Hong Kongs Container Port

Past, Present and Future

22 Nov 2016

Supply Chain & Logistics

Professionals (SCLP) Mixer

Wai-duen Lee
Lead Managing Consultant,
ICF
waiduen.lee@icf.com
waiduen.lee@gmail.com
Agenda

Geographic advantage, Chinas open door, lack of competition

History of HK Port development.
Then came competition from Shenzhen
Declining market share and ranking
Show total TEU at HKP, and its market share of S China hinterland cargo
HK advantages and Challenges

Hong Kongs Container Port Past, Present and Future

ICF proprietary and confidential. Do not copy, distribute, or disclose. 2
Location of Cargo Handling Facilities in the PRD, and Historic Growth

CARGO HANDLING FACILITIES IN THE PEARL RIVER DELTA CONTAINER THROUGHPUT AT MAJOR PRD PORTS

A number of cargo handling facilities in the PRD, but most

containers are handled in three:
Port 2015 CAGR (2005- World Ranking
TEU (mil) 2015)
2005 2015
Hong Kong 20.1 -1.2% 2 5

Shenzhen 24.2 +4.1% 4 3

Source: ICF, port authorities, YICT
Guangzhou 17.6 +14.2% 18 7

Hong Kongs Container Port Past, Present and Future

ICF proprietary and confidential. Do not copy, distribute, or disclose. 3
Guangdong GDP vs Container Throughput at Ports

Guangdong GDP moves in line with TEU at the PRD ports,

but TEU growth rate is more volatile
Subdue growth of Guangdong GDP so is port TEU:
Guangdong GDP y-o-y from double-digit in the mid-2000s down to
8% in 2015
PRD ports TEU hovering around the 0% level starting 2012
Port TEU growth (overly) reacts to GDP slowdown, but bounces
back (e.g. re-stocking)
HK Port has the lowest growth rate, but Shenzhen Port has been
quite stagnant too.

Note: TEU includes transshipment

Source: ICF based on port authorities and National Bureau of Statistics China

Hong Kongs Container Port Past, Present and Future

ICF proprietary and confidential. Do not copy, distribute, or disclose. 4
Market share by HK Port, world ranking, and trucking costs

HINTERLAND (IMPORT/EXPORT) CARGO TOTAL THROUGH COST, VIA HK VS YANTIAN

TEU AND MARKET SHARE, HK VS SHENZHEN + GUANGZHOU PORTS

Source: ICF

Hong Kongs Container Port Past, Present and Future

ICF proprietary and confidential. Do not copy, distribute, or disclose. 5
Breakdown of HKP throughput: IE vs TS, 10 years
by barge vs by truck
LADEN TEU AND % SHARE, DIRECT VS TS CARGO, HK PORT

Volume of direct laden containers declined from 8.3 mil

TEU (2000) to 5.3 mil TEU (2015), despite the growing
Guangdong hinterland
Competition from ports in Shenzhen and Guangzhou,
and the disadvantages of HK Port (higher inland
trucking)
Local containers: about 10% of total.

2000 2015
% by Direct 58% 42%
% by TS 31% 69%

Note: empty container ~2,965K TEU (about 15% of port total)

Source: ICF based on Marine Department

Hong Kongs Container Port Past, Present and Future

ICF proprietary and confidential. Do not copy, distribute, or disclose. 6
Hong Kong Port strengths

Strategic location
Mainland China cabotage and preferential
status of HK
Intention: to protect the shipping industry in China
Only domestic shipping lines can handle the domestic
leg
HK is exempted foreign shipment lines can move
No import tax. Low tax rate.
containers between HK and mainland ports
Some ports are arguing for liberalization (e.g. Flexible and efficient customs
Shanghai) quick turnaround, short (and expected dwell time)
If more ports are liberalized, HKs preferential status at customs inspection
is threatened Allows consolidation of shipments
Strong fundamentals, leading in port Skilled labour
technology and service
Rule of law. Transparency and efficiency
in doing business

Hong Kongs Container Port Past, Present and Future

ICF proprietary and confidential. Do not copy, distribute, or disclose. 7
Hong Kong Port Challenges Macro
Global economic slowdown + uncertain outlook: Brexit, USA
role in trade packs under the new president
Competition from other PRD ports over gateway cargo, and
regional ports over TS
Possible relaxation of cabotage restrictions at Mainland
ports
Competition Commission HK and block exemption
High costs: labour and inland transportation

Hong Kongs Container Port Past, Present and Future

ICF proprietary and confidential. Do not copy, distribute, or disclose. 8
HK Port Challenges from the industry: Shipping Alliances

Four major alliances dominates the shipping line industry today (Current) Alliance Carrier
2M Maersk,MSC
However, alliances are breaking up, with the latest wave of Ocean3 CMACGM,UASC,Cosco(ChinaShipping)
CKYHE COSCO,Evergreen,Hanjin,Kline,YangMing
merger and acquisition (and bankruptcy) in the industry: G6 MOL,APL,OOCL,NYK,HapagLloyd,Hyundai

CMA CGM + APL; Others Zim,Wanhai,Pil,Matson,HamburgSud,Westwood

COSCO + CSCL; (Future) Alliance* Carrier

2M+HMM Maersk,MSC,(HMM)
Hapag Lloyd + UASC; OCEANAlliance CMACGM(+APL),COSCO(+CSCL),Evergreen,OOCL
THEAlliance Hanjin*,HapagLloyd(+UASC),MOL,KL,NYK,YangMing
Hanjin Others Zim,Wanhai,PIL,Matson,Westwood

Fully accommodating an alliance in key transhipment markets Hanjin just filed for bankruptcy, which may
(e.g. SE Asia) may require 8-9 million TEU capacity trigger another round of alliance
reshuffling
TEU Capacity by Alliance, Far East North America Routes, Current and Future* HMM may not join 2M

Hong Kongs Container Port Past, Present and Future Source: ICF based on Alphaliner
ICF proprietary and confidential. Do not copy, distribute, or disclose.
*HMM may not join 2M 9
HK Port Challenges from the industry: Mega Vessels

Shipping alliances and increasing vessel sizes:

Berth / quay side productivity
Quay length available for barges & barge turnaround time
Container yard stacking density & dwell times
Capacity & cross-terminal handling of volumes from all carriers in the
same alliance

Source: Alphaliner

Hong Kongs Container Port Past, Present and Future

ICF proprietary and confidential. Do not copy, distribute, or disclose. 10
HK Port Challenges from the industry: Port Backup Land Constraints
Ratio of container yard land for container for optimal
performance:
International standard: 25 ha per 400 metres of berth;
HK: 14 hectares per 400 metres of berth (avg).
The lowest terminal allocation:11 hectares per 400 metres.

possible land for container depots used by short term

tenancy lack of incentives to invest

Source: Industry White Paper Maintaining Kwai Tsing Ports Regional Competitiveness Investing in Container Throughput Capacity and Operational Efficiency

Hong Kongs Container Port Past, Present and Future

ICF proprietary and confidential. Do not copy, distribute, or disclose. 11
HK Port Challenges from the industry - Pressure from Carriers
Terminal operators have generated healthy EBITDA
margins - carriers have not
Liners have struggled to sustain any price increases,
not least due to capacity over-supply
Global trade growth is expected to remain modest
Reducing unit costs is critical will carriers pass the
cost cutting pressure to the terminals?

Source: ICF based on operators, SeaInel, and Shanghai Composite Freight Index

Hong Kongs Container Port Past, Present and Future

ICF proprietary and confidential. Do not copy, distribute, or disclose. 12
Hong Kong Initiatives
Port efficiency and productivity is critical in maintaining its global competitiveness

Port backup land white paper March 2014

Port Ecosystem: Youre only as good as the weakest link
Industry White Paper (March 2014): rationalization / more efficient use of
70ha of land around the port (i.e. move away non-port related users who and no single party can control all the supply chains

dont need to be right next to the port)

Possibly adds another 3-4 million TEU capacity
Government response (June 2015): covered about 20% of land
optimization recommendations
HK as International Maritime Centre
Terminal operators invest in equipment upgrade to handle 21,000
TEU vessels in 2017
Requires the all stakeholders (government, terminal operators,
carriers, 3PLs, logistics service providers) to act towards the
Source: ICF
same goal

Hong Kongs Container Port Past, Present and Future

ICF proprietary and confidential. Do not copy, distribute, or disclose. 13
THANK YOU
Wai-duen Lee
Lead Managing Consultant, ICF
waiduen.lee@icf.com
waiduen.lee@gmail.com