Superconnector Hub Under Pressure
25th February 2025
Hong Kong’s name derives from ‘fragrant harbour’. Strategically located, yes, but does it still hold key supply chain advantages? David Priestman took an extensive tour, conducting a series of interviews.
Comprising just 1100 square kilometres of land, with over seven million people (the 4th densest population in the world) Hong Kong’s islands and peninsula territory have been a superhub for shipping, air freight (see pages 16-17) and logistics for decades. The city still buzzes and sparkles, for certain. GDP per capita is 17th in the world and the city still ranks 3rd as a global financial centre, with more ultra-high net worth individuals than any other city.
But competition has ramped-up, both from mainland China’s ports and megacities, plus other ‘superconnector’ hubs such as Singapore, Dubai and Busan (Korea). Hong Kong’s ranking as a container port has steadily slipped to tenth (of 700 worldwide), even though its total throughput TEU volume is returning to pre-covid levels. Over 6% of Hong Kong’s GDP comes from the port and logistics, employing 5% of the labour force – 175,000 jobs.
Talk here, at the various conferences I attended, is of the ‘Greater Bay Area’ (GBA) superhub of the Pearl River Delta; Shenzhen (4th largest port), Guangzhou (8th largest and a big manufacturing and ship-building centre), Macau and Hong Kong. Combined, it is the biggest shipping hub in the world and now all connected by bridges such as the HZMB (HK-Zhuhai-Macao). Hong Kong’s container port has been operating for over fifty years and the city itself, of course, grew over 150 years of British rule from rural fishing villages into a high-tech metropolis. The GBA helps re-position Hong Kong as a key location but acknowledges the end of a unipolar approach and the further integration of the territory into China proper. The question is whether Hong Kong still has unique selling points?
Navigating the Fierce Competition
Victoria Harbour has natural advantages. It is iconic and was the foundation of the phenomenal success story. Container ships are turned around at the efficient port in less than one day here, to any of 300 onward destinations. A few years back Hong Kong was considered an obvious gateway to China, being designated a ‘special administrative region’ (SAR) since 1997. More than 9000 international companies with headquarters elsewhere have an office here. The market fundamentals remain strong, according to the Hong Kong Trade Development Council (HKTDC), based upon experience in trading, commercial law and business rules, bilingual use of English and the large hinterland of 1100 port-related service companies, such as insurance brokers. Significantly, Hong Kong has an international maritime legal and arbitration centre for dispute resolution.
Hong Kong was a founding member of the World Trade Organization in 1995, and its government remains a staunch defender of free trade. It offers significant tax incentives to the shipping sector to operate here, which may be enhanced soon, and commodity traders are being sought after. The SAR’s Secretary for Transport and Logistics told me that the advantages of Hong Kong remain the competitiveness of the port, which has freeport status, and the high-value services of finance, law, leasing, insurance and ship ownership that are so well-provided and established here.
There is an action plan to increase inward investment, expand the local maritime network, promote maritime services and strengthen collaboration in the GBA, making good use of the HZMB. The plan includes releasing four new logistics development sites near the container ports, with high levels of warehouse automation deployed. Warehouse occupancy is currently at 90%. Hong Kong International Airport is having a third runway constructed, plus a new terminal and support facilities, increasing capacity there by 50% from 2035.
HKTDC Deputy Executive Director, Dr Patrick Lau, told me that the emphasis is on newly regional trade lanes, supply chain diversification and multi-lateral co-operation. “Climate change really is true, and Hong Kong is committed to our net zero targets.” The mainland China market is the main target for inward investment in the SAR. “Hong Kong remains a gateway,” he added, “now we have more corridors. We know China the best because we’re part of it.” Recent events here have certainly demonstrated that. The focus used to be on getting products and cargo out of China, now it is also on importing goods as and when the mainland’s market is further liberalised.
Risk and Resilience in an Age of Disruption
Benjamin Wong (pictured), Head of Transport and Logistics for InvestHK, is responsible for encouraging inward investment in this sector. InvestHK helps with the onboarding of companies setting-up here with planning, advice, licenses, visas, IP and more. “We’re four hours by plane from Asia’s key markets and five hours from half the world’s population, so business day trips are normal,” he said. ‘One country, two systems’ was the motto for Hong Kong upon its return to Chinese rule, but I am not persuaded that this is still the case in practice. Wong says that it is an ideal business base, and that is true from a purely commercial point of view. Over 1300 companies have their regional headquarters here. “We’re efficient,” Wong emphasises. “Being just one city means there is only one layer of government, so bureaucracy is low and corruption very low.”
What of Hong Kong’s ranking as a business location? “There may be fluctuations but we’re still up where we have been,” Wong argues. For ship operators, income derived from the international operation of ships registered here are exempt from profits tax. The same applies for profits derived by qualifying ship lessors from leasing activities. For ship leasing management activities, the corporation tax is just 8.25%. Profits derived by direct insurers underwriting marine-related risk are also taxed at this low rate, as are profits for ship agents, brokers and managers. No wonder the shipping registry here is ranked fourth in the world.
Geopolitical Bifurcation
The International Chamber of Shipping (ICS) is committed to the decarbonization journey. The drought in Panama last year, which restricted use of the canal, together with various port closures due to extreme weather, served to remind the shipping industry of the pressing need to get to net zero as soon as possible, according to ICS chairman Emanuele Grimaldi, speaking at a conference here. Dual fuel and green fuel ships present a challenge that can be overcome. Green hydrogen, methanol, ethanol and ammonia fuels are all being developed to add to LNG and the goal is to adopt a pricing mechanism for all fuels as they become available in greater quantities. Hong Kong is pitching itself as a ‘green shipping corridor’ due to its firm commitment to green bunkering – the supply of cleaner fuels to ships – though it is thankfully not alone in this provision.
Protectionism and unilateralism are re-emerging challenges. Geopolitical tensions and piracy in the Red Sea compound that as maritime issues become trade issues. Would new USA import tariffs on Chinese containers affect Hong Kong? Dialogue and partnership are required to protect the multilateral, rules-based global shipping sector. However, according to the International Maritime Organisation’s Secretary-General Arsenio Dominguez, “shipping is resilient and adaptable. There’s no complacency. Net zero by 2050 is difficult to achieve, we need to focus first on 2030 and all options must be considered. We want to be greener, safer, more secure, as well as to digitize the industry.” There are currently around 2600 new ships on order, with 50% of them being dual-fuel ready.
Maritime Cluster
Sandy Chan is Managing Director of the Hong Kong Shipowners Association (HKSA). It has 200 corporate members who collectively own over 2500 ships. HKSA has input to shipping regulations, as well as doing promotional work. The number of shipowners here helps attract more, plus insurers and other service providers.
“We have an edge in Hong Kong to being a bunkering hub,” Chan says. “China is becoming a major supplier of green fuels. Big progress in technology is required, though, because for all the new fuels you need greater quantities than for current ones. Only 1% of the world’s fleet can use green fuels today. Buyers should choose ‘ammonia-ready’ new ships. Crews will need re-training too as storage and usage is complex.”
No Shipping, no Shopping
Shipping volumes rose 2% last year and are forecast to climb by an average of 2.4% per year for the rest of the decade. But the attractions of a life at sea are not what they once were. Seafarers must be considered and their free movement permitted. Shipping gets it done, but headwinds make it tougher.
All supply chain companies need talent. More education and training are needed to be able to staff the sector sufficiently. Hong Kong has earmarked a marine and aviation training fund (MATF) to assist. MATF subsidizes internships and existing professionals in logistics can access additional training course funding. Nearby Shenzhen is one of many port cities that has a maritime university – the College of Life Sciences and Oceanography. But will it attract enough budding merchant navy officers? “Getting new talent into our industry is important, not just for seafaring,” Chan told me. “There is cadet training at the maritime school here and a student exchange programme.”
Quayside View
My tour was made complete by visiting Modern Terminals, based at berths 1, 2, 5 and 9 of the Kwai Tsing Container Terminal in Victoria Harbour. The privately-owned company was established in 1969 and built Hong Kong’s first purpose-built container terminal in 1972. Wharf Holdings, which owns the famous Star Ferry Company here, is the majority shareholder. It is one of five operators at Kwai Tsing, along with DP World, Cosco, Hong Kong International Terminals and Asia Container Terminals.
Elin Wong, Head of Corporate Affairs for Modern Terminals, provided the tour and told me that the terminal can accommodate the world’s largest vessels. “We have invested in berth deepening, gantry crane heightening and boom extending,” she informed. “Chinese manufacturers send export goods by barge across the bay to us, and vice-versa, so we’re now a transhipment hub.” The hope is that China will relax cabotage rules, which would enable international shipping carriers to operate between mainland Chinese ports, rather than this being restricted to just Chinese shipping lines.
Impressively, electric remote-controlled gantry cranes are now used here, and the company has an annual throughput capacity of seven million TEUs. It is also a shareholder in Shenzhen port. Modern Terminals describes itself as a progressive company, with a proud heritage. Wong explained that it has a strong emphasis on the cultural values of its employees, work-life balance and fulfilment. Trust, accountability and teamwork go hand-in-hand as the company is committed to operational excellence.
The formation of the Hong Kong Seaport Alliance by Modern Terminals and three neighbouring terminal operators in 2019, to jointly operate the berths at Kwai Tsing port, has been providing enhanced services to shipping line customers and delivering greater utilization efficiency through operational upgrades and the inter-terminal trucking of containers. “We aim to have no GHG emissions by 2030,” Wong stated.
Continuity, with Blurred Lines
The challenge for Hong Kong’s government and business community is, of course, as it has been since the 1997 handover: to maintain confidence and stability; for there to be no loss of nerve, even as the territory is haemorrhaging emigrants to live free in the west. Compared to living and doing business in Shanghai, for example, the contrasts are still visible, though increasingly less so. Given the choice, I know where I would choose to be based. The level of enterprise, enthusiasm and determination from the shipping and logistics community here is infectious. This place has always been the underdog. Don’t write Hong Kong off just yet.
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