2016-11-22 SCLP - HK Ports past present future - Wai-duen Lee

Hong Kong’s 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

ICF proprietary and confidential. Do not copy, distribute, or disclose.ICF proprietary and confidential. Do not copy, distribute, or disclose.
Agenda
 Geographic advantage, China’s 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 Kong’s Container Port – Past, Present and Future
2

Location of Cargo Handling Facilities in the PRD, and Historic Growth
3
CARGO HANDLING FACILITIES IN THE PEARL RIVER DELTA CONTAINER THROUGHPUT AT MAJOR PRD PORTS
Source: ICF, port authorities, YICT
A number of cargo handling facilities in the PRD, but most
containers are handled in three:
Port 2015
TEU (mil)
CAGR (2005-
2015)
World Ranking
2005 2015
Hong Kong 20.1 -1.2% 2 5
Shenzhen 24.2 +4.1% 4 3
Guangzhou 17.6 +14.2% 18 7

Guangdong GDP vs Container Throughput at Ports
4
 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

Market share by HK Port, world ranking, and trucking costs
HINTERLAND (IMPORT/EXPORT) CARGO –
TEU AND MARKET SHARE, HK VS SHENZHEN + GUANGZHOU PORTS
TOTAL THROUGH COST, VIA HK VS YANTIAN
Source: ICF
5

2000 2015
% by Direct 58% 42%
% by TS 31% 69%
Breakdown of HKP throughput: IE vs TS, 10 years
by barge vs by truck
LADEN TEU AND % SHARE, DIRECT VS TS CARGO, HK PORT
Source: ICF based on Marine Department
6
 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.
Note: empty container ~2,965K TEU (about 15% of port total)

 No import tax. Low tax rate.
 Flexible and efficient customs
 quick turnaround, short (and expected dwell time)
at customs inspection
 Allows consolidation of shipments
 Skilled labour
 Rule of law. Transparency and efficiency
in doing business
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
containers between HK and mainland ports
 Some ports are arguing for liberalization (e.g.
Shanghai)
 If more ports are “liberalized”, HK’s preferential status
is threatened
 Strong fundamentals, leading in port
technology and service
7

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 Kong Port Challenges – Macro
8

 Four major alliances dominates the shipping line industry today
 However, alliances are breaking up, with the latest wave of
merger and acquisition (and bankruptcy) in the industry:
 CMA CGM + APL;
 COSCO + CSCL;
 Hapag Lloyd + UASC;
 Hanjin
 Fully accommodating an alliance in key transhipment markets
(e.g. SE Asia) may require 8-9 million TEU capacity
HK Port Challenges – from the industry: Shipping Alliances
9
TEU Capacity by Alliance, Far East – North America Routes, Current and Future*
Source: ICF based on Alphaliner
*HMM may not join 2M
(Future) Alliance* Carrier
2M + HMM Maersk, MSC, (HMM)
OCEAN Alliance CMA CGM (+APL), COSCO (+CSCL), Evergreen, OOCL
THE Alliance Hanjin*, Hapag‐Lloyd (+UASC), MOL, KL, NYK, Yang Ming
Others Zim, Wanhai, PIL, Matson, Westwood
(Current) Alliance Carrier
2M Maersk, MSC
Ocean 3 CMA CGM, UASC, Cosco (China Shipping)
CKYHE COSCO, Evergreen, Hanjin, K‐line, Yang Ming
G6 MOL, APL, OOCL, NYK, Hapag Lloyd, Hyundai
Others Zim, Wanhai, Pil, Matson, Hamburg Sud, Westwood
• Hanjin just filed for bankruptcy, which may
trigger another round of alliance
reshuffling
• HMM may not join 2M

 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
HK Port Challenges – from the industry: Mega Vessels
10
Source: Alphaliner

 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
HK Port Challenges – from the industry: Port Backup Land Constraints
11
Source: Industry White Paper “Maintaining Kwai Tsing Port’s Regional Competitiveness – Investing in Container Throughput Capacity and Operational Efficiency”

 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?
HK Port Challenges – from the industry - Pressure from Carriers
12
Source: ICF based on operators, SeaInel, and Shanghai Composite Freight Index

 Port backup land white paper March 2014
 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
don’t 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
same goal
Hong Kong Initiatives
13
Port efficiency and productivity is critical in maintaining its global competitiveness
Port Ecosystem: “You’re only as good as the weakest link”
…and no single party can control all the supply chains
Source: ICF

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

2016-11-22 SCLP - HK Ports past present future - Wai-duen Lee

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