2 May 2012
Navigating Stormy Seas
Many industry leaders believe
Industry leaders, including shipowners, managers, bankers, lawyers, insurance underwriters and port operators attending the first Asian Logistics and Maritime Conference (ALMC) in Hong Kong last November took a similarly pessimistic view. Widely quoted at the event was the Baltic Dry Index (BDI), which tracks global freight rates. The index was below 2,000 points for most of 2011, after plunging from a peak of more than 11,000 in mid-2008.
The sluggish global economic recovery, caused mainly by persistent uncertainty over the European sovereign debt crisis, is especially hurting demand. Supply problems also loom large, as ships ordered prior to the eruption of the 2008 financial crisis are coming on stream. Even taking into account order postponements, freight rates continue to be depressed.
In fact, the most optimistic view is that the shipping industry’s recovery should emerge sometime towards the end of this year. Many are holding out for 2013 as being more likely.
Hong Kong’s “less busy” rating, the argument goes, would cast a long shadow over the city as an international maritime centre, in light of rapid developments in Singapore’s and the Chinese mainland’s maritime sectors.
That logic, however, doesn’t reflect the real story. While Hong Kong is no longer the world’s busiest port, many industry leaders believe a bright future lies ahead for the city’s maritime sector.
Hong Kong’s Maritime Services Under Sail
For decades, Hong
In fact, the port sector forms only a part of the larger maritime cluster. The most important characteristic of a premier maritime cluster is the provision of comprehensive and quality services, including ship brokerage, finance, law, insurance, management and operational services.
Put simply, the maritime cluster as a “value chain” deals not only with the ordering and building of a ship, but also how it’s contracted, financed, graded, managed and chartered; how the cargo, as well as the ship (or its construction) are insured, and how disputes are resolved.
The sector involves much more than handling or transportation of cargo. Compared with Hong Kong, which ranks as the world’s third-busiest container port, London ranks below 120. London, however, is indisputably regarded as the world’s leading maritime services centre.
In China’s 12th Five-Year Programme released last year, the dedicated chapter on Hong Kong noted that Hong Kong’s position as an international maritime centre would be maintained and strengthened over the coming years.
Shipowners and Shippers Still Afloat
The slowdown in port activity in Hong Kong, as in the rest of the world, hides the real story on welcome developments in the city (photo: iStockPhoto.com)
Hong Kong’s official statistics show the number of establishments engaged in cross-border water transport – including shipowners, ship agents and managers, shipping companies and local offices of overseas shipping companies – increased by some 40 per cent from 323 in 2008 to 456 in 2010.
From a trough in 2006, the number of people engaged in the cross-border water industry also increased by about 40 per cent from 10,110 in 2006 to 14,137 in 2010, indicating an expanding industry despite the worsening external environment.
Save for the slump touched off by the international financial crisis of 2008-2009, business receipts and profits of Hong Kong’s shipping industry were also on the increase subsequently. In short, Hong Kong’s cross-border waterborne industry coped very well with difficult times, recovering much faster than the BDI.
Among the many reasons for this could be the economic gravity shift from West to East, the surge in intra-regional trade and investment, and the rise of mainland shipowners and shipyards.
Flourishing International Maritime Centre
Hong Kong Shipowners Association members own, manage and
Due to historical and geographic factors, Hong Kong has been attracting the world’s leading maritime service elites to the city for many decades. Hong Kong shipowners ran enormous fleets in the 1980s, with Sir Yue Kong Pao and Chao Yung Tung considered the world’s largest shipowners at that time. A good number of international maritime service professionals was attracted to Hong Kong to provide those influential shipowners such services as ship financing and chartering. Geographically speaking, Hong Kong was and still is a major international trading centre, with traders creating enough throughput to induce services.
According to a Hong Kong Government survey, more than 3,700 overseas companies have set up their regional headquarters or offices in Hong Kong, with half of them engaged in import and export trades.
A recent Hong Kong Trade Development Council survey found that most Hong Kong manufacturers and traders sourced products on the mainland, while carrying out sales, marketing, finance and insurance arrangements in Hong Kong. Building on a strong maritime cluster foundation, both shipowners and cargo traders continue to command a strong presence in Hong Kong, helping alleviate the adverse impact of the 2008-2009 international financial crisis on Hong Kong’s maritime industry.
Based on the deadweight tonnage reported by the Hong Kong Shipowners Association, their members own, manage and operate as much as nine per cent of the world’s fleet. In 2010 and 2011, Hong Kong’s import and export trades increased by 24 per cent and 11 per cent respectively, reaching US$910 billion at the end of 2011. In short, Hong Kong’s shipping sector is holding a firm course in difficult times.
For more on international trade trends, please see the March issue of the HKTDC Trade Quarterly, which can be ordered at: http://bookshop.hktdc.com/.