For discussion
on 23 November 1998

Introduction

1. Hong Kong's first container terminal was developed in 1972. The fastest period of container throughput growth, both in terms of percentage and volume, happened in the last decade. As shown in Figure 1 below, the throughput of Hong Kong container port more than quadrupled from 4 million TEUs to 14.6 million TEUs between 1988 and 1997. The rapid growth coincided with Mainland China's strong export growth during this period (Figure 2).

2. The strong demand for container handling facilities to cope with Mainland China's export and import (and Guangdong in particular) has helped to maintain Hong Kong's position as the world's largest container port for six consecutive years.

3. Currently over 90% of Southern China's cargoes are handled through the Hong Kong container port. This shows the important role played by Hong Kong's container port in China's trade, but it also highlights the heavy dependence of the Hong Kong container port on China's trade performance. Given the forecast continued growth of the Mainland economy, Hong Kong is expected to continue to serve as a main port for China, particularly for Southern China, but the proportion of South China cargoes handled by the Shenzhen ports (currently accounting for 10%) is expected to continue to increase. There are, however, a number of factors which have emerged in recent years which will have an impact on the competitiveness of the Hong Kong container port. They are discussed below.

Impact of the Possibility of Mainland - Taiwan Direct Shipping Link on Hong Kong

4. The volume of containers from Xiamen and Fuzhou transhipped via Hong Kong in 1996 was about 0.36 million TEUs. The volume in 1997 was 0.33 million TEUs. Judging from these figures, the agreement announced by the Mainland and Taiwan last year (1997) to permit cargoes from Fuzhou and Xiamen to be transhipped via Kaohsiung has some but so far not very significant impact on Hong Kong's container cargo throughput. The impact, however, is expected to be greater if in future direct shipping of container cargoes between the Mainland and Taiwan ports is permitted. In 1997, cargoes between the Mainland and Taiwan transhipped via Hong Kong amounted to about 1.4 million TEUs (or 9.6% of Hong Kong's 1997 throughput). The Shenzhen ports in Yantian and Shekou would be able to compete with Hong Kong for these Taiwan cargoes when direct shipping links are permitted between the Mainland and Taiwan ports.

Port Developments Along China Coast (other than Shenzhen)

5. Another trend observed in recent years has been the rapid expansion of ports in the Mainland. Figure 3 below shows the main ports along the China Coast and their latest throughput figures.




6. While these Mainland ports are expanding quickly, they (except Shenzhen ports which will be discussed below) are not expected to be able to divert any substantial portion of Hong Kong cargoes because of their great geographic distance from Hong Kong (as land transport is prohibitively expensive). However, they will affect the volume of containers transhipped via Hong Kong. The volume of containers from all Mainland ports transhipped via Hong Kong in 1997 was about 1.5 million TEUs. When these northern Mainland ports become more developed they will be able to attract direct calls from ocean-going vessels and in the longer term the number of containers coming from these northern Mainland ports for transhipment to the United States and Europe via Hong Kong is expected to fall.

Impact of Shenzhen ports on Hong Kong

7. The major ports in Shenzhen are Shekou, Chiwan and Yantian (see map at Annex). In 1997, the Shenzhen ports together handled about 1.1 million TEUs (which is equal to about 8% of Hong Kong's throughput). Their proximity to Hong Kong means that competition from these ports is inevitable. Hong Kong needs to reposition itself in view of the development of these Shenzhen ports.

8. The main advantages of Shenzhen ports are their lower development and operating costs which are reflected in their lower container handling charges. Hong Kong's main competitive disadvantage is high trucking cost which has been exacerbated by delay and congestion at crossing boundary control points. However, if the container is transported to Hong Kong by river barge, Hong Kong's overall cost (including terminal handling charges) could be comparable to that of Shenzhen and in some cases even cheaper.

9. The main competitive strengths of Hong Kong's container port compared to Shenzhen ports are our efficiency, reliability, security (against theft and damage to containers), high frequency of shipping lines, efficient customs clearance, excellent logistic support (trucking, river barge connections, etc.) and the concentration of shipping companies and freight forwarders in Hong Kong.

Terminal Handling Charges (THC)

10. There is also an increasing concern that high THC charged by shipping lines calling Hong Kong is undermining our competitiveness. THC is a very complicated issue. Shipping lines used to charge a single rate to cover all shipping and terminal handling charges, but starting from early 1990s they have been charged separately for the freight rate and the THC. THC was originally intended to protect shipping lines from currency fluctuations since THC is usually paid to terminal operators in local currency, while freight rates are usually paid in US currency.

11. Due to intense competition in international shipping, the past several years have seen a rapid fall in freight rates and an increase in THC. Some have attributed this to the fact that most goods are shipped on F.O.B. (free-on-board) terms, which mean the THC will be borne by the shippers while the consignees (buyers) will be responsible for paying the freight rate. Because the consignees can command a stronger bargaining power, they have been able to negotiate a lower freight rate from the shipping lines which tend to increase the THC to make up for the lost revenue.

12. The shipping lines however justify their increase of THC on the high terminal tariffs charged by Hong Kong container operators. Hong Kong's container terminal tariffs are admittedly among the highest in the region. This is due to a number of factors, including the efficiency and quality of service, the high cost of developing terminals in Hong Kong, (previous) insufficient capacity, and strong growth in demand from the export and import requirements of Hong Kong and Southern China. Another important factor is Hong Kong container terminals are among the very few in the world, and probably the only major container port, which are not directly or indirectly owned and operated by government and do not enjoy any form of subsidies from government. Their charges therefore have to reflect fully the commercial costs and business risks of running container terminals.

Strategy to Enhance the Competitiveness of Hong Kong Container Port

13. Hong Kong container port enjoys the competitive advantages of being highly efficient, with unrivalled logistic and supporting services including communications, banking, financial, insurance and shipping services, and called by all major shipping lines offering shippers numerous options, but we need to tackle our main problem of high cost both in terms of land transportation cost and terminal handling charges. The Administration has been working closely with the Hong Kong Port and Maritime Board and the port and freight industry and is adopting the following strategy to seek to increase the competitiveness of the Hong Kong container port-

1. To help Kwai Chung container terminal operators to increase their capacity and productivity by providing, where appropriate, additional backup land around the terminals.
   
   
2. To increase market competition through the construction of CT9 which will provide 2.6 million TEUs additional container handling capacity to the Kwai Chung container port.
   
   
3. Through the rationalisation of container terminals in Kwai Chung and deepening of the Rambler Channel, as part of the CT9 development, to enable terminal operators to have more contagious berths and more flexibility to handle the future generation of large container vessels.
   
   
4. To increase the efficiency of mid stream operation by providing operators with more permanent sites.
   
   
5. To reduce the cost of transporting containers between Hong Kong and Southern China by promoting river trade through the operation of the Tuen Mun River Trade Terminal and by encouraging it to build up strategic links with river ports in the Pearl River Delta.
   
   
6. To improve co-ordination of port development in Southern China by strengthening liaison with Mainland port authorities and regular exchange of information on port cargo forecasts and port planning.
   
   
7. To help container truck operators to lower operating costs by improved liaison with the Shenzhen customs and port authorities to simplify the procedure for cross boundary movement of containers.
   
   
8. To work closely with the Hong Kong Shippers Council to encourage more transparency and consultation between shipping lines and shippers in the setting of THC by shipping lines.

14. The Administration will continue to work with the Hong Kong Port and Maritime Board and the port and freight industries to identify measures to enhance the competitiveness of the Hong Kong container port.


Economic Services Bureau
November 1998