High-end maritime center still needs thriving port

In her first Policy Address, Chief Executive Carrie Lam Cheng Yuet-ngor said the government is working actively “to entrench Hong Kong’s position as a diversified international maritime center”. Her major solution is high value-added maritime services.

Lam has long held this view, since she was still chief secretary for administration. She believed the maritime industry, one of Hong Kong’s four traditional economic pillars, should shift its focus from container throughput to high value-added services in order to grow further.

The London model speaks for the Hong Kong government’s policy direction. The port of London remains the top international maritime center, despite being No 70 on Lloyd’s List Top 100 Container Ports.

Using container throughput as a benchmark of a city’s position as a maritime center has become history. The advanced maritime industry today is a combination of ship registration, ship management, ship agency services, ship finance, marine insurance and maritime legal and arbitration services. Container throughput is only part of the picture. It is time to put quality over quantity.

However, it would be naive to simplistically draw a conclusion based on the exceptional case of London that traditional port development is declining in importance. All other international maritime centers (such as Singapore, Shanghai, Hamburg and Rotterdam) rely heavily on the agglomeration effect of port and traditional maritime transport to boost advanced maritime industry, with the support of their own characteristics.

Port, ship owners and cargo owners together generate the most crucial business opportunities in the maritime industry. If lack of attention makes these stakeholders decide to leave the market, the agglomeration is not realized.

Both the Hong Kong government and the industry take pride in the Hong Kong Shipping Register ranking No 4 in the world based on gross registered tons. Merchant ships owned or managed by Hong Kong shipowners comprise 9.6 percent of the global fleet and 12 out of 13 protection and indemnity insurance (P&I) clubs have offices in Hong Kong. A closer look shows most companies that run or manage these Hong Kongregistered ships are in Singapore or Shanghai. The Hong Kong offices of the P&I clubs have only few staff taking care of administrative matters and settlement of claims, with substantial managing and decisive powers granted to their Singapore or Shanghai offices. Also, the number of Hong Kong solicitors specializing in maritime disputes and financing is decreasing compared to that of Singapore and Shanghai. The number of Hong Kong barristers specializing in maritime disputes and arbitration is even smaller. Active work by the governments of Singapore and Shanghai accounts for all this. The efforts of both governments have attracted major maritime and trading corporations to set up regional offices there.

In contrast, the agglomeration of Hong Kong’s maritime industry has declined over the past decade. The Hong Kong Trade Development Council says there were 253 offices of ship agency services and overseas shipping corporations in Hong Kong in 2015, 10 percent less than in 2014, with the number of employees falling to 7,959. The number of employees of ocean-going vessel companies has also decreased 10 percent to 4,650.

With the main body of the industry relocating to other cities and regions, supporting functions such as ship insurance, maritime legal services and ship management and agency services will naturally follow suit.

The Hong Kong government introduced the two-tier profits tax system to relieve small and medium-sized enterprises amid a global wave of tax cuts. The tax relief is likely to trigger the return of some shipping corporations to Hong Kong. The city also enjoys the benefit of being the gateway to the Chinese mainland, aside from its geographic advantage in connecting the mainland, Association of Southeast Asian Nations and South Pacific countries under the Belt and Road Initiative.

To maximize its “super-connector” role, Hong Kong should formulate an all-round plan with full details on how the Hong Kong Maritime and Port Board can better cooperate with the local maritime industry to further develop this industry. More proactive policies, together with a wellestablished legal system and a reliable financial system, will surely attract more mainland and overseas maritime-related companies to establish or expand business in Hong Kong.