Maritime Services Industry in Hong Kong

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1 About HKTDC Media Room Contact HKTDC Register Now Wish List (0) My HKTDC Login Login Register Now Subscribe Quality Suppliers by Industry HKTDC Events HKTDC Research Service Highlight Economists' Pick China Trade HK Economy Developed Markets Emerging Markets Product Industries Service Industries Transport & Logistics Market Trends Industry Profile Access China Shippers Today Shipping Gazette 29 Jan 2014 Maritime Services Industry in Hong Kong Overview Search Advanced Search Hong Kong is the world s 9th largest trading economy with international trade facilitated immensely 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, which has generated considerable economic benefits for and job opportunities in Hong Kong. Hong Kong's port is renowned for its efficiency. All container terminals are privately owned and operated. According to the World Bank s 2012 Logistics Performance Index (LPI), Hong Kong scored 4.12, ranking second in the world, following Singapore. In terms of the performance in international shipments, Hong Kong ranked first among 155 economies. Hong Kong is the world s fourth largest shipping register following Panama, Liberia and Marshall Islands. As at January 2014, more than 2,300 vessels were on the Hong Kong Shipping Register (HKSR), boasting a total of 86 million gross tonnes (GT). Vessels registered in Hong Kong increased by 16.9% to 129 million deadweight tonnes (DWT) in 2012, accounting for 8% of the world s total. The Baltic Dry Index (BDI), a widely used gauge for the change in sea freight cost to transport commodities such as coal, iron ore, grains and fossil fuels for 23 major international routes, stood at around 1,240 as at 24 January 2014, up 54% year-on-year (YOY). Hong Kong is the world s 9th largest trading economy as well as an international maritime centre characterized 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 Chinese mainland. Hong Kong has the world s fourth largest shipping register following Panama, Liberia and Marshall Islands in DWT terms, increasing by 16.9% to 129 million DWT in 2012 to account for 8% of the world s total. Notably, vessels registered Hong Kong and flying the Hong Kong flags recorded the highest yearly growth in Besides, more than 2,300 vessels were on HKSR as of January 2014, boasting a total of more than 86 million GT. For ships registered in Hong Kong, 88% are of foreign ownership. Income derived from the international trade of ships registered in Hong Kong is exempted from profits tax. Besides, Hong Kong has also entered into double taxation agreements (DTAs) with many places, including the Chinese mainland, US, UK, Korea, Netherlands, New Zealand, Singapore, Belgium, Denmark, Norway and Germany. With a low tax regime, strong institutional environment and the maritime services cluster, Hong Kong flag is seen as a preferred choice for foreign vessel owners. Nationality of fleets with Hong Kong flag (as at 1 January 2013) Country/territory of ownership Deadweight ( 000) Number of vessels % share of total Chinese mainland 74,189 1, Hong Kong 15, US 6, Japan 5, Singapore 5, Total 129,

2 Source: Review of Maritime Transport 2013, United Nations Conference on Trade and Development (UNCTAD) With a mission of creating an exchange platform for ship-owners in Hong Kong, the Hong Kong Shipowners Association (HKSOA) was established in Representing the interests of its members in international shipping committees, HKSOA is a member of the Asian Shipowners Forum (ASF), the International Chamber of Shipping (ICS), the International Shipping Federation (ISF) and International Association of Independent Tanker Owners (INTERTANKO). As at 1 December 2012, HKSOA members own, manage and operate a fleet with a combined carrying capacity of over 147 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 24 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 September 2013, there were 84 authorised ship insurers in Hong Kong, of which 32 of them 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. Hong Kong is home to many of the international P&I Clubs. 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 branches in Hong Kong. According to statistics from the Hong Kong Monetary Authority (HKMA), shipping equipment loans booked in Hong Kong amounted to about US$10 billion in September 2013, accounting for 2% of Hong Kong's total bank loans. Since a typical ship loan may well be a significant investment of over US$ 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, the 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 in 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 wellestablished 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

3 1978, the Hong Kong Maritime Law Association consists of maritime lawyers, ship-owners, as well as organizations and individuals members involved in maritime sector. In some cases, shipping disputes are resolved through arbitration or mediation, Hong Kong is a major maritime arbitration centre in the region. In 2012, the Hong Kong International Arbitration Centre (HKIAC) handled about 110 arbitration cases involving maritime disputes. Arbitrators of the HKIAC s Maritime Arbitration Group were appointed 163 times in 2012, an increase of 66% from Industry data and developments In 2012, the cross-border water transport industry contributed HK$ 7.7 billion value-added to the local economy, increasing by 3% from There were 13,284 employees engaged in this sector, including ship owners and operators, ship agents and managers, as well as local offices of overseas shipping companies. The 455 establishments in the industry generated business receipts and income totaling HK$106.9 billion, up 1.7% from the previous year. Employment and establishment in Hong Kong s shipping industry (2012) Sector Establishments (% YOY change) Persons engaged (%YOY change) Ship agents/managers and local representative offices of oversea shipping companies 232 (-5.7%) 7,370 (-5.2%) Ship owners/operators of sea-going vessels 162 (-6.6%) 4,728 (-0.2%) Container terminal and marine cargo terminal operators 7 (-) 3,477 (-0.6%) Ship owners/operators of vessels moving between Hong Kong and the ports in Pearl River Delta 60 (-0.2%) 1,187 (-32.9%) Inland water freight transport 122 (-3.2%) 878 (-15.3%) Mid-stream operation and container back-up activities 344 (+27.4%) 4,419 (+5.8%) Air or sea cargo forwarding services 2,801 (+0.1%) 34,449 (-3.2%) Source: Key Statistics on Business Performance and Operating Characteristics of the Transportation, Storage and Courier Services Sector in 2012, Census and Statistics Department Business Receipts and Other Incomes (HK$ billion) Sector /11 change (%) Ship agents/managers and local representative office of oversea shipping companies % Ship owners/operators of sea-going vessels % Container terminal and marine cargo terminal operators % Ship owners and operators of vessels moving between Hong Kong and the ports in Pearl River Delta % Inland water freight transport % Mid-stream operation and container back-up activities % Air or sea cargo forwarding services % Source: Key Statistics on Business Performance and Operating Characteristics of the Transportation, Storage and Courier Services Sector, Census and Statistics Department There are double taxation relief arrangements for shipping income. Hong Kong has amended legislation to provide a reciprocal tax exemption from 1 April 1998 for shipping income, in which ship operators can benefit from the tax relief offered by places with similar reciprocal tax exemption legislation. In parallel, Hong Kong has entered into negotiations of

4 double taxation relief arrangements for shipping income with other places including those do not provide reciprocal tax exemption in their legislation. As of January 2014, Hong Kong has concluded double taxation relief arrangements covering shipping income with 37 tax administrations worldwide, including the US, UK, Germany and Mainland China. In addition, the memorandum of understanding with Mainland China specified that Chinese source income earned by Hong Kong based shipping operations is exempt from tax on the Chinese mainland. Besides, Hong Kong registered ships can enjoy up to 29% preferential port charges dues at ports on the Chinese Mainland since January The Hong Kong port is one of the world s busiest, it handled 22.3 million TEUs (20-foot equivalent units) in In the first 10 months of 2013, Hong Kong handled million tonnes of cargo, in which 67% were seaborne cargo, while the rest are river cargo. According to the latest available statistics, Hong Kong earned HK$136.8 billion from exporting sea transport services in 2011 (accounting for 19.4% of total service exports in 2011), up 7.1% from (HK$ billion) /10 Change (%) Exports of sea transport services % Ship chartering % Others* % Share of total services exports (%) % Sources: Report on Hong Kong Trade in Services Statistics for 2011, Census and Statistics Department * Others include: Supporting and auxiliary services to water transport (e.g. container terminal services;; ship broking, surveying, consulting, repair and maintenance services;; chandling;; stevedoring services;; cargo inspection, sampling and weighing services;; port and waterway operation services;; towing and pushing services;; pilotage and berthing services;; vessel salvage services;; and other water transport supporting and auxiliary services). The Asian Logistics and Maritime Conference (ALMC), jointly organised by the Hong Kong Government and the HKTDC, is an exchange and networking platform for the logistics and maritime services providers and users, including ship owners, managers, bankers, lawyers, insurance underwriters and port operators. The third ALMC was held in November 2013 and joined by more than 1,600 industry players from 27 countries and regions, with world renowned industry leaders and experts sharing their insights on Asia s economic and trade integration, the rise of e-commerce and its impacts on logistics, maritime and supply chain management. In the 2014 Policy Address, the Hong Kong government reiterated its commitment to strengthen Hong Kong s role as an international hub for maritime services. The consultancy study on Enhancing Hong Kong's Position as an International Maritime Centre concluded that Hong Kong is well positioned to develop high value-added maritime services, and proposed to establish a new statutory maritime body. In Budget , the Hong Kong government indicated that it had launched a Strategic Development Plan with an aim to revisit port cargo growth forecasts and explore the potential of existing port facilities to meet the future development. To strengthen safety within Hong Kong waters, the government gazetted the Pilotage (Amendment) Bill 2013, which makes pilotage compulsory for all ships visiting Hong Kong with a GT of 3,000 or more. Apart from this, the bill suggested to allow a pilot to retain the same class of licence until the statutory age limit of 68 rather than 65 in order to make good use of pilots experience and expertise in piloting mega-size vessels and in training junior pilots. According to the World Bank s Logistics Performance Index (LPI), Hong Kong scored 4.12 to rank second in the world, following Singapore. In terms of international shipment performance, i.e. ease of arranging competitively priced shipments, Hong Kong ranked first among 155 economies. The Baltic Dry Index (BDI) is one of the major indicators for the global shipping industry in tracking the freight costs of transporting bulk dry commodities such as coal, iron ore, grains and fossil fuels by sea. In addition, it reflects the state of the global economy and international trade performance. The 2008 financial crisis, which led to the sharp downturn of the global shipping industry, plunged the BDI from about 11,000 points to below 2,000 point in Since many shipbuilding orders were placed before 2008, the supply glut in shipping capacity far exceeded freight demand growth amid the global economic downturn. This has put enormous downward pressure on freight rates as well as the shipping industry worldwide over the past five years. The BDI improved somewhat in 2013 and traversed a range of 700 and 2,337 points, and stood at around 1,240 as at 24 January 2014, up 54% YOY. With prudent investment strategies, the impact on Hong Kong ship owners was relatively mild. In 2012, business receipts of Hong Kong cross-border water transport industry went up by 1.7% to HK$106.9 billion, increasing 33% from the HK$ 80.5 billion in The Closer Economic Partnership Arrangement (CEPA) between Hong Kong and the Chinese mainland The CEPA provisions allow Hong Kong services suppliers (HKSS) to have greater flexibility to access the market, as they are allowed to form wholly owned units in providing certain types of maritime services, including: International ship management services Containers station and depot services Non-vessel operating common carrying services Port cargo loading and unloading services Ship survey services for ships registered in Hong Kong International ocean container leasing, buying and selling as well as trading of container parts Ship maintenance and repair services;; and for tugs that they operate between Hong Kong and mainland ports

5 Regular business services such as shipping undertaking, issuance of bills of lading, settlement of freight rates and signing of service contracts For a Hong Kong company providing maritime transport services, 50% or more of the ships owned by it, calculated in terms of tonnage, should be registered in Hong Kong. # HKSS can set up joint venture enterprises on the mainland to provide third-party international shipping agency services. The shareholding of Hong Kong service suppliers should not exceed 51%. This lowers the barrier of the third-party international shipping agency services for Hong Kong service suppliers, as compared to other foreign joint-ventures outside CEPA. Business scope has been further expanded for HKSS since January 2009, as they are allowed to set up wholly owned enterprises and branches in Guangdong on a pilot basis to provide shipping agency services to vessel operators for routes between Guangdong Province and Hong Kong and Macau. Under CEPA Supplement VI, HKSS can set up wholly owned shipping companies in the Mainland, providing regular business services (shipping undertaking, issuance of bills of lading and settlement of freight rates, etc.) for shipping transport between Hong Kong and the Class B ports in Guangdong, operated by HKSS using chartered Mainland vessels. The maritime transport services sector is further liberalized under CEPA Supplement X. For HKSS investing in the construction of port facilities and operating port cargo handling, yards and warehousing, the requested capital amounts and the criteria for establishing branches will be the same as those for mainland enterprises. The registration of HKSS for the establishment of foreign-invested enterprises engaging in international maritime container station, container yard services, international cargo warehousing services and international ship management services in Guangdong Province is delegated to the transport authorities of prefecture-level or above in Guangdong Province. The transport authorities of Guangdong Province are delegated to approve applications for general water cargo transportation between Hong Kong and Guangdong Province, as well as applications of shipping liners engaging in waterborne transportation between Hong Kong and Guangdong Province for changing relevant records of ships. Contractual service providers employed by HKSS, in the mode of movement of natural persons, are allowed to provide services under this sector or sub-sector in the Mainland. Useful links: 1. Hong Kong Maritime Industry Council 2. Hong Kong Port Development Council 3. Hong Kong Marine Department 4. Hong Kong Shippers' Council 5. Hong Kong Logistics Development Council 6. Hong Kong Shipowners Association 7. Hong Kong Maritime Law Association 8. Hong Kong Sea Transport and Logistics Association 9. Hong Kong Logistics Association 10. The Institute of Chartered Shipbrokers, HK Branch # The requirement that "50%, or more of the ships owned by it, calculated in terms of tonnage, should be registered in Hong Kong" as set out in Annex 5 of the CEPA legal text (see for further details), is not applicable to HKSS which provide towing services. Content provided by Extended Readings USTR Highlights Concerns in Annual Trade Barrier Reports Electronics Industry in Hong Kong Rumours of new route into China cinemas enthrall FILMART attendees Value of IPR Seizures from Hong Kong Experiences Substantial Growth in FY 2013 Free online search for logistics and transport service providers on hktdc.com. HKTDC welcomes your views. Please stay on topic and be respectful of other readers. Review our Comment Policy *Add a comment (up to 5,000 characters)

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