Hong Kong Throughput Revised Down Again


First-half 2013 data for the port of Hong Kong has led BMI to once again revise down its outlook for the port's total tonnage and container throughput. The port plays a major role in the global container shipping supply chain, but a month-long strike, its exposure to the weak demand outlook for the major consumer markets, increased competition and the move of Chinese manufacturing away from the coast have hit the port hard. This will likely see the facility lose its coveted position of the world's third-largest container port to Shenzhen.

In the first four months (current available date) of 2013, total tonnage throughput at the port of Hong Kong has declined by 4%. On the back of this drop BMI has revised down its full-year forecast for the port to a decline of 4.5%, with BMI now forecasting the facility to handle a total of 257.2mn tonnes. This marks a second consecutive year of decline at the port and a deeper drop in throughput y-o-y from the 2.9% dip recorded in 2012.

Tough 2013
LHC: Port of Hong Kong Total Tonnage Jan- Apr % change y-o-y . RHC: Port of Hong Kong Container Throughput H1 % change y-o-y

Container volumes at the facility fell by 8% y-o-y in H113 and the drop has led BMI to revise down its full-year forecast from a y-o-y decline of 6% to a drop in throughput of 8.5%, with the port now forecast to handle 21.1mn TEUs. The projected 2013 decline in box throughput marks a second consecutive year drop in throughput and also a deepening in the decline. In 2013 we project a dip of 8.5% compared to the 5.3% decline recorded in 2012.

The decline in box throughput at the port of Hong Kong led the facility's neighbour and rival, the Shenzhen to overtake it in Q213. In H113 Hong Kong has handled 10.7mn TEUs, while Shenzhen has catered for 11mn TEUs, a difference of 2.8%.

Fighting For Recovery
Port of Hong Kong Container Throughput (TEU) and Port of Shenzhen Container Throughput (TEU)

BMI projects that Shenzhen will retain its lead over Hong Kong, with the ports projected to handle 23.4mn TEUs and 21.1mn TEUs respectively in 2013, a difference of 10.9%, which will see Shenzhen claim Hong Kong's place as the third-largest container port in the world.

BMI highlights four key reasons why the port of Hong Kong has had such a tough 2013. The first is a 40-day labour dispute, which specifically hit the port's container operations. The strike began on March 28 2013 when 450 workers at the Hong Kong International Terminals Limited (HPHT) owned by Hutchison Port Holdings (HPH) marched out demanding wage increases of as much as 23%. The strike became highly charged, with protest marches taking place that led all the way to the home of the chairman of HPH's parent company Hutchison Whampoa Limited (HWL), Li Ka-shing. Subsequently, replacements for the striking workers were hired.

The impact of the strike can be seen in the port's box throughput data in April 2013. The strike led to a steepening in the decline in box throughput at Kwai Tsing Container Terminals, where HPHT operates berths four, six, seven and nine, with January-April container volumes dipping by 6.3% - a deepening on the 4.8% decline recorded in Q113, with April volumes falling by 10.7% y-o-y.

Strike Impact
Kwai Tsing Container Terminal (% Change y-o-y)

The strike ended following an agreement being reached at the start of May 2013 with workers achieving a 9.8% wage increase and improved working conditions. However, the end of the strike has not stemmed the decline in box throughput at the port. Container throughput ticked up by 3% y-o-y in May 2013, but dipped again in June 2013 by 1% and for the first half of 2013, as we have highlighted, box throughput is in decline.

The continuation of the decline in throughput therefore highlights how the port of Hong Kong faces other challenges.

The second reason that BMI attributes to the decline in throughput at Hong Kong is the global macroeconomic outlook. Although Hong Kong's economic growth is looking more robust in 2013, with the territory's real GDP forecast to increase by 2.4% up from an expansion of 1.4% in 2012, domestic demand is only a small part of Hong Kong's box operations. The port's primary role is one of transhipment, thereby exposing it to the global macroeconomic conditions, namely the demand outlook for the troubled trio of Europe, the US and China.

Tough Economic Outlook
China/US and Eurozone Real GDP Growth, % change y-o-y

Hong Kong is a major Asian transhipment point on the key box routes of Asia-Europe and the transpacific. Box throughput at the facility will therefore be negatively impacted by the continued recession in the eurozone. BMI forecasts a second year of contraction of 0.5% in 2013 and the sluggish nature of US economic growth, which, although still growing, is forecast to expand by a mere 1.8% in 2013, a slowing on the 2.8% expansion in 2012.

The port, while mainly a transhipment point for Chinese exports to the major consumer markets, also plays a role in the transhipment of imports into China. Therefore the facility is also exposed to the slowing outlook for the Chinese economy, which will also be weighing down on the port's container throughput, with the country's growth projected to slow to a growth of 7.5% in 2013, down from a growth of 7.7% in 2012.

The third driver that BMI highlights as pushing down container throughput at Hong Kong is related to the 'curse of the Pearl River Delta'. The port is heavily exposed to China and is a key transhipment facility for the country. This role developed due to Hong Kong's position on the Pearl River Delta becoming a transhipment point for goods being exported from China's coastal factory hubs.

The move of Chinese factories further inland to tap into cheaper labour reserves is negatively affecting Hong Kong's role in the supply chain, as alternative transport routes and ports are being used.

The fourth and final driver of decline in throughput at Hong Kong stems quite simply from competition. As highlighted above Shenzhen has overtaken the port of Hong Kong in terms of container throughput. Shenzhen has also been hit by the move of factories inland. However, Shenzhen is different to Hong Kong, given that it is further up the delta and has also been quick to react to China's changing dynamics by developing rail links with China's interior and the new developing manufacturing hubs. BMI also believes that Shenzhen is benefiting from China's focus on attracting direct calls by container liners, rather than having to rely on transhipment.

This article is tagged to:
Sector: Freight Transport, Shipping
Geography: Hong Kong, Hong Kong, China, Hong Kong, Hong Kong