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Maritime Services Industry in Hong Kong

Overview

  • Hong Kong was the world’s 7th largest trading economy in 2017 with international trade immensely facilitated by its efficient port amid a strong presence of ship owners, cargo owners and traders. Over the years, Hong Kong has seen a continual expansion of its maritime service cluster, comprising ship management, ship broking, ship finance, maritime insurance and law.
  • As of end 2017, Hong Kong is the world’s fourth largest shipping register following Panama, Marshall Islands and Liberia. Singapore held fifth position and China ranked the ninth. Besides, Hong Kong Shipping Register reported registered vessels totaling 125 million GT as of December 2018.
  • Hong Kong overtook London’s spot for the first time in five years and became the second leading maritime centre in the world, according to the International Shipping Centre Development Index (ISCD) 2018 published by the Baltic Exchange and Chinese news agency Xinhua.
  • Hong Kong’s port was ranked the seventh busiest container port in the world in 2018, trailing Shanghai, Singapore, Ningbo-Zhoushan, Shenzhen, Guangzhou and Busan.
  • According to the World Bank’s Logistics Performance Index (LPI), Hong Kong scored 3.92 to rank 12th in the world and third in Asia. In terms of international shipment performance, Hong Kong ranked 7th among 160 economies.
  • The Hong Kong Maritime & Port Board, established in April 2016, is responsible for formulating strategies and policies to drive the growth of high value-added and professional maritime services in Hong Kong, foster talent development, and promote Hong Kong as an international maritime hub.
  • The Baltic Dry Index (BDI) is a widely used gauge for the change in sea freight cost to transport commodities such as coal, iron ore, grains and fossil fuels for more than 20 major international routes.

Hong Kong was the world’s 7th largest trading economy in 2017 as well as an international maritime centre characterised by a strong presence of ship owners, cargo owners and traders in Hong Kong on the one hand, and a vibrant maritime services cluster on the other. There has been a continual expansion in Hong Kong’s maritime service cluster over the years, which offers comprehensive and professional services ranging from ship financing, insurance and broking, to ship management and maritime law.

Hong Kong Shipping Register (HKSR) is a ship registration system separate from that of the Mainland China. More than 2,600 vessels were on HKSR as of December 2018, boasting a total of 125 million gross tonnes (GT). Besides, Hong Kong is the world’s fourth largest ship register following Panama, Marshall Island and Liberia in 2017.

Income derived from the international trade of ships registered in Hong Kong is exempt from profits tax. Besides, Hong Kong has also entered into double taxation agreements (DTAs) which cover shipping income with many places such as US, UK, Netherlands, Denmark, Norway and Germany. With a low tax regime and strong institutional environment, along with a maritime services cluster, Hong Kong flag is seen as a preferred choice for foreign vessel owners.

Table: Ownership of Merchant Fleets with Hong Kong Flag (2018)
Table: Ownership of Merchant Fleets with Hong Kong Flag (2018)

With a mission of creating an exchange platform for ship-owners in Hong Kong, the Hong Kong Shipowners Association (HKSOA) was established in 1957. Representing the interests of its members in international shipping committees, HKSOA is a member of the Asian Shipowners Association (ASA), the International Chamber of Shipping (ICS) and International Association of Independent Tanker Owners (INTERTANKO). As of 1 December 2017, HKSOA members owned, managed and operated a fleet with a combined carrying capacity of more than 183 million DWT.

Range of Services and Services Providers

Ship Broking

Ship brokers in Hong Kong provide services in ship chartering and transactions. When working for the ship owners, chartering brokers seeks employment for the ships and negotiate the favourable shipping rates and routes for their clients. On the other hand, ship brokers also help cargo owners to find the best ship for a voyage and complete a charter. Apart from the negotiation, ship brokers are also responsible for monitoring the implementation of voyage instructions, payments, preparation of contracts and related documents. 

Many of the world’s leading ship brokers have established offices in Hong Kong, such as Clarksons and Simpson Spence & Young. With in-depth knowledge of the Asian markets, local and foreign ship brokerage experts in Hong Kong provide consultancy services and up-to-date market intelligence of the shipping industry trends. Headquartered in London with 25 branches including Hong Kong, the Institute of Chartered Shipbrokers (ICS) is an international organisation representing the professional network of ship brokers, ship managers and agents. ICS provides education and training for both new entrants to the industry and experienced professionals. ICS membership is internationally recognised in the shipping industry; presently ICS membership comprises 4,000 individuals and 120 corporate members. The majority of ICS members obtained membership through the ICS’ Professional Qualifying Examinations (PQE), which assesses candidates’ knowledge of the commercial shipping industry.    

Ship Management

Hong Kong is home to numerous well-established professional ship management services providers. Many of the ship owners outsource regular operational functions to professional third-party ship managers to achieve better cost control. Ship management functions include organising crew and supplies, dry-docking, maintenance and regulation compliance. Ship management companies often have specialised departments focusing on specific functions. For crewing services, ship managers are involved in staff recruitment, insurance, visa and work permits, as well as training. In addition, some ship management companies offer consultancy services in ship engineering, construction and shipyard selection.   

Marine Insurance 

To complete a voyage, ships and cargo have to be insured. Therefore, the marine insurance sector is vital to the shipping industry. Insurance brokers help ship buyers identify the risks and tailor the suitable insurance coverage. Hong Kong has a cluster of international marine insurance service providers, with a wide range of marine insurance products offered. As of March 2019, there were 89 authorised ship insurers in Hong Kong, of which 35 were foreign insurers.

Marine insurance is generally classified into two types - hull & machinery insurance and cargo insurance, which insure, respectively, loss or damage to the hull and machinery of the ships, and cargo on board. In addition, Hong Kong is a hub for Protection and Indemnity (P&I) insurance, which is a form of insurance that involves third-party liabilities and expenses arising from ownership or operation of ships. Specifically, members of the P&I Clubs (co-operative insurance associations), including ship owners, ship operators and charterers, mutually insure each other’s liability for risks or expenses such as collision, cargo damages and towage. At present, there are 13 principal member clubs under the International Group of P&I Clubs worldwide, providing P&I liability cover for about 90% of the world’s ocean-going tonnage. 12 of these principal P&I Clubs have established offices in Hong Kong. In October 2016, the International Union of Marine Insurance (IUMI), a key professional organisation representing the global marine insurance industry, announced to set up its Asian hub in Hong Kong.

Shipping Finance

Apart from ship mortgages, shipping finance includes sales and leaseback transactions, initial public offerings and related financial products. Ship finance service providers engage in the loan documentation for credit applications, which require shipping risk analysis and industry intelligence. Besides, shipping banks provide ship owners with other financial services, such as currency and payment system management. As an international financial centre, Hong Kong has a high concentration of banks providing professional ship financing services to the local shipping industry, as well as foreign ship owners and shipyards who arrange their financing and transactions in the region. Some the world’s leading maritime finance banks, such as HSH Nordbank and Credit Agricole, have established a presence in Hong Kong.

According to statistics from the Hong Kong Monetary Authority (HKMA), shipping equipment loans booked in Hong Kong amounted to about HK$116 billion in December 2018, accounting for 2% of Hong Kong's total bank loans. Since a typical ship loan may well be a significant investment of over US$100 million, detailed considerations on administrative arrangements and taxation of different regimes would be taken into account. Therefore, a bank’s lending to ship owners may be recorded in the bank's accounts on the headquarters or other branches, and in this regard, HKMA figures may not fully reflect the size of shipping finance related to ship owners and other stakeholders in Hong Kong.

Maritime Legal Services

Legal services for the maritime sector cover maritime casualty and commercial shipping activities. The latter involves legal processes for ship finance, contracts for ship building and transactions. International law firms in Hong Kong offer maritime legal advice on shipping matters including chartering, piracy, cargo claims and dispute resolution. Maritime lawyers specialised in Admiralty Law work for ship owners, charterers and cargo owners, while maritime insurers deal with the legal issues of maritime casualties, such as ship fires, collisions, sinking and groundings, as well as the subsequent pollution, towage and wreck removal. Hong Kong jurisdiction originated from the British common law system, with a well-established legal system and judicial independence. The UK’s Maritime Law is also widely adopted in the world. The High Court of Hong Kong has specialist lists to deal with admiralty disputes with its own Admiralty Court Judge. Established in 1978, the Hong Kong Maritime Law Association consists of maritime lawyers, ship-owners, as well as organisations and individuals members involved in maritime sector. 

In some cases, shipping disputes are resolved through arbitration or mediation, and Hong Kong is a major maritime arbitration centre in the region. In 2018, the Hong Kong International Arbitration Centre (HKIAC) handled 521 new arbitration cases, with 15% involving maritime disputes.

Industry Data

Table: Employment and Establishment in Hong Kong’s Shipping Industry (2017)
Table: Employment and Establishment in Hong Kong’s Shipping Industry (2017)
Table: Business Receipts and Other Incomes (HK$ billion)
Table: Business Receipts and Other Incomes (HK$ billion)
Table: Total Port Cargo Throughput
Table: Total Port Cargo Throughput
Table: Exports of Sea Transport Services
Table: Exports of Sea Transport Services

Industry Development

Guangdong-Hong Kong-Macao Greater Bay Area (Greater Bay Area) Development

With enhanced integration between Hong Kong and other cities under the Greater Bay Area (GBA) development, Hong Kong port is likely to gain a new lease of life as being part of the major Southern China port cluster. Under the GBA plan, it pledged to consolidate and enhance Hong Kong’s status as an international maritime centre and support Hong Kong’s development of high-end maritime services such as ship management and leasing, ship finance and dispute resolution services. The GBA allows Hong Kong to leverage on its One Country Two Systems attribute and form a complementary and mutually beneficial system and further strengthen the port cluster’s global competitiveness. To complement the GBA plan, Hong Kong government will inject HK$200 million into the Maritime and Aviation Training Fund to nurture talents for the sectors and introduce tax measures to promote the development of ship leasing and marine insurance businesses.

Competitive Landscape Regionally and Internationally

Hong Kong’s maritime industry has been in a rough spot since Mainland China liberalised its trading rules and cabotage policy. Indeed, the international ranking of the port has fallen over the years. In 2018, Hong Kong’s port was ranked the seventh busiest container port in the world, trailing Shanghai, Singapore, Ningbo-Zhoushan, Shenzhen, Guangzhou and Busan. To enhance global competitiveness, Hong Kong International Terminals (HIT), Modern Terminals, COSCO-HIT Terminals and Asia Container Terminals have announced the formation of The Seaport Alliance, aiming to optimise terminal utilisation and improve service offerings. A common terminal operating and management system is expected to increase flexibility in berth and yard planning and significantly reduce inter-terminal trucking and handling costs.

Technology Trends

The maritime industry is embracing technologies to address ongoing management challenges and improve efficiencies. HIT is the first container terminal operator in Hong Kong to launch remote-controlled rubber-tyred gantry cranes (RTGCs) and automated container stacking system. Monitoring cameras and sensors are installed in every of the 29 cranes at Kwai Tsing Port to ensure full precision, thus enhancing efficiency and operational safety. Europe’s biggest port, Port of Rotterdam, is also experimenting new solution to improve logistics process using autonomous vehicles. Truck platooning is being tested in which a series of automated trucks will follow a lead vehicle and travel closely together, achieving a smoother traffic flow.

The Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA)

Under CEPA, Hong Kong services suppliers (HKSS) are given greater flexibility and in more preferential terms when trying to access the mainland’s maritime transport market. The latest Agreement on Trade in Services consolidates and extends the liberalisation of services to the whole of Mainland China, with HKSS granted national treatment to provide various transportation services across Mainland China. HKSS are allowed to establish wholly-owned units that operate port cargo loading and unloading businesses, and supply materials other than fuel and water to vessels owned or managed by HKSS in the mainland. Details of the preferential access concerning maritime transport services can be found at this website.

Content provided by Picture: Melissa Ho
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