(FILES) This file photo taken early on July 1, 1997 shows Chinese President Jiang Zemin addressing delegates following the raising of the Chinese (2nd L) and Hong Kong SAR flags (L) following the former British colony's handover to Chinese rule at midnight. - July 1, 2022 marks 25 years since Hong Kong was handed to China by colonial Britain. (Photo by TORSTEN BLACKWOOD / AFP)
Hong Kong's maritime industries have seen plenty of changes since the handover-and that positions them well to face the future with confidence, writes Tim Huxley Twenty five years is usually the time when a ship is facing its fifth special survey. If markets are hot, extending the life of the ship can easily cover the cost of that survey, but usually owners are inclined to seriously consider scrapping when a ship hits twenty five. As Hong Kong marks twenty five years since the return of sovereignty to China, is the city's maritime industry looking forward to further years of prosperity or has it had its day and its time to move on ?
The return of sovereignty on 1st July 1997 was notable for the fact that any fears for the future of Hong Kong's shipping industry proved totally unfounded. Hong Kong has always been a Chinese city and further integration with the country where Hong Kong owners had been building ships for years and whose growing economy provided an increasing source of cargo for their ships was merely strengthened post 1997. When leading shipbroker Clarksons acquired an office in Hong Kong in 1987, then Chairman Hugh McCoy replied to a question asking ‘what will happen in 1997?’ with the response ‘we will have an office in the best connected city in China.’
As expected, the actual handover passed without incident and rather than see an exodus from Hong Kong, it saw a growing confidence amongst the shipping community. Hong Kong shipping continued to grow in stature in the early part of the twenty first century, in part helped by the leadership role the Hong Kong Shipowners Association took in Asian maritime affairs.
The post handover period had in fact got off to an inauspicious start with the Asian Financial Crisis sweeping the region after the Thai baht collapsed the day after the handover on July 2nd 1997. Whilst this put the brakes on freight markets for a period, it also provided a great opportunity which Hong Kong's shipowners seized. Devalued currencies and a commitment from countries to export their way out of the crisis meant that newbuildings, particularly from South Korean shipyards, became extremely competitively priced. Hong Kong's shipowners took advantage of this situation by replacing much of their older tonnage with new orders, which saw Hong Kong become increasingly influential, particularly in the capesize bulkcarrier market.
The rise of China shipbuilding
It was also a period when China's shipbuilding industry grew rapidly, with Hong Kong owners very much at the forefront, strengthening the bonds that had been developed when Chinese shipbuilding was in its infancy. In 1999, Tai Chong Cheang Steamship ordered the first capesize bulkcarriers to be built at Shanghai Waigaogiao shipyard, setting in progress the new shipyard's rise to become a significant player in global shipbuilding. That first order was designed in conjunction with leading Hong Kong naval architect Peter Cheng whose innovative ballast water management systems saw these ships heralded as the first ‘green’ capesizes.
The immediate post-handover period also saw the rebirth of one of Hong Kong's home grown shipowners. Pacific Basin had originally been established in 1987 by two Hong Kong based British born entrepreneurs and was sold to a third party in 1996. In 1998, the original founding partners relaunched the company, successfully listing the company on the Hong Kong Stock Exchange in 2008 and going on to operate a fleet of 250 ships and recording record net profits of US$ 845 million in 2021.
Hong Kong's shipping reinvention
Whilst Hong Kong retained its position as being a home for many world renowned shipowners, the first decade of the twenty first century saw the city's shipping community undergo a period of reinvention. The accession of China to the World Trade Organisation in 2001 helped spur the incredibly industrial growth China experienced in subsequent years. China rapidly became the world's leading steel producer. Hong Kong became a leading player in supplying the raw materials such as iron ore and coal, with millions of tons of cargo controlled by trading companies in the SAR. Not only did Hong Kong shipowners benefit, but the influential Hong Kong based traders controlling this cargo flow ensured a surge in demand for the services of Hong Kong based companies involved in trade finance, legal services and shipbroking, ensuring that Hong Kong's renowned maritime services cluster grew considerably in this period. In the pre-2009 Financial Crisis years, Hong Kong emerged as one of the major global centres for the trading of shipping derivatives (Forward Freight Agreements) , which combined with the vast array of other shipping related commercial activity saw the development of the Hong Kong Maritime Arbitration Group as a respected global arbitration centre.
The booming shipping markets from 2006-2009 not only saw rapid development of many of the established Hong Kong owners but also an increased influence from Mainland Chinese companies. Both old established and newly arrived Chinese companies utilized Hong Kong's established service providers and friendly business environment to enhance China's increasing role as a global maritime powerhouse. The Mainland's largest shipowner, COSCO, has for decades had a presence in Hong Kong and have become one of the most powerful shipping companies in the city, being the leading owner in terms of ships registered under the Hong Kong Shipping Register, which has grown to be the fourth largest in the world. COSCO made further headlines in 2017 when they made a US$ 6.3bn bid to acquire Orient Overseas Container Lines (OOCL). This acquisition of one of Hong Kong's most famous shipping lines was finalized in 2018 and at the time catapulted COSCO into third position in the rankings of global container carriers.
Ship leasing firms augment finance options
Whilst recent times have seen some of the cargo interests and shipowners who had operated in Hong Kong relocate elsewhere, Hong Kong's capacity for reinvention of its maritime cluster remains. The passing of the Ship Leasing Bill in 2020 has seen Hong Kong become an increasingly attractive centre for ship leasing companies, with several Mainland banks building significant portfolios in the SAR. This has again been of great benefit to maritime services companies whose expertise has been called upon,whilst in addition several traditional Hong Kong shipowners have benefitted from joining forces with ship leasing companies to offer both technical and commercial management to the financial institutions engaged in this field. Venerable Hong Kong shipowner Wah Kong Maritime Transport Holdings, who celebrate their seventieth anniversary in 2022, have seen their Hong Kong based fleet grow to over seventy ships, in part through their partnerships with Chinese leasing companies.
Home to the world's larges ship managers
Hong Kong's reputation for evolution and innovation in its maritime industries continued into the second decade of the century. Having been one of the birthplaces of the third party shipmanagement industry in the late sixties and early seventies, recent years have seen notable growth in the sector. Two shipmanagement companies which were founded in Hong Kong, Anglo Eastern Shipmanagemnt and Fleet Management have grown to become the two largest such companies in the world, with a combined fleet of over 1,200 ships under their respective management.
Whilst it has been at times a turbulent quarter of a century since Hong Kong became a Special Administrative Region of China, the maritime sector has remained a vibrant, highly visible part of the business landscape. Whilst it continues to be hit particularly hard by COVID induced restrictions, a look back at the past twenty five years demonstrates that Hong Kong shipping has the experience, determination and commitment to continue to evolve and look forward to a bright future.
Tim Huxley is the managing director of Mandarin Shipping
.gif)
