20 April 2016
Sea Transport Industry in Hong Kong
- Endowed with a deep-water, silt-free natural harbour strategically located along a major sea route and with the Chinese mainland providing a huge cargo base, Hong Kong has become a sea transport hub in Asia.
- Advanced port facilities and efficient port services are complemented by excellent trade, financial and other services which underpin Hong Kong's status as the eighth largest trading entity in the world. In 2015, 18.5% of Hong Kong total exports (by value) were transported by sea.
- Hong Kong Port was the world's fifth busiest container port in 2015, having handled 20.1 million TEUs, following Shanghai, Singapore, Shenzhen and Ningbo-Zhoushan.
- Hong Kong's port is renowned for its efficiency. All container terminals are privately owned and operated. Productivity enhancement through new cargo management techniques has raised their handling efficiency.
- The Mainland and Hong Kong governments signed the Agreement on Trade in Services to extend the coverage of the Guangdong Agreement to the rest of the mainland from June 2016.
Range of Services
The sea transport sector is of vital importance in supporting Hong Kong's status as the world's 8th largest trading entity. During 2015, Hong Kong handled 257 million tonnes of seaborne and river cargo. About 70% of seaborne cargo was transported by ocean-going vessels. Of the seaborne cargo handled in the aforesaid year, 94.9 million tonnes (56%) were transhipment cargo. The Chinese mainland was the biggest source and destination of Hong Kong's transhipment cargo.
Hong Kong handled 20.1 million TEUs of containers in 2015, down 9.7% from 2014. Of the total, 78% were handled by container terminals at Kwai Tsing terminals, with the rest handled mid-stream by Hong Kong's mooring buoys and by river trade facilities. The moorings also handle most of Hong Kong's break bulk cargo. Bulk shipping takes care of bulky, unpacked goods such as oil, gas, grain, minerals and timber.
Sea cargo to and from Hong Kong is carried both by liners and bulk vessels. Liner shipping is operated under a scheduled timetable with pre-announced rates and destinations. Many key routes are under liner conferences (agreements by the main shipping lines on tariffs and sailings). Hong Kong is a major hub with about 340 container liner services per week connecting to about 470 destinations worldwide.
The larger container lines have invested in advanced systems to provide cargo tracking information and improve efficiency. They often form alliances or merge with other transport providers to develop door-to-door multi-modal services. Many liners are also forming alliances amongst themselves to increase efficiency and reduce cost in a very competitive environment. Vessel sharing has enabled the liners to offer a more flexible service in terms of global coverage, higher frequency of departures and a greater choice of routes.
Hong Kong's port facilities are financed, built, owned and operated by private firms.
Hong Kong has nine existing container terminals with a total of 24 berths at Kwai Chung and Tsing Yi Island, operated by several private consortia. Through various productivity enhancement measures, their combined throughput capacity is some 20 million TEUs per year.
In December 2014, the Hong Kong government released findings of the Study on the Strategic Development Plan for Hong Kong Port 2030 (HKP2030) and the Preliminary Feasibility Study for Container Terminal 10 (CT10) at Southwest Tsing Yi. Although the preliminary PFS findings show that CT10 development is technically feasible, the project is not viable financially or economically due to slow throughput growth. Further, with appropriate measures expected to enhance the handling capacity of existing terminals to cope with future growth, planning for CT10 before 2030 is therefore not recommended.
River Trade Terminal
The Pearl River links Hong Kong with many manufacturing centres in Southern China, which has become the main cargo base for the territory. River trade has grown fast over the past two decades, rising from 9.3 million tonnes in 1990 to 88.0 million tonnes in 2015. To cater for increasing river trade, a dedicated terminal, the River Trade Terminal (RTT), was established in 1996 and became operational in November 1998. RTT is located in the west of Tuen Mun.
Shipowners own ships to obtain an income. In the liner shipping market, ship owners rent ships to a shipping line. In the bulk shipping market, ships are rented on a time or voyage basis to a ship charterer or ship operator.
Based on the latest Review of Maritime Transport issued by UNCTAD, as at December 2014, the Hong Kong fleet consisted of 1,258 ships and the total tonnage reached 75.3 million deadweight tonnes (DWT). According to the Hong Kong Shipowners Association (HKSOA), as at December 2014, the total tonnages of ships owned or managed by its members exceed 149 million DWT, or about 8.6% of the world’s total fleets.
As at February 2016, 2,482 vessels were on the Hong Kong Shipping Register (HKSR), boasting a total of more than 103 million gross registered tonnes, making HKSAR the fourth largest shipping register in the world following Panama, Liberia and Marshall Islands.
Shipping lines tend to own and/or lease a group of ships which they deploy on pre-determined liner routes. Ship operators rent ships from owners and use them to carry bulk cargoes from port to port. The aim of the operators is to reduce the number of wasted voyages and this requires careful selection of the ship, routes and cargo.
Shipping lines use shipping agents to sell their freight space in a particular port. The shipping broker acts to match the supply of bulk vessels from operators/owners with the demand for bulk cargo shipments by the charterers.
According to the latest available statistics, Hong Kong earned HK$131.4 billion from exporting sea transport services in 2014 (accounting for 15.9% of total service exports in 2014), down 2.9% from 2013. Unlike air transport, passenger revenues constituted an insignificant part of the export of sea transport services.
More countries are seeking to privatise their port operation and/or develop new ports to be run on a commercial basis. An exportable sea transport service from Hong Kong is thus the development and management of ports on the Chinese mainland and the wider region. Hong Kong port operators are already active in this field. Modern Terminals, a Hong Kong terminal operator, invest and operate several container terminals in Shenzhen, and has expanded its business to the Yangtze River Delta since 2004. Hutchison Port Holdings (HPH) Group, another Hong Kong terminal operator, has a network of operations that comprises 48 ports in 25 countries, handling 83.8 million TEUs worldwide in 2015.
Recent Developments and Market Outlook
In his 2016 Policy Address, the Chief Executive announced the merge of the existing Maritime Industry Council and Port Development Council to form a new Hong Kong Maritime & Port Board. The Board, officially established in April 2016, is responsible in 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.
Ports in the Chinese mainland have been developing quickly over the past years. Shanghai was the world’s busiest seaport in 2015, handling 36.5 million TEUs, while Shenzhen was the world’s third busiest port, with 24.2 million TEUs handled in 2015. The Port of Ningbo-Zhoushan surpassed Hong Kong to become the world’s fourth busiest in 2015, with its throughput growing by 6% to 20.6 million TEUs.
According to the World Bank’s Logistics Performance Index (LPI), Hong Kong scored 3.83 to rank 15th in the world and the third in Asia. In terms of international shipment performance, Hong Kong ranked 14th among 160 economies.
With an aim to cut emissions of air pollutants near the port areas, 17 Hong Kong major freight liners have signed up the Fair Wind Charters (FWC), a voluntary commitment to switch from high-sulphur bunker oil to 0.5% sulphur diesel when berthing in Hong Kong. FWC is the world’s first shipping-industry led fuel switching initiative.
To strengthen safety within Hong Kong waters, the government gazetted the Pilotage (Amendment) Bill 2013, making pilotage compulsory for all ships visiting Hong Kong with a gross tonnage of 3,000 or more. Apart from this, the bill suggested to allow a pilot to retain the same class of licence until the statutory age limit of 68 rather than 65 in order to make good use of pilots’ experience and expertise in piloting mega-size vessels and in training junior pilots.
The Kai Tak Cruise Terminal entered service in June 2013. With rooftop and tourism-related facilities for visitors and locals, providing embarking and disembarking services for cruise passengers. The terminal’s capacity of customs, immigration and health quarantine operation clearance can serve 3,000 passengers per hour.
The Hong Kong-Zhuhai-Macau Bridge (HKZMB), a large-scale cross-border infrastructure linking the three places, is expected to be completed in 2017. Cargo movement between Hong Kong and western Pearl River Delta will be further enhanced.
The Closer Economic Partnership Arrangement (CEPA) between Hong Kong and the Chinese mainland
According to China's WTO commitment and the Regulations on the Administration of Foreign Investment in International Marine Shipping (issued by MOFCOM and became effective in June 2004), foreign joint-ventures are allowed to provide the following services:
- Maritime cargo-handling services
- Customs clearance services for maritime transport
- Container station and depot services
- International shipping
- International shipping agency
- International ship management
- International marine shipping freight loading and unloading
- International marine shipping container terminal and yard business
The shareholding of foreign investors should not exceed 49%.
By contrast, the CEPA provisions allow Hong Kong services suppliers (HKSS) to have greater flexibility to access the market, and in many sectors, they are allowed to form wholly owned units in providing certain types of maritime services, including the following:
- 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
- For tugs that 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.
HKSS can set up joint venture enterprises on the mainland to provide third-party international shipping agency services. The shareholding of Hong Kong service suppliers should not exceed 51%. This lowers the barrier of the third-party international shipping agency services for Hong Kong service suppliers, as compared to other foreign joint-ventures outside CEPA. Business scope has been further expanded for HKSS since January 2009, as they are allowed to set up wholly owned enterprises and branches in Guangdong on a pilot basis to provide shipping agency services to vessel operators for routes between Guangdong Province and Hong Kong and Macau.
Under CEPA Supplement VI, HKSS can set up wholly owned shipping companies on the Chinese mainland, providing regular business services (shipping undertaking, issuance of bills of lading and settlement of freight rates, etc.) for shipping transport between Hong Kong and the Class B ports in Guangdong, operated by HKSS using chartered Mainland vessels. Under CEPA Supplement X, contractual service providers employed by HKSS, in the mode of movement of natural persons, are allowed to provide maritime transport, cargo handling, container station and depot services in the Mainland.
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. Unlike the Supplements which adopted a positive-list approach to introducing liberalisation measures, the two latest CEPA agreements adopt a hybrid approach to granting preferential access to Hong Kong using both positive and negative lists.
The ATIS, which covers and consolidates commitments relating to liberalisation of trade in services provided in CEPA and its Supplements and also the Guangdong Agreement, will be implemented from June 2016. For example, under the ATIS’s negative list, national treatment is given to HKSS in providing maintenance and repair of vessels services, pushing and towing services, rental/leasing services relating to ships, but as a reserved restrictive measure, not in providing rental of vessels with crew engaging in coastal waterway transportation. While national treatment is given to HKSS in providing freight transportation on the mainland, they can only operate in such a sector provided that mainland suppliers could not meet the demand, with their capital contribution in a joint venture limited under 50%. Details of the preferential access concerning the sea transport services sector 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.