mainland, US, UK, Netherlands, Korea, New Zealand, Singapore, Belgium, Denmark, Norway and Germany. With a low tax regime and strong institutional environment, along with a maritime services cluster, Hong Kong flag is seen as a preferred choice for foreign vessel owners.
With a mission of creating an exchange platform for ship-owners in Hong Kong, the Hong Kong Shipowners Association (HKSOA) was established in 1957. Representing the interests of its members in international shipping committees, HKSOA is a member of the Asian Shipowners Association (ASA), the International Chamber of Shipping (ICS) and International Association of Independent Tanker Owners (INTERTANKO). As of 1 December 2016, HKSOA members owned, managed and operated a fleet with a combined carrying capacity of more than 178 million DWT.
Range of Services and Services Providers
Ship brokers in Hong Kong provide services in ship chartering and transactions. When working for the ship owners, chartering brokers seeks employment for the ships and negotiate the favourable shipping rates and routes for their clients. On the other hand, ship brokers also help cargo owners to find the best ship for a voyage and complete a charter. Apart from the negotiation, ship brokers are also responsible for monitoring the implementation of voyage instructions, payments, preparation of contracts and related documents.
Many of the world’s leading ship brokers have established offices in Hong Kong, such as Clarksons and Simpson Spence & Young. With in-depth knowledge of the Asian markets, local and foreign ship brokerage experts in Hong Kong provide consultancy services and up-to-date market intelligence of the shipping industry trends. Headquartered in London with 25 branches including Hong Kong, the Institute of Chartered Shipbrokers (ICS) is an international organisation representing the professional network of ship brokers, ship managers and agents. ICS provides education and training for both new entrants to the industry and experienced professionals. ICS membership is internationally recognised in the shipping industry; presently ICS membership comprises 4,000 individuals and 120 corporate members. The majority of ICS members obtained membership through the ICS’ Professional Qualifying Examinations (PQE), which assesses candidates’ knowledge of the commercial shipping industry.
Hong Kong is home to numerous well-established professional ship management services providers. Many of the ship owners outsource regular operational functions to professional third-party ship managers to achieve better cost control. Ship management functions include organising crew and supplies, dry-docking, maintenance and regulation compliance. Ship management companies often have specialised departments focusing on specific functions. For crewing services, ship managers are involved in staff recruitment, insurance, visa and work permits, as well as training. In addition, some ship management companies offer consultancy services in ship engineering, construction and shipyard selection.
To complete a voyage, ships and cargo have to be insured. Therefore, the marine insurance sector is vital to the shipping industry. Insurance brokers help ship buyers identify the risks and tailor the suitable insurance coverage. Hong Kong has a cluster of international marine insurance service providers, with a wide range of marine insurance products offered. As of March 2018, there were 88 authorised ship insurers in Hong Kong, of which 35 of them were foreign insurers.
Marine insurance is generally classified into two types − hull & machinery insurance and cargo insurance, which insure, respectively, loss or damage to the hull and machinery of the ships, and cargo on board. In addition, Hong Kong is a hub for Protection and Indemnity (P&I) insurance, which is a form of insurance that involves third-party liabilities and expenses arising from ownership or operation of ships. Specifically, members of the P&I Clubs (co-operative insurance associations), including ship owners, ship operators and charterers, mutually insure each other’s liability for risks or expenses such as collision, cargo damages and towage. At present, there are 13 principal member clubs under the International Group of P&I Clubs worldwide, providing P&I liability cover for about 90% of the world’s ocean-going tonnage. 12 of these principal P&I Clubs have established offices in Hong Kong. In October 2016, the International Union of Marine Insurance (IUMI), a key professional organisation representing the global marine insurance industry, announced to set up its Asian hub in Hong Kong.
Apart from ship mortgages, shipping finance includes sales and leaseback transactions, initial public offerings and related financial products. Ship finance service providers engage in the loan documentation for credit applications, which require shipping risk analysis and industry intelligence. Besides, shipping banks provide ship owners with other financial services, such as currency and payment system management. As an international financial centre, Hong Kong has a high concentration of banks providing professional ship financing services to the local shipping industry, as well as foreign ship owners and shipyards who arrange their financing and transactions in the region. Some the world’s leading maritime finance banks, such as HSH Nordbank and Credit Agricole, have established a presence in Hong Kong.
According to statistics from the Hong Kong Monetary Authority (HKMA), shipping equipment loans booked in Hong Kong amounted to about HK$111 billion in March 2018, accounting for 2% of Hong Kong's total bank loans. Since a typical ship loan may well be a significant investment of over US$100 million, detailed considerations on administrative arrangements and taxation of different regimes would be taken into account. Therefore, a bank’s lending to ship owners may be recorded in the bank's accounts on the headquarters or other branches, and in this regard, HKMA figures may not fully reflect the size of shipping finance related to ship owners and other stakeholders in Hong Kong.
Maritime Legal Services
Legal services for the maritime sector cover maritime casualty and commercial shipping activities. The latter involves legal processes for ship finance, contracts for ship building and transactions. International law firms in Hong Kong offer maritime legal advice on shipping matters including chartering, piracy, cargo claims and dispute resolution. Maritime lawyers specialised in Admiralty Law work for ship owners, charterers and cargo owners, while maritime insurers in deal with the legal issues of maritime casualties, such as ship fires, collisions, sinking and groundings, as well as the subsequent pollution, towage and wreck removal. Hong Kong jurisdiction originated from the British common law system, with a well-established legal system and judicial independence. The UK’s Maritime Law is also widely adopted in the world. The High Court of Hong Kong has specialist lists to deal with admiralty disputes with its own Admiralty Court Judge. Established in 1978, the Hong Kong Maritime Law Association consists of maritime lawyers, ship-owners, as well as organizations and individuals members involved in maritime sector.
In some cases, shipping disputes are resolved through arbitration or mediation, and Hong Kong is a major maritime arbitration centre in the region. In 2016, the Hong Kong International Arbitration Centre (HKIAC) handled 297 new arbitration cases, with 9% involving maritime disputes.
Industry Data and Developments
Ongoing oversupply in global shipping capacity and slow demand growth are factors that have put tremendous pressures on freight rates in recent years, negatively affecting the shipping industry, in particularly in light of the uncertainty arising from US President Trump’s anti-trade rhetoric.
In 2016, the cross-border water transport industry contributed HK$7 billion value-added to the local economy, dropped by 17.7% from 2015. There were 13,047 employees engaged in this sector, including ship owners and operators, ship agents and managers, as well as local offices of overseas shipping companies. The 464 establishments in the industry generated business receipts and income totaling HK$87.9 billion, down 11% from the previous year.
There are double taxation relief arrangements for shipping income. Hong Kong has amended legislation to provide a reciprocal tax exemption from 1 April 1998 for shipping income, in which ship operators can benefit from the tax relief offered by places with similar reciprocal tax exemption legislation. In parallel, Hong Kong has entered into negotiations of double taxation relief arrangements for shipping income with other places including those do not provide reciprocal tax exemption in their legislation. Hong Kong has concluded double taxation relief arrangements covering shipping income with over 40 tax administrations worldwide, including the US, UK, Germany and the Chinese mainland. In addition, the memorandum of understanding (MoU) with the Chinese mainland specified that Chinese-source income earned by Hong Kong based shipping operations is exempt from tax on the Chinese mainland. Besides, Hong Kong registered ships can enjoy up to 29% preferential port charges dues at ports on the Chinese mainland since January 2000.
The Hong Kong port is one of the world’s busiest, handling 20.7 million TEUs (20-foot equivalent units) in 2017. In the first three months of 2018, Hong Kong handled 66 million tonnes of cargo, of which 62% were seaborne cargo, while the rest are river cargo. According to the latest available statistics, Hong Kong earned HK$107.3 billion from exporting sea transport services in 2016 (accounting for 14% of total service exports in 2016), down 6.9% from 2015.
The Asian Logistics and Maritime Conference (ALMC), jointly organised by the Hong Kong Government and the HKTDC, is an exchange and networking platform for the logistics and maritime services providers and users, including ship owners, managers, bankers, lawyers, insurance underwriters and port operators. The seventh ALMC was held in November 2017 and joined by more than 2,000 industry players from some 30 countries and regions, with world renowned industry leaders and experts sharing their insights on Asia’s economic and trade integration, latest trends in e-commerce, maritime arbitration and the opportunities arising from the New Silk Road, as well as the impacts on logistics, maritime and supply chain management.
To provide a high-level platform for closer collaboration among the government, the industry and relevant stakeholders, the Hong Kong Maritime and Port Board (HKMPB) was established in April 2016. HKMPB is responsible for formulating strategies and policies that drive the growth of high value-added and professional maritime services in Hong Kong, foster talent development, and promote Hong Kong as an international maritime hub.
The Hong Kong government set up a HK$100 million Maritime And Aviation Training Fund (MATF) in 2014 to be used over a period of five years. The MATF aims to sustain and enhance existing training schemes and scholarships, as well for launching new initiatives for the maritime and aviation sectors, building over time a vibrant, diversified and competitive pool of professionals and technical personnel to support the two sectors’ future development.
According to the World Bank’s Logistics Performance Index (LPI), Hong Kong scored 4.07 to rank ninth in the world and second in Asia. In terms of international shipment performance, Hong Kong ranked second among 160 economies.
The Baltic Dry Index (BDI) is one of the major indicators for the global shipping industry in tracking the freight costs of transporting bulk dry commodities such as coal, iron ore, grains and fossil fuels by sea. In addition, it reflects the state of the global economy and international trade performance.
The 2008 financial crisis, which led to the sharp downturn of the global shipping industry, plunged the BDI from about 11,000 points to below 2,000 points in 2011. Since many shipbuilding orders were placed before 2008, the supply glut in shipping capacity far exceeded freight demand growth amid the global economic downturn. This has put enormous downward pressure on freight rates as well as the shipping industry worldwide over the past years, further aggravated by the slowing Chinese economy, given that China is the world’s largest coal and iron importer, and reduced demand from China would tend to compound the overcapacity problem. The BDI’s declines accelerated from late 2015 and hit a low of 290 points in February 2016, the lowest level since the BDI inception and marking only 2.5% of its peak level in 2008 prior to the international financial crisis. Thanks to a recovery in iron ore trade and scrapping activities, the BDI gradually improved over the year and rebounded to around 1,000 points in April 2017.
The Closer Economic Partnership Arrangement (CEPA) between Hong Kong and the Chinese mainland
The CEPA provisions allow Hong Kong services suppliers (HKSS) to have greater flexibility to access the market, as they are allowed to form wholly owned units in providing certain types of maritime services, including:
- International ship management services
- Containers station and depot services
- Non-vessel operating common carrying services
- Port cargo loading and unloading services
- Ship survey services for ships registered in Hong Kong
- International ocean container leasing, buying and selling as well as trading of container parts
- Ship maintenance and repair services; and for tugs that they operate between Hong Kong and mainland ports
- Regular business services such as shipping undertaking, issuance of bills of lading, settlement of freight rates and signing of service contracts
For a Hong Kong company providing maritime transport services, 50% or more of the ships owned by it, calculated in terms of tonnage, should be registered in Hong Kong.
After ten annual Supplements to keep widening and broadening the liberalisation measures in favour of HKSS, Hong Kong and the mainland entered into a subsidiary agreement under CEPA in 2014 to achieve basic liberalisation of trade in service trade in Guangdong (“Guangdong Agreement”). This was then followed in December 2015 by the Agreement on Trade in Services (“ATIS”) to extend the coverage of the 2014 agreement from Guangdong to the rest of the mainland.
Implemented in June 2016, the ATIS covers and consolidates commitments relating to liberalisation of trade in services provided in CEPA and its Supplements and also the Guangdong Agreement. While wholly owned operating units and national treatment are given to HKSS in many service domains, some business areas are still restricted to joint ventures, as in the case of the provision of coastal passenger and freight transportation services.
Details of the preferential access concerning maritime transport services can be found at this website.
 The requirement that "50%, or more of the ships owned by it, calculated in terms of tonnage, should be registered in Hong Kong" as set out in Annex 5 of the CEPA legal text (see www.tid.gov.hk for further details), is not applicable to HKSS which provide towing services.