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Domestic Shipping
Crisis comes with opportunities for shipping industry
Date:2018-08-10 Readers:
On July 6 the United States began its trade war against the Chinese mainland by slapping a 25 percent tariff on $34 billion worth of trade goods. The central government retaliated immediately, implementing countermeasures on a similar scale. The trade war escalated four days later. On July 10 the US released a list of Chinese mainland exports worth $200 billion that could be subject to 10 percent tariffs. The central government refused to back down and proposed countermeasures in response. Hong Kong, an export-oriented economy with the mainland and US as its largest and second-largest trading partners, will probably be affected should the trade war continue to intensify. In an interview with a radio program on July 14, Financial Secretary Paul Chan Mo-po pointed out that continued escalation of the trade war might affect Hong Kong's logistics and trade sectors. Hong Kong's shipping industry has been aiming to develop high-end shipping services in recent years, leveraging the city's advantage as an international trade and shipping hub. It is worth exploring now whether Hong Kong can only wait passively to absorb the impact of the trade war, or if crisis and opportunities coexist amid the conflict.

As the US officially imposed its levy, Peak Pegasus, a bulk carrier loaded with 70,000 tons of American soybeans, sailed at a speed of more than 13 knots, hoping to arrive in Dalian in time to avoid paying of tens of millions of yuan before retaliatory tariffs took effect. However, customs in various parts of the mainland received a notice of the tariff increase at 3 pm that day and the vessel eventually arrived at Dalian at 5 pm. Tens of millions of yuan in additional tariffs were inevitable. The incident shows that although the trade war has not yet officially spread to Hong Kong, the city's shipping industry, which is closely linked to trade, obviously should not rely on a final sprint as Peak Pegasus did. Instead, it should pay great attention to and deal with the trade war systematically so it can plan comprehensively and prepare itself for the crisis.

The trans-Pacific routes from Asia to the west coast of North America, which have faced problems of excess capacity and declining freight rates, are the first to bear the brunt of the trade war. The conflict will inevitably reduce Asia-US freight traffic. Following the earlier announcement of suspension of a trans-Pacific route by the shipping alliance 2M (with three member liners - Maersk Line, MSC and Hyundai Merchant Marin), another shipping alliance THE (six member lines - Hapag-Lloyd, Yang Ming, MOL, NYK, K Line and Hanjin Shipping) decided to trim trans-Pacific services. Share prices also reflect the trade war. As of July 13, shares of Danish shipping giant Maersk had almost halved compared with a year earlier, and one-third of its market value has also evaporated this year. Maersk also said it would temporarily reduce its business between Asia and Northern Europe as a response to the sluggish global demand for shipping.

Trade and logistics, one of Hong Kong's four traditional pillar industries, is most vulnerable to changes in global trade. It has always faced the double pressure from a fluctuating global economy and fierce competition from surrounding cities. Hong Kong is the most important entrepot on the trans-Pacific route. The mainland is Hong Kong's largest source of imports and export destination, while the US is Hong Kong's sixth-largest source of imports and the second-largest export destination; the trade war is bound to put pressure on port cargo throughput. If the tariffs take effect during the shipment of goods and the owner refuses to pick up, a large volume of goods may be held up in Hong Kong, resulting in a storage burden.

Crisis, however, could come with opportunities. As a middleman between the mainland and US, Hong Kong can do little about the trade war. But the container terminal business downturn might actually force the government and shipping industry to explore seriously their long-term strategies and some specific measures for developing high value-added shipping services. Hong Kong can improve the upstream, midstream and downstream industrial chains of its entire shipping service sector, opening a path to becoming a diverse shipping center, different from surrounding port cities.

The national 13th Five-Year Plan (2016-20) clearly supports Hong Kong in consolidating and improving its position as an international shipping center, as well as developing its high value-added services such as shipping and logistics. Chief Executive Carrie Lam Cheng Yuet-ngor also proposed in her first Policy Address to strengthen the role of Hong Kong's maritime transport and shipping services cluster. Hong Kong undoubtedly has the advantages of developing a high value-added shipping service industry. The trade war might cut China-US trade volume in the short run but that in the Asia-Pacific region will increase steadily in the long run because of China's increased demand for consumer goods and production of infrastructure material for the region as the Belt and Road Initiative advances. This is set to create a huge demand for traditional marine cargo transport and shipping services.

Projects designed to deepen economic integration between the mainland and Hong Kong - such as the Guangdong-Hong Kong-Macao Greater Bay Area - offer bright prospects for the high value-added shipping service industry in Hong Kong. Therefore, the SAR government and the industry should join hands to strengthen cooperation and formulate a comprehensive shipping industry development strategy as soon as possible to make clear its development goals and adopt feasible measures to embark on a long voyage in the changing international environment.

http://www.chinadaily.com.cn/hkedition/2018-07/27/content_36654497.htm

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