Willy Lin, Chairman

2010: The year of recovery

The economic recovery from the ‘08-‘09 global downturn had begun to pick up momentum in the second half of 2009 and finally turned the corner in the second half of 2010.

Market sentiment was definitely buoyant as we entered 2010, as shippers faced space shortages and rising freight rates in the first quarter. The situation may or may not have been artificial, as factors like clearing orders before the long holiday period, and the grounding of cargo fleets and container ships during the economic slowdown in previous months. The ‘cargo rush’ experienced during the early days of 2010  made it seem like we were indeed in what economists were calling a ‘post-crisis economy’. Yet, the signs were not so clear. There had been slight improvement in Christmas sales for the US and UK markets. However, seasonal sales in Germany, Italy, France, Spain and Japan had been unsatisfactory. Indeed, unemployment rates in the EU and the US exceeded 10%.

Ranking high on the concern lists of Hong Kong exporters were weak demand and unreasonable low-price demands by buyers. In sea cargo, the exports from China ports were stable but the imports were growing fast, indicating that raw materials were coming in for manufacturing and processing, and pointing to future export growth. In freight rates, Transpacific shipments that are bound by service contracts, remained stable. But the Far East-Europe trade freight rates was much more volatile, with general freight rates going up by as much as 300% in the second half of 2010. 

After record highs in July, shippers found temporary relief as freight rates suffered a phenomenal drop in August 2010. Shipping lines struggled to impose a “2^nd Peak Season Surcharge” and “Container Positioning Charge” to shore up revenue, but all these measures failed. It seemed at this point that the ‘recovery’ that was very promising in the first half of 2010, was not going to push through.

One of the reasons that the trade saw as a factor to the drop in freight rates, was the vessel capacity investigation launched by the US Federal Maritime Commission in March 2010.  The FMC was looking into shippers complaints that the market was being artificially manipulated by the same tactics the shipping lines had first used to counter recession. Slow-steaming and grounding ships during the recession seemed logical, but even as trade was coming back strong, the shipping lines were keeping the measures in place as they seemed to be boosting freight rates. In September 2010, FMC Chairman Richard Lidinsky presented the findings of the investigation, asking for legislative changes that would give it authority to adjudicate contract disputes between shippers and carriers.  

EBS

Meanwhile, even as south China shippers faced the challenges of the recession and were trying to get in tune with the recovery, we suffered another blow delivered by the shipping lines on the China – intraAsia trade. The lines servicing the trade announced in March 2010 a new charge, the EBS or Emergency Bunker Surcharge. The charges were RMB300 per TEU and RMB600 per FEU for all export shipments in the intra-Asia trade. The EBS, said the shipping lines, was to be collected for all export shipments from China at ports of origin, regardless of whether the cargo has been “pre-paid at origin” or “collected at destination”.  Shipping lines were ignoring the international trade practice that under FOB terms, all freight charges including fuel related costs are paid by importers at the destination.

In a coordinated move, the China Shipper’s Association, Shenzhen Shipper’s Association, Hong Kong Shippers’ Council and Macau Shippers’ Association had taken collective action and protested to authorities in Hong Kong and China, calling for the immediate withdrawal of the EBS.

Earlier, in 2008, the eight shipping lines servicing the Taiwan to Hong Kong/South China trade tried to impose an EBS. After protests by shippers, they withdrew the charge but eventually seven lines reinstated the charge. Shippers were advised to use the lines that do not charge EBS.

Minimum wage law

Hong Kong’s minimum wage law was in heavy discussion in May 2010, as shippers cautioned on the effects of the law on the logistics trade, which is quite different in nature to other sectors. There are services in the supply chain that can be labor-intensive, and costs become a critical factor of whether such services should be performed in Hong Kong or in other, more competitive, nearby regions. It is not a pleasant scenario but an accepted fact nevertheless that the Hong Kong port’s share of export cargo from South China has been slipping and will continue to do so due to cost advantages of using the Shenzhen ports. 

The minimum wage law was introduced in LegCo in July 2010, and in November 2010, a HK$28 per hour rate was recommended by the Provisional Minimum Wage Commission and adopted by the Chief Executive-in-Council.  It was passed by the Legislative Council in January 2011 and will become mandatory in May 2011.

Radical changes

As 2010 came to a close, we foresaw radical changes in the coming years in the global cargo security regime.  The 24-hour Advance Manifest System that has been in place in the US for some years now, became a requirement for EU Customs in January 2011. In the US, the Transportation Security Administration’s (TSA) 100% screening rule was put into effect on August 1^st, 2010, requiring all cargo moving aboard passenger aircraft be screened before loading. The US has said that it eventually plans to impose 100% screening on all export at departure ports prior to shipping to the US, so international cargo would be affected. The challenges are great, primarily in the lack of machines to be used for scanning.

There were surges in cargo throughput at the Hong Kong port in 2010 and, except for October and December, the monthly growth rates were at double-digits. The 2010 throughput growth at the port was at 12.6%, while for the Shenzhen ports it was 23.3%.

In airfreight, 2010 turned out to be a record breaking year for the Hong Kong airport.  Cargo handled at HKIA increased 23.4% over 2009, to 4.1 million tonnes; and air traffic movements rose 9.7% to 306,535. Even passenger traffic saw a 10.3% increase over 2009. All signs are pointing to a robust economy in 2011.

• 2010: The year of recovery

  2010: The year of recovery

   

  The economic recovery from the ‘08-‘09 global downturn had begun to pick up momentum in the second half of 2009 and finally turned the corner in the second half of 2010.

   

  Market sentiment was definitely buoyant as we entered 2010, as shippers faced space shortages and rising freight rates in the first quarter. The situation may or may not have been artificial, as factors like clearing orders before the long holiday period, and the grounding of cargo fleets and container ships during the economic slowdown in previous months. The ‘cargo rush’ experienced during the early days of 2010 made it seem like we were indeed in what economists were calling a ‘post-crisis economy’. Yet, the signs were not so clear. There had been slight improvement in Christmas sales for the US and UK markets. However, seasonal sales in Germany, Italy, France, Spain and Japan had been unsatisfactory. Indeed, unemployment rates in the EU and the US exceeded 10%.

   

  Ranking high on the concern lists of Hong Kong exporters were weak demand and unreasonable low-price demands by buyers. In sea cargo, the exports from China ports were stable but the imports were growing fast, indicating that raw materials were coming in for manufacturing and processing, and pointing to future export growth. In freight rates, Transpacific shipments that are bound by service contracts, remained stable. But the Far East-Europe trade freight rates was much more volatile, with general freight rates going up by as much as 300% in the second half of 2010. 

   

  After record highs in July, shippers found temporary relief as freight rates suffered a phenomenal drop in August 2010. Shipping lines struggled to impose a “2nd Peak Season Surcharge” and “Container Positioning Charge” to shore up revenue, but all these measures failed. It seemed at this point that the ‘recovery’ that was very promising in the first half of 2010, was not going to push through.

   

  One of the reasons that the trade saw as a factor to the drop in freight rates, was the vessel capacity investigation launched by the US Federal Maritime Commission in March 2010. The FMC was looking into shippers complaints that the market was being artificially manipulated by the same tactics the shipping lines had first used to counter recession. Slow-steaming and grounding ships during the recession seemed logical, but even as trade was coming back strong, the shipping lines were keeping the measures in place as they seemed to be boosting freight rates. In September 2010, FMC Chairman Richard Lidinsky presented the findings of the investigation, asking for legislative changes that would give it authority to adjudicate contract disputes between shippers and carriers. 

   

  EBS

   

  Meanwhile, even as south China shippers faced the challenges of the recession and were trying to get in tune with the recovery, we suffered another blow delivered by the shipping lines on the China – intraAsia trade. The lines servicing the trade announced in March 2010 a new charge, the EBS or Emergency Bunker Surcharge. The charges were RMB300 per TEU and RMB600 per FEU for all export shipments in the intra-Asia trade. The EBS, said the shipping lines, was to be collected for all export shipments from China at ports of origin, regardless of whether the cargo has been “pre-paid at origin” or “collected at destination”. Shipping lines were ignoring the international trade practice that under FOB terms, all freight charges including fuel related costs are paid by importers at the destination.

   

  In a coordinated move, the China Shipper’s Association, Shenzhen Shipper’s Association, Hong Kong Shippers’ Council and Macau Shippers’ Association had taken collective action and protested to authorities in Hong Kong and China, calling for the immediate withdrawal of the EBS.

   

  Earlier, in 2008, the eight shipping lines servicing the Taiwan to Hong Kong/South China trade tried to impose an EBS. After protests by shippers, they withdrew the charge but eventually seven lines reinstated the charge. Shippers were advised to use the lines that do not charge EBS.

   

  Minimum wage law

   

  Hong Kong’s minimum wage law was in heavy discussion in May 2010, as shippers cautioned on the effects of the law on the logistics trade, which is quite different in nature to other sectors. There are services in the supply chain that can be labor-intensive, and costs become a critical factor of whether such services should be performed in Hong Kong or in other, more competitive, nearby regions. It is not a pleasant scenario but an accepted fact nevertheless that the Hong Kong port’s share of export cargo from South China has been slipping and will continue to do so due to cost advantages of using the Shenzhen ports. 

   

  The minimum wage law was introduced in LegCo in July 2010, and in November 2010, a HK$28 per hour rate was recommended by the Provisional Minimum Wage Commission and adopted by the Chief Executive-in-Council. It was passed by the Legislative Council in January 2011 and will become mandatory in May 2011.

   

  Radical changes

   

  As 2010 came to a close, we foresaw radical changes in the coming years in the global cargo security regime. The 24-hour Advance Manifest System that has been in place in the US for some years now, became a requirement for EU Customs in January 2011. In the US, the Transportation Security Administration’s (TSA) 100% screening rule was put into effect on August 1st, 2010, requiring all cargo moving aboard passenger aircraft be screened before loading. The US has said that it eventually plans to impose 100% screening on all export at departure ports prior to shipping to the US, so international cargo would be affected. The challenges are great, primarily in the lack of machines to be used for scanning.

   

  There were surges in cargo throughput at the Hong Kong port in 2010 and, except for October and December, the monthly growth rates were at double-digits. The 2010 throughput growth at the port was at 12.6%, while for the Shenzhen ports it was 23.3%.

   

  In airfreight, 2010 turned out to be a record breaking year for the Hong Kong airport. Cargo handled at HKIA increased 23.4% over 2009, to 4.1 million tonnes; and air traffic movements rose 9.7% to 306,535. Even passenger traffic saw a 10.3% increase over 2009. All signs are pointing to a robust economy in 2011.
• Hong Kong is the ideal RDC

  I was in New York, Los Angles and San Francisco in September  as part of a Hong Kong Logistics Development Council delegation to the United States. The delegation was led by HKSAR Secretary for Transport and Housing, Ms Eva Cheng, and I was invited to make a presentation at the seminar attended by prominent members of the US logistics and trading industries in the Harvard Club in New York.

   

  Ms Cheng's message to the US logistics community, "Hong Kong – Your Logistics Partner in Asia," summed up the current situation of the economies of the US and Hong Kong. The US is Hong Kong's second largest trading partner and the Port of Long Beach and the Port of Los Angeles together handle about 40% of containerised cargo from Hong Kong. Thereby making Los Angeles a very important conduit for US-Hong Kong trade and economic activities, said Ms Cheng.

   

  In my presentation to the logistics community of New York, I chose to expound on Hong Kong's attributes as a Regional Distribution Centre and why it has always been the springboard to Mainland markets. I feel that, from time to time, it doesn't hurt to review and update our own knowledge of Hong Kong logistic services and how we can use them to expand our own trading and other commercial activities.

   

  Ms Cheng summed up her rationale for Hong Kong as a strategic partner in one brief paragraph: "According to the United Nations, Hong Kong, a city of 7 million people and about one-tenth of LA county in size, ranked third in the world in terms of the largest Foreign Direct Investment received in 2010. Hong Kong, the gateway to China positioned at the heart of Asia, is clearly benefitting from the shift in economic interest to the East.

   

  "The US is among the top five largest investors in Hong Kong. US companies have also topped our list of regional offices set up by foreign firms. Our economy is also doing well with a projected GDP growth in the range of 5-6% for 2011."

   

  Hong Kong's transformation as a regional distribution centre did not happen overnight. The economy's structural transformation has seen the services sector overtake much of the economy and by 2009, the services sector constituted 92% of the GDP.  The import/export trades, wholesale, retail, restaurants and hotels, comprise about 26% of the GDP while transport, storage and communications make up 8%.

   

  Much of this expansion and growth has been related to China, matching China's manufacturing and trade expansion. China of course has shown remarkable growth. According to People's Daily, by 2008 China's GDP had increased 14-fold since reform was instituted back in 1978. In 1990, the IMF ranked China's GDP 10th in the world, then 6th in 2000, 5th in 2005, and 4th in 2006. Today, it is second only to the United States. China's annual average GDP growth has been at 9.32%, and in the first quarter of this year, the GDP was consistent at 9.7%.

   

  The connector between these two economies, Hong Kong's and the Mainland, is of course trade and logistics. So much so that China put in a section about Hong Kong acting as a regional distribution centre in its latest Five-Year Plan--the lynchpin of China's economic development. As Ms Cheng pointed out, "the 12th Five-Year Plan for the National Economic and Social Development of the People's Republic of China, promulgated in March 2011, contains, for the first time, a chapter dedicated to Hong Kong, and elaborates on the significant role Hong Kong plays in the development strategy of our country. The chapter strongly supports Hong Kong's development as a high-value goods inventory management and regional distribution centre. That means the Central People's Government of China recognises Hong Kong's importance and achievements as a regional logistics hub in its further economic development of the country, serving the mutual interest of both China and the Hong Kong SAR. Reliable security, quality assurance and strong intellectual property protection have made Hong Kong the ideal place for the distribution of high-value goods, and enabled our efficient operators to move up the value chain, providing customised services and supply chain solutions to clients from around the world."

   

  Global brand names like H&M, Tiffany and Timberland manage their supply chain operations for the whole of Asia from Hong Kong. British retailer, Marks & Spencer, chose Hong Kong's Kerry Logistics as its partner in Greater China because of the extensive logistics network Kerry has established in the region.

   

  But not only because of its proximity and strategic location to the Mainland, there is also another contributing factor to Hong Kong's improved access to the Mainland markets. The Closer Economic Partnership with the Mainland was inked before China's membership to WTO, and it gave Hong Kong companies an early edge to the liberalisation of Mainland markets. The terms of CEPA were stipulated and signed on June 29, 2003, and cover three broad areas, the first being trade in goods which stipulates that all goods of Hong Kong origin imported into the Mainland enjoy tariff free treatment, upon application by local manufacturers and upon the CEPA rules of origin being agreed and met.  The agreement on trade in services allows Hong Kong service suppliers preferential entry into various Mainland service areas. Thirdly, the facilitation on trade and investment allows both sides to enhance co-operation in various areas to improve the overall business environment.

   

  The entry of Hong Kong's services sector into the Mainland markets has contributed into its development as a Regional Distribution Centre. Hong Kong is now the main conduit for the wine trade into and out of the Mainland where economic rise has given way to consumerism and a taste for fine wine, among other things.

   

  The Customs and Excise Department  of Hong Kong and the General Administration of Customs of the Mainland signed in February 2010 the "Co-operation Arrangement on Customs Facilitation Measures for Wine Entering the Mainland through Hong Kong" (or the Customs Facilitation Agreement) to expedite Customs clearance of wine imported into the Mainland through Hong Kong. The Customs Facilitation Agreement applies to wine which is imported through designated ports into the Mainland; exported by Hong Kong Registered Wine Exporters; and imported by Mainland Registered Wine Importers.

   

  Hong Kong deregulated the wine market in 2008, and in 2010, its wine imports had risen to HK$6,982 million and its exports to HK$1,336 million. No permit or license is required to import wine to Hong Kong. Under the amended Dutiable Commodities Ordinance, Hong Kong wine traders do not need to apply for licenses or permits to import, export, manufacture, store or move wine or liquor with an alcoholic strength of less than 30% by volume. Nor does the import of wine require a Certificate of Origin.  No health certificates are required. There are no extensive labelling requirements except for drinks with alcoholic strength by volume of 1.2% but less than 10% which must show the durability period.

   

  Because of this, Hong Kong has become a repository for wines that are meant for distribution in Asia and the Mainland. Wine storage is now a prime industry in Hong Kong, and there are some 15 top quality standard cellars, and ISO-level certification for storage facilities. The Hong Kong Quality Assurance Agency (HKQAA), following a detailed examination of official documentation and on-site audit, provides the Wine Storage Management Systems Certification Scheme as well as the Certification Scheme for Wine Retailers. The Wine Storage Management Systems certification program helps organizations guard against the deterioration of wine during storage. The scheme is applicable to all wine storage facilities and was developed based on ISO 9001 requirements and globally accepted practices.

   

  Wine can therefore be stored in Hong Kong for months duty-free. DHL set up a wine distribution centre in 2010 for storage and distrbution. Hong Kong logistics company, U-Freight, has been HKQAA certified with The Wine Storage Management System - Provision of Commercial Wine Storage Services which UF Logistics implemented in its logistics warehouse in Hong Kong. UF provides commercial wine storage services within a 1,000-2,000 sqft area of the UF Logistics warehouse near the Hong Kong port.

   

  The development of Hong Kong as a regional distribution centre means more opportunities to capture the booming intra-Asia trade, even while structural problems plague the economies of our largest trading partners, the US and the EU. So we encourage our partners in the US to come and avail of the know-how and logistics infrastructure that Hong Kong has built over the years.

• Turmoil continues into 2009

  The latter months of 2008 were turbulent, with the sub-prime issue spinning off into a virtual financial meltdown bringing about the much dreaded credit crunch that would affect every area and aspect of the economy and have a far reaching and substantial impact on trade. Hong Kong’s air cargo throughput that consistently registered double-digit increases in the past years, 2008 saw an unusual decline in growth of 3.1% over 2007. In 2007, the HKIA handled 3.8 mn tonnes while in 2008, it handled 3.6 mn tonnes. The Hong Kong port total throughput for 2008 was 24.5 mn TEUs, which was 2.1% higher than the nearly 24 mn TEUs handled in 2007.

  Strong Thanksgiving retail sales in the US were nothing more than a short-lived surprise, until the Christmas sales showed a drop of 2% year-on-year--the worst in the last ten years. Sales in the traditional markets of Europe and Japan were no better. On the bright side, a 20.8% increase in domestic consumption in Mainland China was registered in November. Christmas sales in developing countries like Russia, Brazil, Chile and those in Eastern and Central Europe were also reported to be satisfactory.

  To ward off the much-feared credit crunch, financial and other institutions in Hong Kong have been putting into effect fiscal policies towards alleviating the situation. It was an insightful and timely move of the Hong Kong Trade Development Council to spare $120 million to assist Hong Kong exporters expand new markets in developing countries.

  The Central and Guangdong governments released details of further privileges that Hong Kong enterprises could enjoy under CEPA. CEPA allows Hong Kong enterprises to make pioneer moves in the Mainland under privileged treatment.

  By the first quarter of 2009, the trading environment had deteriorated further. In January 2009, cargo throughput at the port had decreased by 23.6% over the same month the previous year. Indeed, throughout the year, from Jan-Oct 2009, the cumulative figure was -17.6% in throughput at the port. The figure was similar over at the Shenzhen ports, with a cumulative -18% decline in throughput for Jan-Oct 2009 over the same period in 2008.

  Hong Kong’s air cargo throughput, for the months of December 08 and January 09, saw decreases exceeding 28%, indicating that the impact of the economic downturn has been more severe on high value air cargo than on basic stuff. It was not till October 2009 that air cargo volumes would show the first signs of life, increasing by 1.3% in Oct 2009 over Oct 2008, for the first time in 14 months, to 324,000 tonnes.

  As for the Hong Kong port, we may not see a return to pre-crisis robustness in terms of cargo throughput but a rebound is in the offing, perhaps in mid-2010.

  Meanwhile, in the midst of the financial turmoil, shippers were again surprised by a new charge from OOCL. Hong Kong's local shipping company announced it is imposing a Seal Charge of RMB25/HK$25, to be collected starting May 13, 2009. We understood the lines as having financial difficulties but we asked if they had considered the shippers' situation as well.  Shippers had been one of the hardest hit sectors of trade. Orders have been reduced substantially, prices for goods have been forced down to rock bottom or even at losing terms, credit lines had disappeared.

  The region's three shippers' organizations, the Hong Kong Shippers' Council, the Macau Shippers' Association and the Shenzhen Shippers' Association, objected strongly and went on the offensive in the media on their position on the new Seal Charge. The shippers' groups felt they were being singled out since the announcement for the charge mentioned only exports from South China, including Hong Kong, Shenzhen and Macau. Already, Hong Kong shippers pay the highest THC of all, and on top of that, were being singled-out again to pay a new Seal Charge.

  We pointed out that to impose a Seal Charge from out of the blue is unconscionable of OOCL, but what's worse is to come up with such an unjustified charge at a time when everyone was struggling financially. The seal is part of the container that the shipping line agrees to transport and for which we pay freight charges. To start charging for the seal at this point in time makes no sense at all. OOCL insisted it would go ahead with the Seal Charge and gave examples of higher levels being levied as Seal Charge in other parts of the world.

  The last quarter of 2009 seems to be bringing clearer signs of a rebound from the financial turmoil that has been hitting the world since August 2008. Notwithstanding the Dubai shock late last week, indicators show that slight increases are to be expected in 2010, signaling perhaps the end to the turmoil, although not a return to the same levels of prosperity prior to the crisis.

• Hong Kong’s share of PRD cargo

  It is alarming to the industry that containers from western PRD carried by barges and feeder vessels are the only share of PRD cargo keeping the Hong Kong port competitive with Shenzhen ports. Hong Kong has been losing its large share of the numbers of containers carried overland by trucks. According to the Customs & Excise Dept, in 2003, crossboundary container trucks with containers that moved in and out of Man Kam To, Shau Tau Kok and Lok Ma Chau totaled 4,601,953, and in 2004, the number grew by a mere 0.1%. The following year however, the drop was great, 6.4% less than in 2004, at a total of 4,312,300 movements.

  According to the Customs & Excise Department, crossboundary container trucking movements (in and out) started its decline, in 2003 (4,601,953) with a -1.7% growth over 2002 (4,679,225). There was a marginal 0.1% growth in the number of movements in and out the boundary in 2004 over 2003, but was followed with a sharp decline f -6.4% in 2005, when the total movements reaching only 4,312,300. In 2006, the decline was -4.3%, in 2007 over 2006 it was -4.2%, in 2008 over 2007 it was -10.9%.  Indeed, it has been over five years in a row that we have seen negative growth in boundary-crossing container movements. The chances of regaining lost ground, regrettably, is very slim. There seems to be no solution that could address the two problematic areas that account for the decline, which are: 1) higher trucking costs of taking containers to the Hong Kong port from the PRD, than trucking them to closer ports in Shenzhen; and the high Terminal Handling Charges (THC) that shipping lines levy at the Hong Kong port.

  The industry is pessimistic of whether shipping lines would ever give up their cartel act of collecting high levels of THC in Hong Kong. Freight rates have been dropping precipitously this year. Hence, the lower freight rates drop, the greater the desire would be of shipping companies to seek revenue compensation derived from surcharges. We hope that maritime reforms that are taking place around globe, especially the more widespread application of competition laws, would stop shipping lines' practices of collective pricing on freight rates, surcharges and other charges. While the SAR Government drafts the Competition Law, we expect there to be a clause that restricts shipping lines in jointly fixing surcharges, including THC.

  Transshipment cargo from western PRD is the only sector that the Hong Kong port still retains some advantages. The Shenzhen port is geographically divided with Yantian in the east, and Shekou, Chiwan and Da Chan Bay in the west. Because of the fact that barges and feeder vessels bound for Yantian must traverse the Ma Wan Channel in Hong Kong first, the Hong Kong port has been able to intercept cargoes carried by barges and feeder vessels to Yantian. In addition, since transpacific cargo is also captured in Hong Kong, there is insufficient cargo left to be carried to the western Shenzhen ports by barges and feeder vessels. The Hong Kong port has been able to ride on this advantage and capture the bulk of transshipment containers from the western PRD. This forms the major component of throughput growth for the Hong Kong port in the past few years.

  However, the situation is rapidly changing. With substantial new capacity coming on-stream, the number of sailings as well as loadings at western Shenzhen ports has increased considerably in recent years. The western port operators and Shenzhen authorities have been very active in developing feeder operations from western PRD. We have seen a great surge in transshipment volumes from western PRD. A feeder operator that takes part in the South China Express Link told me that, last year, his company could hardly maintain a weekly sailing to western Shenzhen, but nowadays his company provides three sailings per week and all the ships are full. We believe the rapid development of the South China Express Link which connects the western PRD with western Shenzhen ports, is partially due to barge and feeder operators' frustrations of the inefficiency of operations at Kwai Tsing container terminals, which essentially inflate operation costs. And now, with the opening of Da Chan Bay terminals and the expanded capacity of Shekou and Chiwan terminals, the number of ship callings will further increase. We should also not underestimate the impact of increased vessel sizes and the surge in fuel costs. These may lead shipping lines to reduce the number of port calls and work adversely against Hong Kong.

  This is why we are really glad to see that the Hong Kong-Zhuhai-Macau Bridge construction is moving ahead. The various governments have finally agreed on the financing scheme and questions such as whether there would be enough traffic to facilitate a low toll for bridge usage; whether arrivals at the Hong Kong airport in Chek Lap Kok could expect to be transferred directly to Macau or Zhuhai; or if the bridge would benefit passenger, rather than cargo, traffic—it is commonly agreed that the bridge will facilitate the trucking of cargo to Hong Kong’s port and airport. The mega bridge is pivotal to the connectivity that enhances Hong Kong’s role as a regional logistics centre.

  Without the bridge, Hong Kong would be at the far end of an inverted Y-shaped traffic network.  The bridge is going to allow second access to the Mainland, other than access through the North.  We are looking forward to the acceleration of the project in coming months.

  Logistics support

  While the Central Government is adjusting its policy with the objective of inducing Guangdong manufacturers to relocate their manufacturing facilities to the mid-western regions in the Mainland, the SAR Government, on its part, needs to allocate resources to help the manufacturing as well as the logistics sectors to cope with change. If Hong Kong manufacturers move from Guangdong to adjacent provinces, or even further to Indochina (Vietnam, Cambodia and Laos), they will need much more logistics support than available now.  Most of the mid-western regions are inland areas and with no seaports. Importation of raw materials and parts, as well as exportation of finished products, would be very different from current operations in southern China or the Pearl River Delta and other locales with waterways. Logistics costs will escalate and could dangerously become a major factor for profitability.

  The Hong Kong logistics sector will also need the assistance of the Government to create inroads for them to operate in these areas and continue servicing their existing clients. Negotiations with the Central and regional governments in the Mainland needs to be made at an early stage.

  Assistance to SMEs

  In November 2008, the Government announced that a special SME loan guarantee scheme was being launched with the aim of helping help small and medium-sized enterprises weather the financial crisis. Financial Secretary John Tsang said the Government is highly concerned about the difficulties faced by SMEs with the present liquidity crunch and hopes the measures will give SMEs more flexibility and convenience in obtaining necessary cash flow to maintain their operation and develop new markets.

  Technically, the scheme will provide $10 billion in liquidity to the commercial lending market for SMEs. The Government will provide a 70% guarantee to the loans granted by the participating lending institutions and its guarantee commitment will be $7 billion. The maximum amount of loan each SME can obtain from a participating lending institution is $1 million. Within the maximum amount of $1 million credit facility for each SME, up to $500,000 can be used as revolving credit. The Government's guarantee ceiling for this revolving credit facility will continue to be 70%. A six-month repayment grace period will be provided to borrowers during which they can pay back the interest only. Thereafter the loan will be repaid over a maximum of 24 months. All SMEs which have been registered in Hong Kong for one year or more, regardless of their industry or business types, are eligible to apply. Application is open for six months starting from the implementation date.

  The Hong Kong Export Credit Insurance Corporation announced also that it was increasing the cover within the bounds of prudent credit assessment and risk management. The scheme was put before the Finance Committee for approval and came into operation in December. The scheme is still in force. On 27 November 2009, ECIC announced that it was extending the waiver of policy fee for a further year until the end of 2010. Under the scheme, the annual fee of $1,500 for a policy with a commencement date of on or before 1 December 2010 will be waived.Established in 1966, the HKECIC is wholly-owned by the Hong Kong SAR Government which provides a guarantee of HK$30 billion to the non-profit making organization.

            The ECIC provides export credit insurance services to companies with business registration in Hong Kong, offering protection of non-payment risks arising from political and commercial events for exports of goods and services. The ECIC’s mission is to encourage and support export trade through the provision of professional and customer-oriented services

  The new scheme is certainly a big boost to the economically vulnerable sector known as the SMEs. In Hong Kong, there are about 276,000 SMEs accounting for 98% of all business establishments and about 50% (1.2 million) of the total private sector employment.

  Zooming in on our particular sectors, we have been aware of inherent problems that need special attention among SMEs involved in shipping and logistics. Those that are already in the business and have been operating for many years need better conditions in their trading environment.

• Emergency Bunker Surcharge

  At the end of June, eight shipping lines plying the Taiwan-Hong Kong/South China route attempted to 'bend the rules' in regard to international carriage of freight. OOCL (HK) Ltd, Evergreen Marine (Hong Kong) Ltd, RCL - Regional Container Lines (HK) Ltd, TS Lines Ltd, Wan Hai Lines (HK) Ltd, Kanway Shipping Ltd, Cheng Lie Navigation (HK) Co Ltd, and Yang Ming Marine Transport Corp, in a violation of Competition Laws, simultaneously issued notices in late June that they would start collecting an Emergency Bunker Surcharge (EBS) of HK$440/RMB400 per TEU from consignees in Hong Kong and South China, regardless of whether freight had already been prepaid in Taiwan or not.

  Bunker and fuel surcharges are always part of freight payment and should be collected from the party that pays for the freight. These shipping lines, by specifying that the new Emergency Bunker Surcharge would be collected from consignees in Hong Kong and South China only, are clearly going against international shipping practices. We have written to all these shipping companies to protest and they had ceased their actions for two weeks, although several of the shipping lines went through with it. OOCL said in a letter that it had temporarily put it on hold.

  In shipping, freight is either 'prepaid' or 'collect' and, in this case, the freight is prepaid in Taiwan. What these shipping lines are trying to do, is collect more money at the other end of the line, in Hong Kong and in South China, when technically, all shipping charges had already been paid in Taiwan.

  Our principal concern is the economic damage that such unmitigated acts could clearly result in, as there will naturally be disruption to commerce and to the smooth flow of trade. We have repeatedly called for dialogue between shippers and shipping lines in the past, prior to the imposition of such acts by shipping lines.

• COMPAG replies

  The Hong Kong Container Depot and Repair Association notified the Council on 16 Feb 2008 by letter, that its members would start collecting a Depot In/Out Management Fee of $10 per truck move starting 1 April 2008. The letter was signed by all of its 24 members. The reason for the fee is to pay for the cost of setting up special handling zones in order to speed up the process of handling containers.

  The Council strongly denounced the levy and filed letters to the Hong Kong Liner Shipping Association since shippers have no direct dealings with the depots. They are selected by the shipping lines who inform shippers of the location of their respective depots for the pick up of empty containers and then delivery of laden containers. Actually, for shippers, it would be most convenient if we could take the boxes straight to port-side. But the outside depots are selected by the shipping lines and they provide storage, handling and repair services to the shipping lines. For this, shippers pay the shipping lines Terminal Handling Charges and Documentation Fee, in addition to freight and other surcharges that should cover all container handling services.

  Terminal Handling Charges in Hong Kong are indeed the highest in the world at about $2,850 per 40ft container for the major trades. Shipping lines already make substantial profits from the exercise, yet here they are introducing a new charge or allowing their handling agents to collect a new charge which, again, goes towards container handling! How many times must the shipper pay for container handling?

  The Transport and Housing Bureau has written to the Council on November 15 that the Competition Advisory Group (COMPAG) had reviewed our complaints on the Depot Management Fee and had found them to be credible and the fee is uncompetitive.

• Charges and surcharges

  In the transport of goods by air and sea, Hong Kong shippers are not only presented a carriage bill but a whole list of charges and surcharges that may or may not be justified. It is not unheard of that a sudden surcharge crops up even after the goods have left the port! On our website and in our regular communiqués to our trade association members for dissemination to their individual members, we constantly alert shippers to the market situation-from bunker charges to documentation fees, storage fees, etc.

  But in the long run, the individual shipper finds that if he wants to see his goods leave the cargo terminal, then he must settle up. We don't want to overburden our regulators, but an organisation similar to a Consumer Council would probably have the tools and guidelines necessary to enforce some sort of regulation over shipping charges. While freight rates are left to market forces, we see carriers and other service providers trying to make up for revenue losses by slapping instant charges. It is time that some sort of monitoring be instituted as a watchdog of the shipping and cargo transportation industry.

• Service providers

  A traditional trait of the shipping of goods in Hong Kong is to go through a cargo agent, freight forwarder or outsource logistics services. Many cargo agents that purport to be freight forwarders are typically SMEs with small operations. They are neither bonded nor regulated. Hence, in times of economic stress, we see a lot of them shutting down their small operations and in the process taking down their clients. These scenarios can be avoided if there was more regulation to this industry.

  A licensing system for SMEs involved in freight forwarding will help in imposing set-up requirements and deter future commercial disasters. The Hong Kong Government at this moment has no regulation or licensing over working capital, business operation, insurance coverage, etc, for freight forwarders or cargo agents. All they require is a Business Registration which is worth less than a thousand dollars to set up operations.

  Besides, the practice in Hong Kong of doing business under FOB terms leaves the shipper at very high risk. The shipper has no choice but to deal with the agent or forwarder nominated by the overseas buyer. If the nominated agent closes down suddenly, then there is the risk that the shipper does not get paid and loses all their goods. There are some cases whereby the Hong Kong agent released the goods to the overseas buyer or agent even while the original Bill of Lading was still with the shipper. This is to the advantage of the agent or forwarder who can have his payment sooner, but with no guarantee that he would also settle payment with the shipper at once.