Hong Kong Seaport Alliance aims to reclaim 2m teu from rivals by 2020

The recently formed Hong Kong Seaport Alliance is looking to reclaim 2m teu of volume from its competitors in the region by 2020, Group managing director of Modern Terminals, Peter Levesque declared in an address to the American Chamber of Commerce in Hong Kong today (10 May).

Describing the Alliance as a joint venture functioning as a merger of the four terminal operators – Modern Terminals, HIT, Cosco-HIT, and ACT – Mr Levesque said the Alliance would share revenues, share operation costs and share profit. “This is not just a friendly handshake,” he insisted. “This arrangement is necessary because the only way that we can provide the best service to customers is in a terminal neutral environment.

“The only way we can be terminal neutral is if our interests are aligned. When you share profit you no longer compete anymore. The four terminal operators here no longer compete with each other in Hong Kong. Instead they have come together so that Hong Kong can compete with other ports in the region. Specifically, the transhipment ports of Taiwan, Singapore, Busan and Tanjung Pelepas.”

The newly formed Alliance has a mighty task on its hands. Within little more than a decade Hong Kong Port’s global ranking has slipped from pole position to seventh. Recognizing that the decline in container volumes had reached crisis point, two years ago, the Terminal operators began to formulate a plan that has resulted in the formation of that Alliance last month.

“Being in seventh place is not necessarily a bad thing,” said Mr Levesque.

“It is the deteriorating trend that had to be addressed. Over just over a year we have experienced 14 months of consecutive volume decline.

[Over a longer period], “we have also had a big shift in our business mix. The port was designed for containers to be trucked down from manufacturing facilities in China. Today, the boxes come by barge. Some 70% of our business is now in transhipment business, and the port was not designed for that. Transhipment business means we handle the boxes twice but only get paid once so it’s not the most profitable aspect of the business,” he added.

“A lot of our customers have left over the past five years. When you have a situation where you have deteriorating service, a higher cost structure, and intense regional competition, you have a recipe for disaster unless you can fix it.”

Adding to the toxic mix, in common with other terminals in the region, Hong Kong operators’ bottom line has been hit  by the need to invest hundreds of millions of dollars to keep up with ever-larger containerships and the massive consolidation of the liner sector and the transformation of shipping alliances, both of which have had a big impact on operational efficiencies at the port.

Key to the increased efficiencies being promised under the Alliance is the creation of three distinct zones within the port that will receive ships on the basis of the three liner shipping alliances (The Alliance, 2M Alliance, and Ocean Alliance). Under the new arrangement the entire operation will be controlled by a single control centre rather than four as was the case before the Alliance.

“The Hong Kong Seaport Alliance reduces inefficiencies by eliminating truck moves, by getting ships in and out of Hong Kong faster and operating on a terminal-neutral basis,” said Mr Levesque.

“This will allow us to put new commercial deals together to incentivize volume back to the port,” he said.

“When we announced the Seaport Alliance, we heard that members of the market suspected this was an evil plan to raise prices. I can tell you that is absolutely not the case. The goal is that by 2020 we will bring at least 2m containers of volume back to Hong Kong. And we will do that by creating some incentive packages that are extremely creative.”

Mr Levesque claimed that the new arrangement would also have a positive effect on the environment. The Alliance has estimated that by eliminating 1,000 hours of ship waiting time it will save 37,000 tonnes of marine fuel and remove 127,000 tons of CO2 from the environment. With the three new zones and the consequent reduction in truck moves, the Alliance is reckoning on taking out 275,000 truck moves and 3,600 tons of CO2 out of the environment.

Mr Levesque concluded : “The four terminal operators feel obligated toward the 6,000 direct and 180,000 indirect employees who depend on the port to provide for their families. We provide valuable employment to an important segment of Hong Kong’s economy. It’s our obligation to make sure that the port continues to be successful so that these people can continue to have jobs. Not only them but for future generations.”

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