Hong Kong Freight Transport Report Q1 2008

Hong Kong's ports and shipping industry continues to face a big competitive threat from China. As the manufacturing boom has spread through southern China, up to Shenzhen and other parts of Guangdong province, new ports have been built along the Pearl River, and shipping activity is following the factories.

This is a deep, and some would say irreversible structural change. In the words of one Hong Kong specialist, 'Hong Kong used to be the entrept, the gateway to China. Now China has its own gateways.'
One pointer is that plans for another big container terminal at Hong Kong - CT10 - have been placed on hold. This report concludes that sea-borne freight forecasts need to be trimmed to take account of the growing competitive threat from rival ports, with lower labour costs, such as Shanghai and Shenzhen. An additional factor to bear in mind is the global shipping cycle, with freight rates showing some signs of weakness. We expect Hong Kong's port throughput to grow by an annual average of 2.9% in 2008-2012, down from the 7.8% figure achieved over the preceding five years.

All the evidence indicates that the powerful economic boom in mainland China will continue to create a complex mix of opportunities and threats for Hong Kong. In general, as the Special Administrative Region (SAR) repositions itself, we believe it will be the higher-value/lower-bulk transport modes that are most resilient. So we remain relatively confident about prospects for airfreight, particularly for regional trade in electronics, IT products and express/parcel delivery. Airfreight capacity will also grow as a result of the expansion of the passenger business, driven by the spread of low-cost airlines. In addition, Hong Kong-based Cathay Pacific has negotiated preferential access to more routes into the mainland, through its takeover of Hong Kong Dragon Airlines (Dragonair). BMI's forecast is now that airfreight volume (measured in mn tonnes) will grow by an annual average of 5.0%, lower than in the preceding five years.

The territory retains some extremely important advantages. In BMI's freight transport business environment rating, Hong Kong scores a total of 48 (out of a potential maximum of 70 and compared with a regional average of 44.7), with particular strength in both the regulatory and competitive environments and a satisfactory showing in the ratings for long-term economic risk and infrastructure growth. This will continue to make it an attractive place for the freight industry, more so if it can begin to grapple with its higher costs, relative to the mainland.

Overall, BMI remains optimistic that Hong Kong will be able to adapt to the new situation and remain an important regional trading centre. In our projections, the total value of transport and communications GDP will rise to US$30.1bn in nominal terms by 2012, representing 10.9% of Hong Kong's GDP.