Hong Kong Market Report 2021 by Splash

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Market Report 2021

Distr ibu acros s Hon ted g Mari time Kong Week

The city’s next maritime act

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CONTENTS

THE LINEUP 3 5 9 15 16 19 23 27 31 35 39 41 45 46 49 51 52

Editor’s Comment Economy Port Statistics Year In Review The Greater Bay Area Executive Debate Government Priorities Shanghai Rivalry Lines Leasing Managers Flag Tech Arbitration Richard Hext Tim Huxley

Treat seafarers differently —Bjørn Højgaard, the CEO of Anglo-Eastern and chairman of the Hong Kong Shipowners Association

The tech-generated wealth of Shenzhen suggests opportunity for Hong Kong’s shipowners and financiers wishing to expand their fleets

— Shipping veteran Richard Hext

Hong Kong provides a great setting to collaborate with other start-ups — Tabitha Logan, co-founder of the Captain’s Table

To truly create a thriving marine cluster, the government needs to engage everyone — Angad Banga from the Caravel Group

We will work more closely with Shanghai to create a better environment, not only for China but for Asia and the rest of the world — Hing Chao, the chairman of Wah Kwong

For all the latest breaking shipping news from Hong Kong

More ship leasing companies will come to operate in Hong Kong so as to enjoy the tax benefits — Rosita Lau, a partner at Ince & Co and a member of the Hong Kong Maritime and Port Board www.splash247.com 1

UP FRONT

Hong Kong Hub health checklist www.splash247.com

Market Report 2021

The site for incisive, exclusive maritime news and views

www.splash247.com

EDITORIAL DIRECTOR Sam Chambers sam@asiashippingmedia.com CORRESPONDENT Adis Adjin adis@asiashippingmedia.com All editorial material should be sent to sam@asiashippingmedia.com COMMERCIAL DIRECTOR Grant Rowles grant@asiashippingmedia.com GENERAL MANAGER Victor Halder victor@asiashippingmedia.com Advertising agents are also based in Tokyo, Seoul and Oslo – to contact a local agent please email grant@ asiashippingmedia.com for details.

MEDIA KITS ARE AVAILABLE FOR DOWNLOAD AT WWW.SPLASH247.COM/ADVERTISING

All commercial material should be sent to grant@asiashippingmedia.com or mailed to Asia Shipping Media Pte Ltd, 30 Cecil Street, #19-08 Prudential Tower, Singapore 049712 DESIGN Mixa Liu Printed in Hong Kong Copyright © Asia Shipping Media Pte Ltd (ASM), 2021.

n the world of maritime publishing, specific standalone geographic supplements have got a bad name in recent years. Advertising-led with happy, happy, joy, joy headlines, they’ve tended to lack depth, topicality or indeed critical advice. Long story short, few people bothered to read these puff, promo pieces. Mercifully, the heyday of the advertorial supplement - rather like awards schemes - has passed. The shipping industry saw through these cynical, none too clever publishing exercises and many are now out of business. And yet there is a rationale for Special Reports in shipping if they are handled correctly, if they probe, and ask the questions that need answering. At Splash we have taken the decision to re-engage with this medium, but to do it with a proper journalistic sense of purpose. Splash’s series of Special Reports, starting with this Hong Kong edition, intend to question a hub’s place within the shipping universe, seeking to work out where it might be going wrong as well as praising initiatives that are working. As such, magazines such as this one you’re reading right now ought to be thrust into the hands of the powers that be in your city to stimulate the right maritime development. We’re delighted to have hired Victor Halder, a maritime media veteran known to many in Hong Kong, to head up our new Special Reports division. Look out for similar geographic reports on Mediterranean hubs and Singapore in

ought “toThisbe magazine thrust into the hands of the powers that be to stimulate the right maritime development

”

the coming months as well as a special on shipmanagement. As ever, we’re keen to hear what you think of our publishing endeavours, so any comments - whether good or bad - please do get in touch.

Sam Chambers Editor Splash

For all the latest Hong Kong shipping news, click here

Although every effort has been made to ensure that the information contained in this review is correct, the publishers accept no liability for any inaccuracies or omissions that may occur. All rights reserved. No part of the publication may be reproduced, stored in retrieval systems or transmitted in any form or by any means without prior written permission of the copyright owner. For reprints of specific articles contact grant@asiashippingmedia.com.

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ECONOMY

Through a new lens The hot and cold take of where Hong Kong’s economy is today

ow are we to analyse Hong Kong’s economy in 2021? Certainly not the way we traditionally analysed the territory in 2019 – before Hong Kong’s political landscape shifted significantly and Covid-19 hit. Since then the changes in Hong Kong – economic, social, judicial, political – have been so profound the old metrics and yard sticks for judging the Special Administrative Region’s economic health are partially, if not wholly, redundant as 2021 comes to a close. Analysts now have to choose between what we might term the ‘cold’ or the ‘hot’ analysis of Hong Kong. The cold analysis would be to attempt no bias as to what has transpired in the former British colony in the last two tumultuous years and simply to look at the numbers. Alternatively, the hot analysis would mean running the numbers but then asking what the obviously changed political status, laws and significantly greater footprint of Beijing is on every aspect of life in Hong

Kong. This latter analysis would mean assessing political risk to businesses, the reduced availability of reliable trade and statistical data, outflows of local and foreign human resources and talent, and any risks to those (local and expatriate workers) remaining in the city. Arguably analysing Hong Kong is now increasingly akin to analysing any Chinese port city – numbers are available, but there are a growing number of caveats and factors to take into account. Take statistics. Generally, economists have trusted Hong Kong’s statistics while being cautious of mainland Chinese statistics. The Hong Kong government’s claims that GDP was up 7.6% in June 2021 from June last year, that retail sales had increased 7.6% in the first seven months of the year and that unemployment had been trimmed by 0.5 percentage points, all these stats were met with rather a lot of eyebrow raising recently. But, on the other hand, some other reputable sources

have broadly been in agreement with the government’s numbers. So when it comes to official statistics it’s probably fair now to say that there is a heightened sense of caveat emptor - let the buyer beware until we have a greater understanding of any possible changes to methodology or to the politics of data gathering in Hong Kong in 2021.

Hong Kong: Key Industries as Share of GDP, 2020 Sector

% contribution to GDP

Trading & Logistics

19.8

Financial Services

21.2

Professional Services

11.9

Tourism

3.6

Other

43.6

Total

100

Source: HKTDC

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ECONOMY

For the most part the best way to understand Hong Kong now is to see it as intrinsically linked to the mainland Chinese economy. This certainly seems to be the sense of the stock market in the last few months. The Hang Seng Index saw its biggest fall in three weeks in midAugust when China announced somewhat gloomier than predicted economic numbers and Beijing announced tighter controls of the tech sector. To an extent, of course, it was always the case in Hong Kong that where China goes Hong Kong follows, or perhaps to use another popular analogy, that if China caught a mild cold Hong Kong got a nasty case of the flu. But now this coupling and interlinking seems to be more apparent. For a variety of reasons, including both US and PRC rule changes, more Chinese companies are seeking IPOs and secondary listings in Hong Kong, while more Chinese tech firms are moving away from the US to Hong Kong after China’s government clamp down on the sector. 2021 has seen a 34% drop in Chinese stocks going public in the US while Hong Kong is attracting more. Certainly in most areas of the Hong Kong economy – from banking to property, hotels and tourism to retail – mainland Chinese firms are expanding and also acquiring Hong Kong companies and assets, often at something close to (in a Hong Kong context at least) fire sale prices. The final big question is whether or not foreign business will want to retain its long-established foothold in Hong Kong both as a service centre for their Greater China/Asia-Pacific operations or as a springboard into the Chinese market. There are pros and cons to both sides of

Hong Kong: Major Export Destinations for Services, 2020 Destination

% of total revenues

Mainland China

37.7

USA

14.9

8.9

Japan

4.4

Singapore

4.2

Rest of World

29.9

Source: HKTDC

this debate and, we have been here before in 1997. There have certainly been some gloomy headlines concerning reports of lack of confidence, particularly since Beijing imposed its draconian National Security Law in 2020, from organisations such as the American Chamber of Commerce and the European Union equivalent. It is also true that many young professionals, with their families, have left for various destinations from Taiwan to Britain – passport shopping ‘astronaut families’ are all back in the news. But, so far (as was the case in 1997), no major names have actually relocated. More likely the adverse effect will be seen in new businesses, particularly SMEs, deciding to open regional offices in other cities (Singapore, Taipei, etc) or, for those with primarily mainland business interests, simply skipping Hong Kong for Shanghai or another Chinese city closer to their customer base. This latter strategy has been a long term ongoing one that is now likely to be hastened. This process is perhaps best termed as the ‘hollowing out’ of Hong Kong. It’s not that Hong Kong won’t still be a major banking and finance centre, and certainly it will be a regionally significant port and remain an entrepôt hub facilitating transhipment. More likely is that as the years pass and Hong Kong’s unique selling points of economic openness, independence and its own brand peculiar form of autonomy dwindle so Hong Kong will find it harder to diversify its

old metrics “to The judge the SAR’s economic health are partially, if not wholly, redundant

”

economic base and keep pace with other regional competitors. As that process occurs, along with clampdowns on Hong Kong’s soft power (cinema, museums, universities, etc as well as, possibly in future, visa free access, relatively low taxes, bureaucracy-lite approach) so the diversity of social life, contracts and the other elements that attracted foreign business and professionals to Hong Kong – the quality and diversity of life – disappears. And so eventually Hong Kong becomes ‘hollowed out’ and economically less well rounded, vibrant and attractive. It’s important to stress that Hong Kong is not going to go away. It will remain a major centre – just not the centre it was in 2019. As, hopefully, Covid-19 recedes, and normal business returns decisions involving Hong Kong by players globally will be different from before. Post-Covid we all talk of the ‘New Normal’, but Hong Kong’s New Normal will be two-fold – post-Covid and post-hollowing out. As the world’s gears shift again it will become apparent how Hong Kong’s future will pan out.

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PORT

Hong Kong and the Greater Bay Area in the 2020s Defining a role or a declining role? Dr Jonathan Beard, a partner at EY Infrastructure Advisory, deliberates on the city’s port fortunes this decade

he announcement of the Greater Bay Area (GBA) initiative by the Beijing government in 2017 heralded a new set of challenges and opportunities for Hong Kong’s container port. In truth, the ‘newness’ is perhaps exaggerated – much of the GBA initiative involves accelerating longer standing development trends in the Pearl River Delta (PRD) and hastening the process of regulatory, political and economic integration between Hong Kong, Mainland China and Macau - ‘evolution’ rather than ‘revolution’. Nonetheless, it feels that Hong Kong’s port is at a crossroads – can it maintain its position as a key regional hub for ocean transhipment and a gateway for south China imports and exports, or will it continue to lose absolute volume and market share as the GBA port cluster evolves? To understand the likely future of the territory’s port, it is necessary to understand how it and the GBA port market have evolved.

Box migration Go back 30 years and Hong Kong port was pretty much the only show in town. The city’s container terminal operators were in the enviable position of handling gateway cargo for a booming PRD economy that was reaping the benefits of Deng Xiaoping’s Open Door Policy.There was limited competition from other ports, but space was constrained and this drove a remarkable increase in productivity and densification to expand in situ capacity. Handling rates were relatively high as was terminal profitability, despite paying large upfront premiums to secure concessions and taking on the full development risk for terminal construction.

However, the future direction of travel was clear, especially to the more visionary operators such as Hutchison, which saw the potential for terminal investment across the border in Shenzhen, initially at Yantian, but quickly replicated across the PRD by other operators, including at Shekou, Chiwan, Guangzhou and Nansha. The mainland ports developed high quality capacity at breakneck speeds and rapidly closed the productivity and overall service quality gap to Hong Kong. Whilst in the initial years, Hong Kong could afford to charge a ‘service premium’ this was rapidly eroded. Meanwhile, two key items fundamentally raised the total through costs for PRD gateway cargo routing through Hong Kong as compared

Kong’s position in the ocean transhipment “ Hong market has benefited from the absence of cabotage restrictions” www.splash247.com 9

PORT

with Shenzhen: higher terminal handling charges (levied by the shipping lines as an implied cost recovery for cargo handling charges) and higher costs for cross-boundary trucking. The latter had little to do with distance, and everything to do with regulatory inefficiencies. Full liberalisation of cross-boundary trucking may have stemmed the diversion of cargo to mainland ports, but policy makers were unwilling to move aggressively enough. Figure 1 highlights the market shift: in 1996 Hong Kong was handling over 95% of the GBA import/export market. By 2015, this had dropped to 20% and absolute volumes had also declined. Even as terminal handling charges fell, the overall service quality and connectivity offered by competitor ports in the GBA was close to Hong Kong – the decision to route via one port or the other had become highly price sensitive. Hong Kong maintains a position in three market segments: the Hong Kong economy; ocean transhipment; and western / central GBA barge transhipment. The latter segment is still gateway cargo, but connects with Hong Kong via cross-boundary barge as opposed to truck. Interestingly enough, this ‘crossboundary’ business is largely liberalised (unlike trucking) and over the last 20 years, stakeholders have worked to drive economies of scale, upgrade the fleet and use digital technology to enhance the efficiency and transparency of cargo movements. However, Hong Kong’s port was never originally designed to accommodate high levels of barge traffic and has undergone some reconfiguration

Figure 1: Hong Kong Port Loss of Market Share - South China (GBA) Import/Export Market

to improve operational efficiency. Hong Kong’s position in the ocean transhipment market has benefited from the absence of cabotage restrictions – conversely, these do apply to mainland port competitors to the detriment of their ability to access this market. The growth in this throughput segment has to some extent offset the decline in gateway volumes, however it is a lower yielding market and traditionally footloose. Moreover, ocean transhipment is increasingly characterised by economies of scale: transhipment hubs have to deal with bigger vessels, bigger lines (a product of M&A activity over the last five years) and bigger alliances - and in many instances a wider variety of vessel and call sizes. Transhipment calls have become increasingly complex (Figure 2)

Figure 2: Box Moves Get More Complicated with Alliances and Larger Vessels

and a major challenge for Hong Kong was a relatively high number of inter-terminal transfers (ITTs), due to the fragmented nature of terminal ownership and layout. During the evolution of the port, a key concern for the Hong Kong government was to ensure inter-terminal competition, which was achieved via a variety of procurement strategies for terminals one to nine. Jump forward to present day, and GBA importers and exporters now have a choice of ports and terminals, and shipping lines have a choice of transhipment hubs (e.g. Hong Kong, Busan, Kaohsiung, Singapore, etc.). Inter-port competition provides choice – there is little need for inter-terminal competition. Furthermore, single operator ports with large scale contiguous capacity are much better positioned to handle transhipment. Therefore in 2019, the key terminal operators created the Hong Kong Seaport Alliance (HKSPA), whereby all terminals, save terminal 3, are operated as one facility. To get this past the Hong Kong Competition Commission, the operators agreed to cap all gateway cargo handling charges. The hope was that HKSPA would provide the necessary efficiencies and economies of scale to reverse the decline in Hong Kong’s volumes, however, to date this has not happened. In 2020, Hong Kong handled 17.97m teu, a contraction of 1.8% and enough to drop it to ninth place in the global ranking of ports (peak volumes were reached in 2008 at 24.49m teu).

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PORT

The future So, what future does the GBA hold for Hong Kong’s port? In other PRC port clusters, the direction of policy has been to create large integrated operations, dominated by domestic players. Indications are that the Mainland authorities would prefer greater coordination and control of development for the GBA, to avoid ‘destructive competition’ and uncontrolled development. The GBA port cluster, however, is the most mature and most complex in terms of jurisdictions, port development models and ownership structures – this presents some challenges for consolidation and / or integration. Furthermore, where private interests and investment have led port development, the necessary checks have already come in to place. For example, the reclamation at Dachan Bay to the east of Shenzhen was originally slated for extensive terminal development, however as the market has changed, so has the private sector appetite for investment, and this site is now being developed as a ‘smart city’. Conversely, where greater public subsidy has been allocated to port

development, these same checks and balances have not come into play, as has been seen further up the Pearl River Delta, where expansion has proceeded despite the absence of natural deepwater. Therefore, an alternative option might be to continue liberalisation and create a single GBA market for port services, encouraging competition and innovation, but on a ‘level playing field’ with minimal public subsidy and avoiding a chase to the bottom on environmental standards. The implementation of a GBA wide emission control area (ECA) in 2016 shows what can be achieved in terms of creating a common framework– indeed China was the first Asian country to implement ECAs. A similar approach could be adopted for dredging and reclamation in the Pearl River Delta – after all, the waters and ecology do not observe any jurisdictional boundaries. If combined with limits on port subsidies, such an approach would provide logistics stakeholders with choice and spur innovation in the delivery of port services. Clearly, cabotage restrictions and a protected cross-boundary trucking industry would be at odds with such a liberalised environment.

A wholesale relocation to a better site would “free up the Kwai Tsing basin for much needed residential and commercial development”

To compete, Hong Kong‘s port would need to ramp up innovation and think outside the box. It would need to become a ‘smart port’ – to digitalise the port ecosystem and streamline the flow of cargo and information through the port. Progress in this regard has been slow and be-devilled by the absence of a strong port authority, that could advocate and drive change not only within the port, but also outside the ‘port gate’. Hong Kong is unique among major ports in having no port authority. Nearly 20 years ago, a Digital Trade and Transportation Network (DTTN) was proposed, but little progress has been made, in stark contrast to the rapid digitalisation in the mainland. Working from ‘bottom up’, Hong Kong industry stakeholders have proposed smart port initiatives but they have yet to gain traction, although the recent policy address provides cause for optimism. Finally, an out of the box option, would be to dust down options for port development considered under the 2020 Master Plan. A wholesale relocation to a better site would free up the Kwai Tsing basin for much needed residential and commercial development, in a prime, highly connected, city centre location. Under a GBA plan, Hong Kong could present options to develop a new state of the art facility that would provide ongoing capacity for GBA gateway cargo and ocean transhipment, and would be an integrator for a digitally connected, multimodal air-sea logistics cluster.

www.splash247.com 13

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STATISTICS

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2021 REVIEW

Vessel height restrictions for ships heading underneath Hong Kong’s Tsing Ma Bridge lifted from 53 m to 54.6 m, and to 57 m at certain hours.

Sabrina Chao from Hong Kong’s Wah Kwong Maritime Transport Holdings took over from Şadan Kaptanoğlu as the president of BIMCO, the world’s largest shipowning organisation.

Unique Shipping exited the dry bulk sector with cape sale leaving it to focus on tankers.

Hutchison signed up for APM terminal acquisition in Rotterdam.

Wallem chief executive Frank Coles resigned to be replaced by John Kaare Aune who had been heading up the group’s shipmanagement division.

A Covid-19 outbreak at neighbouring Yantian Port in Shenzhen saw congestion build dramatically around Hong Kong waters for a month. Ed Buttery-led Taylor Maritime Investments listed on the London Stock Exchange. Vikrant Bhatia’s 13 years at the helm of KC Maritime came to a close with chairman Gautam Chellaram taking on the CEO role at the dry bulk owner.

January

February

March

April

May

Danish shipowner Lauritzen Bulkers opened an office in the Special Administrative Region.

Global Shipping Business Network (GSBN), a major blockchain association, officially incorporated in Hong Kong. Asean Seas Line signed for its first newbuilds, inking a contract for a pair of 1,900 teu Chinese boxships.

Hutchison Ports returned to Saudi Arabia, to invest and operate JCPDI Port in Jazan City in the southwest of the country.

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2021 REVIEW

Mats Berglund retired as CEO of Pacific Basin, replaced by Martin Fruergaard, formerly the head of Ultragas. OOCL became the first carrier to launch a China – US east coast rail/sea service. CK Hutchison bought out Swire Pacific to take full control of Hongkong United Dockyards (HUD).

June

July

August

September

October

One of Hong Kong’s most speculative owners, Goldwin, sold its last bulker, the eightyear-old, 64,000 dwt Amber Champion. Global Shipping Business Network (GSBN), the consortium behind the push to construct a blockchainenabled operating system to refine global trade, enlisted major banks, Bank of China, DBS Bank and HSBC to form a trade finance advisory group.

Hong Kong chief executive Carrie Lam promised an extension of tax concessions to attract maritime players to set up in Hong Kong. Hong Kong government committed again to split the Transport and Housing Bureau in two.

www.splash247.com 17

Source: Clarkson’s WFR 10/2021

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GREATER BAY AREA

All for one Beijing is forging closer links between Hong Kong, Macao and Guangdong Province. Local shipping firms are delighted

peak to anyone in maritime or logistics in Hong Kong about future potential and invariably the Greater Bay Area (GBA) comes up in conversation. First conceived in 2017, the concept is up there with the Belt Road Initiative in terms of mega, overarching economic plans laid out during the tenure of Xi Jinping as leader of China. In a way it harks back to previous Communist times, what Deng Xiaoping called: “Crossing the river by feeling the stones” - a way of bridging divides for greater, mutual strength long-term. The Guangdong-Hong Kong-Macao Greater Bay Area comprises the two Special Administrative Regions (SARs) of Hong Kong and Macao, and the nine municipalities of Guangzhou, Shenzhen, Zhuhai, Foshan, Huizhou, Dongguan, Zhongshan, Jiangmen and Zhaoqing in Guangdong Province. The total area is around 56,000 sq km, population 86m and the combined GDP last year stood at $1.68trn, bigger than many G20 economies. The objectives are to further deepen cooperation amongst Guangdong, Hong Kong and Macao, fully leverage the composite advantages of the three places,

facilitate in-depth integration within the region, and promote coordinated regional economic development. Many in Hong Kong’s shipping community have embraced this new political directive, setting up offices across the border in Guangdong. Hing Chao, chairman of shipowner Wah Kwong, has a fast growing shipmanagement division based in Shenzhen. He tells Splash he sees Hong Kong acting as a “super-connector” between China and the world with the SAR’s service and knowledge base leading maritime development across the GBA. Similarly bullish is Angad Banga, the chief operating officer of the Caravel Group. “With the GBA’s focus on logistics and shipping, Hong Kong will gain exposure to a whole new world of opportunities that will enable further development of specialised services such as marine insurance and ship finance,” Banga tells Splash. Carrie Lam’s final address this term as chief executive this October clearly

outlined the government’s desire to boost Hong Kong’s status as an international transportation centre with plans underway to build a “smart port” and promote wider application of digital technology in maritime and port operations. “At this point, shipping and technology really go hand-in-hand,” Banga says, “so the fact that there are plans to develop a mega IT hub neighbouring Shenzhen - already a global innovation hub - should bring immense benefits of cross-border collaboration and R&D which will hopefully feed into the ongoing digitalisation and transformation of the maritime sector.” With decarbonisation arguably at the top of the agenda for shipping right now, the Guangzhou Futures Exchange has formally kicked off the process of developing emissions derivative products, putting a pricing mechanism into place to help steer China towards its goal of attaining carbon neutrality by 2060. The government has already said it wants to support cooperation between the Hong

“ Shenzhen is the Silicon Valley of China” www.splash247.com 19

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GREATER BAY AREA

Kong Stock Exchange and the Guangzhou Futures Exchange to develop products on carbon emission trading. “This could lend itself as a very practical way for shipowners to tackle decarbonisation,” Banga suggests. Wellington Koo, executive director at Valles Steamship, believes the GBA holds the potential to resolve certain structural issues, in particular the shortage of land and manpower resources, which over the years has limited maritime development in Hong Kong. Concurring, Kenneth Lam, CEO of Credit Agricole Asia Shipfinance, points out that the GBA has a population 10 times of Hong Kong to begin with that will provide substantially more human resources at different skill levels. “Shenzhen is the Silicon Valley of China and there must be a lot of synergies within the GBA to come up with financially viable technologies to address decarbonisation and ESG issues,” Lam says, adding that the north/south flow of capital specifically for shipping is another area worth exploring. In June last year, China’s Ministry of Transport issued opinions on enhancing the development of maritime services in the GBA and achieving the goal of building the GBA into a pioneer zone for maritime services and transportation, a pilot zone for maritime reform, a

within the region are able to coordinate “ Citiesdiversification of their economies ” driver for opening up innovation and development, and a demonstration zone for high-quality maritime services. Almost immediately, only two months later, an agreement was signed with maritime

The port view Hong Kong’s terminal operators already have a firm foothold within the GBA, while mainland operators such as Cosco and China Merchants are well entrenched in the former British colony. Including Hong Kong, the annual box throughput of all the cities within the GBA tops 65m teu, more than the entire continents of either South America or Africa. As to how these ports ought to develop within the GBA framework, Horace Lo (pictured), managing director of Modern Terminals, Hong Kong’s oldest terminal operator, tells Splash: “In the Greater Bay Area development, Port of Hong Kong should seek to strengthen its role as a transhipment

and import hub, with the Shenzhen port serving as an export hub, and the Guangzhou port a domestic hub in the Greater Bay Area.”

authorities from Hong Kong and Macao promoting maritime cooperation within the GBA, to establish a collaborative mechanism for the governance of marine transportation safety in the GBA, to promote green shipping developments and the optimisation of the business environment for maritime industry players. “Ultimately, these initiatives have enabled the regions within the GBA to form a mutually beneficial system to promote and improve their logistics and shipping industries,” says Damien Laracy, head of law firm Hill Dickinson’s Hong Kong office. “Through resource sharing, cities within the region are able to coordinate diversification of their economies so as to optimise competitiveness.” Concluding, Laracy says: “Hong Kong will still be able to leverage its own unique advantages and strength as an extraordinary international financial trade, and shipping centre supported by a robust common law system, and be able to act as the backbone of the GBA by providing a reassuring and reliable bridge to international markets.”

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EXECUTIVE DEBATE

Make Hong Kong great again Provocatively Splash asked the Hong Kong maritime community what the focus should be to make shipping great again. Attract cargo interests, shipowners, managers, mainland shipping businesses or others?

hether it its the shipping hub rankings of Norway’s Menon or the joint studies carried out by Xinhua and the Baltic Exchange, Hong Kong still ranks very high among international maritime centres (IMCs). And yet for those who lived or visited the city around the start of the century, fourth place might seem somewhat of a downgrade to past glories. Splash asked many in the Hong Kong maritime community what would be the best business strand to try and woo in order to bolster the city’s position as a major hub. Some bristled at the

The world’s top shipping hubs Xinhua-Baltic Exchange Menon Economics 1

Singapore

London

Hamburg

Shanghai

Rotterdam

Hong Kong

Dubai

London

suggestion Hong Kong was not as great as in the past, while others quickly pinpointed who should be targeted and how. Angad Banga, chief operating officer at the Caravel Group, argues that no particular business vertical should be targeted - best to go for everyone, he says. “Every industry player from the cargo owners to the vessel owners, charterers, managers, and others have a very symbiotic relationship so addressing the needs of just one sub-component of the full ecosystem is not effective,” Banga says. The key, according to Valles Steamship’s executive director, Wellington Koo, is to continue to maintain the growth of the maritime cluster, while not restricting it to business companies or investors of particular backgrounds.

Having said that, Koo does go on to concede that the commercial principals, such as shipowners, managers and traders, are the most important group. “They are the drivers of the maritime industry and generate business for the service companies. If more of these principals are attracted to Hong Kong, related service providers, such as brokers, insurance companies and maritime law firms, will follow,” Koo points out. So in this chicken and egg thinking the argument follows that owners tend to want to be near the charterers at the top of shipping’s food chain, the majority of whom quit Hong Kong for Singapore more than a decade ago. Tim Huxley, chairman of Mandarin Shipping, tells Splash: “We need to encourage more sectors where commercial control and authority is vested in Hong Kong.”

“ We should start with the commercial principals ” www.splash247.com 23

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EXECUTIVE DEBATE

In the early 2000s, Huxley recalls how Hong Kong had a considerable chartering community, but much of that was lost to Singapore. “We need to try and recover some of that,” he says, urging the government to ink plenty more double taxation agreements as a good starting point. This necessity to lure commercial principals back to the shores of the so called Fragrant Harbour is also an issue picked up by Kenneth Lam, the CEO of Credit Agricole Asia Shipfinance. “We should start with the commercial principals that would make the major decisions on the vessels’ S&P and chartering/employment matters,” Lam says, continuing: “Hong Kong should attract them to come by providing certainty and stability like what the Ship Leasing Bill has done. The rest of the maritime cluster such as shipmanagers, shipbrokers, lawyers, bankers, insurance companies will follow these major commercial principals.”

We need to “ encourage more sectors where commercial control and authority is vested in Hong Kong

”

Hong Kong has already adopted low tax legislation for qualified ship leasing companies (see page 39) and qualified ship leasing managers since June 2020. Similar tax relief legislations are also in the pipeline for shipmanagers, shipbrokers and ship agents.

Green opportunities With the decarbonisation of shipping likely to take up much of the industry’s focus and outlay for the coming decade, there are many in Hong Kong who believe this ought to form a greater plank of the city’s maritime offerings. There’s already a hotbed of green tech start-ups (see page 46) in the Special Administrative Region (SAR), but given the trillion dollar-plus bill it will take to clean up shipping the city could cash in if it positioned itself as a serious leader in this field. Damien Laracy, head of law firm Hill Dickinson’s Hong Kong office, argues the SAR should focus on combining economic development opportunities with a low-carbon transformation. “The city’s advantages in the fields of finance and shipping mean that it is wellpositioned to become a green shipping hub in the Asia-Pacific region. It also has the potential to become the rule-maker in green shipping finance,” Laracy suggests. Hong Kong’s 2020 policy address highlighted that the city would strive to achieve carbon neutrality by 2050

and develop green finance as one of its economic developments for the purpose of promoting carbon reduction and enhancing resilience to climate change. To support the development of green finance, the government has also put forward the Green and Sustainable Finance Grant Scheme. Major Chinese ship financing institutions and seven of the world’s top 10 ship financing syndicated loan underwriters have established branches and offices in Hong Kong. In addition, the total amount of green bonds and loans arranged in Hong Kong in 2020 alone reached $12bn. The borrowing ceiling for the new green scheme was raised to HK$200bn ($25.7bn) in 2021, allowing for a total of around HK$177.5bn in green bonds to be issued in the next five years. “The issuance of green shipping bonds in Hong Kong will become a more attractive financing option for largescale shipping and shipbuilding and port companies to develop and manufacture new energy ships and other technologies to promote zero carbon emissions in the shipping industry,” Laracy says. Concluding, Caravel’s Banga tells Splash: “It’s a matter of setting policies and introducing initiatives designed to help the maritime industry thrive – whether that’s about creating new opportunities, fostering innovation and collaboration, or attracting and retaining top talent.”

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GOVERNMENT PRIORITIES

How to climb the ranks Splash canvassed the local maritime community about what they’d like to see the government do to grow Hong Kong maritime. Plenty of opinions flowed in

arrie Lam (pictured) gave her final policy address of her first term as chief executive of Hong Kong in October. As Lam’s first term comes to an end with it looking likely she will seek reelection again in March, it is clear that she has done more than most leaders post-reunification to listen to the maritime community and enact legislation to encourage maritime development. Arguably her greatest maritime legacy will be in strengthening the city as a preeminent base for ship leasing via generous tax perks. Similar favourable tax treatment has been dished out to marine insurers with shipmanagers, shipbrokers and ship agents all likely to get lower bills from the taxman too in the coming 12 months. “The government is committed to enhancing the competitiveness and vibrancy of the Hong Kong economy,” insists Benjamin Wong, head of the maritime cluster at Invest Hong Kong, the government department responsible for attracting and facilitating foreign investment. “We will strive to maintain our competitive advantages, and at the same

“

To truly create a thriving marine cluster, the government needs to engage everyone

”

time step up investment in infrastructure, and innovation and technology in order to add growth impetus to our development.” Nevertheless, there is a huge amount the local maritime community would like the government to do in order to grow the Special Administrative Region (SAR) as an international maritime centre. It is worth noting that while Hong Kong has surpassed Shanghai in terms of the number of shipmanagement companies, the number of branches of top 100 container companies and bulk cargo companies are significantly outnumbered by Singapore’s and Shanghai’s. “The Hong Kong government should follow in the Singaporean government’s footsteps and implement incentive policies to create favourable conditions

for attracting shipping resources into the region, and launch practical initiatives to facilitate the future development of maritime and port services,” urges Damien Laracy from law firm Hill Dickinson. Angad Banga, chief operating officer at the Caravel Group, says it is vital that every strand of the maritime ecosystem is marketed to by Hong Kong authorities. “To truly create a thriving marine cluster, the government needs to engage everyone from the cargo owners to the shipowners, service providers, financiers, and so on, and extend their support and investment in a holistic way given the interdependent relationships within the ecosystem,” Banga says.

Top of the wish list ∙ More double taxation agreements ∙ Establishment of a dedicated shipping body within government ∙ Offer more maritime courses at universities ∙ Map out a coherent long-term maritime hub strategy

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GOVERNMENT PRIORITIES

Firoze Mirza, managing director of BSM Hong Kong, part of the Bernhard Schulte Shipmanagement empire, stresses that while certain changes are welcome it will be vital that Hong Kong retains its laissez-faire attitude to the economy for shipping companies to prosper. Nevertheless, according to Martin Chen, business development director for Hong Kong and Taiwan for class society DNV, the government should be more proactive in coming up with long-term maritime strategies rather than just responding to other actions taken by rival shipping hubs.

Shipping as a standalone body in government There is one request heard repeatedly while Splash canvassed shipping executives in compiling this magazine - and it is a demand that has fallen on deaf ears for more than 20 years - the creation of a more dedicated shipping body within government. Currently shipping falls within the bloated remit of the Transport and Housing Bureau (THB). The Marine Department, meanwhile, is tasked with predominantly administrative matters. Lam did hint that the strange transport and housing joined government body would be split as she winds up her first term in office, but no timeframe or idea of what will replace it has been revealed yet.

Sanjeev Verma, managing director of Landbridge Ship Management, is one of many calling for the disbanding of the THB in order for important local industries such as maritime and aviation to have greater focus and leadership. The same plea is made by Hing Chao, the chairman of shipowner Wah Kwong, whose father fought the same battle with government 20 years ago. Whether this new entity is a statutory body or not it does not really matter, argues Rosita Lau, a partner at Ince and Co and member of the Hong Kong Maritime and Port Board, so long as it is headed and run by people who know shipping well, and know what is happening in the international maritime arena and have international vision. “The new body must formulate and implement maritime polices in a well co-ordinated way, and connect Hong Kong even closer to the international shipping world and to make Hong Kong an even more visible and active player in the planning of international maritime policies and strategies,” Lau urges. Having a separate government body to focus on the shipping industry would certainly be a help, but general policies like easing restrictions on the granting of work permits to overseas employees are essential to encourage companies to relocate, says Tim Huxley, chairman of Mandarin Shipping. A more immediate concern that the government must

remedy, Huxley says, are today’s Covid quarantine restrictions, currently amongst the strictest globally. “For as long as the current draconian quarantine restrictions remain in place, Hong Kong cannot develop further,” Huxley warns.

Maritime education Any maritime centre with long-term aspirations of continued success needs a pipeline of local talent and this is something else high up on the shipping community’s wish list. Granted, the Lam administration has made maritime education funds available but more could be done. “The government should devote time to develop the Hong Kong maritime education sector,” says Landbridge’s Verma, suggesting local tertiary education institutions tie up with leading maritime universities around the world, with the likes of Dalian and Shanghai’s maritime universities being a good starting point. In her final policy address, Lam, whose tenure in charge of Hong Kong has been mired by creeping national security regulations from Beijing, said that 96% of the 900 initiatives set out in her past four policy addresses have been fulfilled. Were she to be able to fulfil the checklist carried on these pages she’d prove to be massively popular within the local shipping community.

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SHANGHAI

Mutually stimulating competition How do Hong Kong and Shanghai fit together in China’s maritime jigsaw. Splash attended a recent, high profile conference to find out

here has been a lot of talk in the past about Hong Kong’s long-held role as an international finance and shipping centre being replaced by Shanghai with debate on which one will eventually come up as the lead in China as well as in the region. Shanghai’s growth has been striking, and China’s biggest city and home to the largest boxport in China and the world has been very ambitious to regain its past glory. Whether the rise of Shanghai will continue to be a cause of concern for Hong Kong or their relationship will evolve into a more complementary instead of rivalry in nature, remains to be seen. Panellists at the recent TradeWinds Greater China Shipowners Forum believe the two major shipping hubs can work together to build on their own comparative advantages but also to improve weaknesses to better serve the maritime industry. Wah Kwong’s executive chairman, Hing Chao, said he reckons there’s always going to be a level of competition,

which he thinks is healthy and mutually stimulating, but also sees the role of Hong Kong and Shanghai as complimentary on so many different levels. “I believe they are very much synergetic,” he told delegates attending the conference. “If Shanghai can be identified as the capital of shipping within China for domestic shipping and a hub, I do not see the role of Hong Kong diminishing particularly as economic growth in the Asia Pacific region, particularly China, has been driving global economic development for the last two decades and may well remain that way for the foreseeable future,” Chao said. Chao also noted that while Shanghai is at the moment consolidating, whereas before we could see resources in China in shipping being a bit more scattered between Shanghai and Beijing, Hong Kong has also stepped up its game, passing a very important law to make it “hopefully” a much more attractive place for leasing companies with a much more favourable and friendly tax regime and overall

business environment. “If you compare the two I’d say there’s mutual strengths, while they overlap, they do complement each other very well,” Chao maintained. In terms of strengths and weaknesses between both hubs, Mark Young, chief executive of bulker player Asia Maritime Pacific (AMP), said that more and more shipping operators and technical management companies have been relocating to Shanghai, while Hong Kong in terms of actual activity has just been stable. Nevertheless, he pointed out that there might be more for Asia than just these two great hubs. “I know Hong Kong is traditionally strong in finance, arbitration, insurance, and all these things will probably stay in Hong Kong for quite a long time. But I can see the competition is not just between Shanghai and Hong Kong, I think we will probably mention Singapore in the future, so in some way shipping has been decentralised in Asia. Trying to talk about just Hong Kong and Shanghai is a little bit of a simplified situation,” Young suggested.

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SHANGHAI

Rosita Lau, a partner of the international law firm Ince, said she’s been answering the question about Hong Kong and Shanghai maritime dominance for years. “We are already above that,” said the Hong Konger, “because we are an international maritime centre and because of our all-rounded maritime services rather than counting the number of containers coming in or going out.” She stressed that in order to really prosper the two hubs depend on three things: international approach, free trade and currency, and “the brain” (people). “It’s the people who really are the most important,” Lau said, “because you can have all the hardware there, you can have all the ports but where are you, people?” When it comes to financing, AMP’s Young said he believes that Hong Kong is clearly facing competition from places like Shanghai. He noted that most Chinese leasing companies are based in Beijing or Shanghai and that in some way the physical operation of ship financing of assets has been gradually moving away from Hong Kong. While Hong Kong still remains one of the top stock markets, Shanghai has been picking up very fast when it comes to asset lending. Wah Kwong’s Chao on the other hand wouldn’t say that Hong Kong has shrunk in importance as a result of Shanghai. “Behind the front of a lot of leasing companies, they’re also collaborating very closely with EU banks and around the world. Now, who do they speak to? Often times to regional HQ seated in Hong Kong, so even though a lot of times the direct financing deals between shipping companies and banks are intermediated through a leasing company a lot of the deals are still done or involve Hong Kong,” Chao pointed out. As for moving forward, Lau believes that there are a lot of interflows between Hong Kong and Shanghai and that both have a lot of competitive edges, but have to catch up on many things and work together.”Why do we have to confront each other?” she questioned.

“For Shanghai, I think is the software they have to improve and catch up a bit, software meaning the system and the mission of the people operating there. For Hong Kong basically is to be more competitive to other nearby ports, because we have been under great competition due to throatcutting price competition.” Chao, who led a recent Hong Kong shipowners delegation to Shanghai, the first since the pandemic, added that his impression from Shanghai is that it very much welcomes further and closer ties and cooperation between the two major centres. “Shanghai recommends Hong Kong to look more closely into the favourable policies existing in Shanghai to see how it can help Hong Kong shipping companies further develop. So I don’t see us competing but work more closely together to create a better environment not only for China but for Asia and the rest of the world,” Chao said.

Shanghai’s limitations Whether Shanghai will develop internationally, Chao believes that it will be quite hard for Shanghai in terms of becoming a major arbitration and

Hong Kong needs a proper maritime authority “ to have greater power to coordinate all resources under one roof”

dispute resolution centre for international stakeholders, because the basis for Hong Kong law is fundamentally different from Shanghai or anywhere else in China. For Ince’s Lau, in order to enhance its status as shipping centre, Hong Kong needs a proper maritime authority to have greater power to coordinate all resources under one roof. “We need a statutory board really leading us to be as strong as other equivalent international maritime centres to attract other shipowners coming to Hong Kong,” Lau said. She also called for more tax relief for shipmanagers, brokers, agents and more manpower. Wah Kwong’s Chao agreed with Lau that Hong Kong needs strategic planing and that it’s been lacking leadership from the top. “We need the government not just to receive our suggestions but to digest it, to take it to another level, to see how best to promote Hong Kong interests by coordinating with other government departments to come up with short and long term solutions,” Chao said. AMP’s Young said that in terms of operations Shanghai is and will remain the choice for many, including his own company, however, legal, compliance, insurance as well as finance departments are in Hong Kong. “In an ideal world we’d like to have these under the same roof but in reality we have to go where it’s the most efficient - unfortunately that’s the real world,” Young said.

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LINES

Smash hit Splash picks out the biggest stories in what has been a banner year for many local shipowners

fter more than a decade where Hong Kong’s generally canny owners have kept their heads low, seeking to get through shipping’s lost decade, 2021 has been a banner year for most with container and dry bulk earnings spiking. In general, however, in keeping with the conservative nature of the city’s shipowners there has been little in the way of excess or irrational outlay; the previous tough years have kept this business community on a tight leash.

a decade. The two men are pictured above playing table tennis on Berglund’s final day in charge. Fruergaard, a Dane, also previously served several senior roles in Maersk Bulk Carriers, Maersk Tankers and Maersk Drilling. Having paused fleet expansion plans at the start of the pandemic, Pacific Basin roared back into action 12 months ago and has been buying plenty of secondhand tonnage, while also getting rid of some vintage units.

Pacific Basin

OOCL

The big news at Pacific Basin, the territory’s listed largest dry bulk operator, was a change at the top with Swedish national Mats Berglund deciding it was time to head home after nine years as CEO. At the end of July Martin Fruergaard, formerly the CEO of Ultragas took over from Berglund, joining the company at a propitious time where handy and supramax rates - the focus of the Pacific Basin fleet - were hitting highs not seen in

It’s now more than three years since Cosco completed its buy-out of Hong Kong’s flagship liner, OOCL. The Hong Kong firm still maintains its own identity and is still very much considered a bellwether for container line fortunes. It’s third quarter results - published in early October paint their own picture of the sky-high, unprecedented times carriers have been through in 2021. OOCL saw revenues grow by 125.3% year-on-year to $4.3bn for the

three-month period. The $6.7bn Cosco paid for the then Tung family-controlled carrier has easily been recouped and then some in this stellar year for box shipping. In September OOCL entered into shipbuilding contracts with two yards belonging to parent, Cosco, for the construction of ten 16,000 teu containerships. The latest deal takes OOCL’s newbuilding orderbook to 22 vessels. Meanwhile, in August OOCL debuted a landmark new rail-sea service connecting China to the US east coast. The new offering is a combination of the Chang An China-Europe block train service from Xian to Kaliningrad with onward feeder to Bremerhaven, and then with OOCL ocean services from Bremerhaven to various ports on the US east coast. The service is the first of its kind to be operated by an ocean carrier, connecting China and North America by using the Asia-Europe Land Bridge and the Atlantic Ocean.

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RECOGNIZED DRY BULK SPECIALISTS

www.taylormaritimeinvestments.com

LINES

eye out for future growth opportunities,” says the group’s founder and chairman, Harry Banga.

Taylor Maritime

Chellaram

Valles

There’s been considerable change at the top for Chellaram controlled brands this year. After 13 years in charge at dry bulk subsidiary KC Maritime, Vikrant Bhatia made way. From June 1, the company’s new chairman, Gautam Chellaram became both chairman and CEO. The Indian-controlled shipping conglomerate, which has been based in Hong Kong since 1979, added new tonnage this year with two handies - the Darya Heera and Darya Mira - joining the Chellaram Shipping fleet from Dalian COSCO KHI Shipyard.

The average age of the Valles Steamship fleet came down this year with the arrival of two aframax newbuilds and a brand new LR2 product tanker from Asian yards. The 104-year-old company, now run by the fourth generation of the Koo family, took the decision two years ago to exit dry bulk. It currently has 12 tankers in its fleet. In March this year, the company also contracted STX Offshore & Shipbuilding in South Korea to construct a 50,000 dwt product tanker. The policy at Valles in recent years has been to focus on tonnage replacement, something that is unlikely to change anytime soon.

Wah Kwong Under Hing Chao, the venerable Wah Kwong brand continues to diversify to offer a suite of China-linked services in addition to its shipowning roots, which now date back 70 years. The company’s shipmanagment division is now pushing 60 ships, while Wah Kwong also develops ever closer ties with China’s top leasing houses. Chao also founded the Greater Bay Area (GBA) Task Force under the Hong Kong Shipowners Association (HKSOA) and is among the city’s best proponents on the merits of the GBA. In May, Chao’s sister, Sabrina, took over as president of BIMCO, the world’s largest shipowning organisation.

It has been a sensational year for Ed Buttery, leading his seven-year-old firm onto the London Stock Exchange (LSE), continuing to grow his handy bulker fleet while enjoying the best rates in more than a decade. Taylor Maritime Investments’ listing in London was a brave move, there had been no shipping IPOs in the UK capital for many years, yet Buttery rolled his sleeves up and hit the virtual roadshow hard, drumming up support for the launch with snappy, beguiling pitches on prospects for the dry bulk sector. The cash accrued has gone on bulking up the fleet. “The ultimate goal is not a certain number of ships but to maximise long term shareholder value, protect dividends and to grow them,” Buttery says.

Unique Shipping Private Hong Kong owner Unique Shipping quit the bulker segment at the start of the year, offloading its one cape, the Unique Carrier for $11.5m. Unique’s ship focus is now on its 12 tankers - a mix of gas and product carriers. Unique Shipping was established in 1966 as a private shipowning and management operation and has since then acquired over 100 vessels over the years. The company is now led by Edward Cheng, the eldest son of the founder.

Caravel

China Merchants Energy Shipping

The Banga family-controlled trading house recently added a third bulk carrier and has just increased its shareholding in the feeder container segment and is now the largest partner in Tim Huxley-led Mandarin Containers, which has a fleet of five 1,700 teu ships. Caravel has been growing a great deal, largely under the radar. Today it claims to transport 1% of the world’s containers and 2% of the world’s commodities. “Considering the growth in the market right now we believe our investments this year are sound and will demonstrate robust returns and continue to keep an

2021 has been a year of fleet rejuvenation for mighty China Merchants Energy Shipping (CMES), one of the world’s largest shipowners. The state-backed Chinese carrier has been offloading a series of non-eco ships while on the shortsea segment it has also been pruning its multipurpose fleet in order to have an asset light approach to this particular business division. The company has also been active in contracting newbuilds, most recently sealing a deal with Dalian Shipbuilding Industry Co for an aframax to be delivered in 2024.

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TAI CHONG CHEANG STEAMSHIP CO. (H.K.) LTD. SUITES 3002-04, 30/F, SOUTH ISLAND PLACE, 8 WONG CHUK HANG ROAD, WONG CHUK HANG, HONG KONG TEL: (852) 2522 5171 FAX: (852) 2845 9307 WEBSITE: WWW.TCCFLEET.COM

LEASING

Lessor haven Hong Kong has powered ahead as one of the world’s great leasing centres thanks to generous tax perks

he global senior debt market funded by the usual shipping banks has shrunk by at least $100bn between 2008 and now whereas the demand for seaborne trade has continued to grow at 3.5% per year. A big part of this funding gap has been taken up by Chinese leasing companies, with many deciding Hong Kong is the best place to set up shop. Hong Kong has powered ahead as one of the world’s top ship leasing centres, bolstered over the past year by further favourable treatment by government. The Inland Revenue (Amendment) (Ship Leasing Tax Concessions) Ordinance 2020 complements section 23B with a new tax regime. Profits derived from qualifying ship leasing income are exempt from profits tax whereas profits from qualifying ship leasing management activities are either exempt from profits tax if the services are provided to affiliated companies, or taxed at the reduced profits tax rate of 8.25% if the services are provided to unaffiliated companies. The standard profits tax rate is 16.5%. The regime also complies with the latest OECD requirements on issues

such as domestic tax base erosion and profit shifting (BEPS). The minimum conditions for ship leasing companies are that a Hong Kongincorporated company is managed and controlled in Hong Kong, owns or leases one or more qualifying vessels and leases these vessels out on either an operating or finance lease for use outside Hong Kong waters. They must have at least two full-time employees in Hong Kong and a minimum annual operating expenditure of HK$7.8m ($1m). According to Conor Warde from law firm Mayer Brown Hong Kong’s ship leasing tax incentive conditions are now less onerous than Singapore’s. It’s clear that in the 12+ months since this new bill came into force leasing deals concluded in Hong Kong have leapt. “This new legislation plays into Hong Kong’s strengths in international finance to encourage the growth of the maritime cluster and facilitate more cross-border transactions, in particular with the Greater Bay Area (GBA),” comments Damien Laracy, partner and head of Hong Kong office at law firm Hill Dickinson. The enactment of the bill has created a

Kong’s ship leasing tax incentive conditions “ Hong are now less onerous than Singapore’s ”

“complete and robust regime” to provide the legal and tax certainties for qualifying lessors and lease managers to set up base in Hong Kong, argues Kenneth Lam, the CEO of Credit Agricole Asia Shipfinance. Lam is adamant that Beijing sees a strong future for the Special Administrative Region as a leasing centre. Under China’s 14th five-year plan, Hong Kong has its status as China’s international finance, shipping and trading centre confirmed, Lam points out. “Ship leasing in Hong Kong will continue to be a focus with the right policies coming from the local government, the GBA and the state so that more shipping commercial principals will be based in Hong Kong,” he predicts, going on to suggest more independent leasing companies, not necessarily attached to large financial institutions, will set up base and grow their businesses in an attractive jurisdiction like Hong Kong. Rosita Lau, a partner at Ince & Co and a member of the Hong Kong Maritime and Port Board, says that Hong Kong now stands out as a tax haven for ship leasing business players. “I foresee that once the severity of the Covid-19 pandemic relaxes further, more ship leasing companies will come to operate in Hong Kong so as to enjoy the tax benefits” Lau says.

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SHIPMANAGEMENT

Playing to the city’s strengths Hong Kong remains one of the world’s preeminent hubs for shipmanagement, a position of strength that looks set to be bolstered

ong Kong is one of the world’s top three shipmanagement centres, home to two of the three largest global managers and a host of other well known names. The city’s credentials as a magnet for managers are set to be boosted with it widely tipped that the sector is in line for tax incentives in the coming 12 months. What has united all managers in the Special Administrative Region (SAR) this year has been the fight for better rights for their staff at sea with the plight of seafarers during the pandemic and subsequent intransigence by politicians consternating senior executives.

Anglo-Eastern Anglo-Eastern is one of the world’s largest shipmanagers and in Bjørn Højgaard it has had one of the most vocal champions for seafarer rights during the pandemic. Højgaard has been chairman of the Hong Kong Shipowners Association (HKSOA) in addition to his CEO duties at Anglo-Eastern over the past couple of years, a position he has used to chastise

politicians around the world, including on home soil, for their handling of seafarers during the Covid crisis. “Politicians the world over have a responsibility to look beyond the kneejerk bans and closed borders, and in the enlightened self-interest of the societies they claim to lead, treat seafarers differently,” Højgaard tells Splash. It has been a busy year for AngloEastern, adding to the fleet while forming new partnerships, many related to sustainability. In September Anglo-Eastern tied up with Lookout Maritime, a new company formed by ex-RightShip supremo Martin Crawford-Brunt, to support shipowners with both the prioritisation and implementation of sustainability initiatives. The initial focus of the partnership will be on delivering a sustainability review at a fleet level for shipowners, including the impending Energy Efficiency Existing Ship Index (EEXI) and Carbon Intensity Indicator (CII) regulations. Detailed recommendations on identified conversion candidates are

provided after consideration of a range of factors and drivers. This includes the future tradability of the vessels and other commercial implications, as well as a business case if required. Project teams at Anglo-Eastern will then manage the conversion project on behalf of the owner. Earlier in the year, Anglo-Eastern became the first shipmanager to join Itochu Corporation’s joint study framework aimed at advancing ammonia as an alternative marine fuel. The study group was first launched in June to explore key issues in the use of ammonia at sea, from fuel specifications to safety issues and emissions. Anglo-Eastern earlier in the year successfully developed a novel zeroemission vessel (ZEV) design with ammonia as fuel that has received approval in principle.

Fleet In the last few weeks the juggernaut that is Fleet Management welcomed its 600th vessel under full technical management, cementing its place on the global

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SHIPMANAGEMENT

shipmanagement podium. Fleet has ships of all shapes and sizes these days and has 130 shipowners as clients. It is also the first manager to have vessels under technical management that use all three types of commercially available dual fuels: LPG, LNG and methanol. “One of the aspects that I believe strongly reinforces Hong Kong as a world-class maritime hub is that all the key stakeholders have a strong presence or base here – from shipowners to cargo owners, traders, ship financing, insurance, broking, maritime law, shipmanagement, and the list goes on,” says Kishore Rajvanshy, Fleet’s veteran managing director. Rajvanshy’s boss, Harry Banga, the chairman and CEO of parent, the Caravel Group, uses the Splash platform to voice his anger at the ongoing crew change crisis. Banga, like Rajvanshy, is a former seafarer and feels for those stuck out at sea for so long. “I am a strong believer that collaboration and communication among common and uncommon stakeholders and partners in the industry is how we’re going to find our way out of this crisis,” Banga says.

Wallem In January, 118-year-old Wallem Group saw a change of leadership following the news that then CEO Frank Coles had tendered his resignation. JohnKaare Aune, who had joined as head of shipmanagement from the Cayman Registry in 2019, was made interim CEO. After nine months, Aune has been instated as Wallem’s permanent CEO this October. “We are focused on combining the broad industry experience that we have within the organisation with the application of new technologies in order to support our partners to achieve sustainable value,” Aune tells Splash, saying that the company is investing time to further build its in-house expertise to ensure Wallem can meet the evolving requirements of clients in fields such as sustainability and decarbonisation. The company is determined to grow the number of ships and believes that a sharp focus on delivering excellent client service will be key to acheiving this.

On the potential for tax breaks for marine services in Hong Kong, Aune says it would be a very sensible move in order for the city to remain a top maritime centre, especially taking into consideration the competition from other jurisdictions in the region. As per the crew change crisis and the pandemic, Aune says that once Covid finally passes it will be vital for the industry to deliver on its promises in order to inspire loyalty, with companies listening to their crew more closely than ever and making seafarer wellbeing their absolute priority.

BSM Hong Kong BSM Hong Kong, part of the Bernhard Schulte Shipmanagement empire, has been in Hong Kong for 40 years. Today the Hong Kong affiliate controls a fleet of around 70 vessels under full technical management. Firoze Mirza, managing director of BSM Hong Kong, says that Hong Kong has developed as a shipmanagement centre in no small part thanks to the government’s laissez-faire attitude to the economy. “The shipmanagement sector grew, not out of industrial policy, but due to the economic freedom and an ease of doing business that Hong Kong still affords to this day,” Mirza says, adding: “To reinforce Hong Kong’s position the government must allow this status quo to continue and let business take the lead.” With tax perks rumoured to be heading to his sector soon, Mirza says they cannot

come soon enough. “The cost of doing business in Hong Kong is slowly creeping up and I hope this is a scenario that our government will address to ensure the future of our cluster and to maintain our advantage over our competitors,” the BSM executive says.

Landbridge Sanjeev Verma is the managing director of Landbridge Ship Management, a company currently in control of six VLCCs. Verma has plenty of opinions on shipmanagement’s future and potential shortfalls. Take the demographics ashore as a good example. Verma can see a yawning gap in terms of youthful expertise. “The senior management ashore last sailed in the 1990s, mid-level managers stepped ashore in the 2000s, and there is now a serious crunch of fresh brains ashore,” Verma warns, adding that the pandemic has created more challenges with the fleet size increasing, but suitable shore personnel struggling to be added. In terms of where Verma sees shipmanagement heading, more consolidation is inevitable, he predicts as smaller firms will struggle to match larger entities price-wise when it comes to economies of scale. However, Verma reckons strategic cooperation or tie-ups will become the new norm, where shipowners will ask for strategic partnerships with shipmanagers, as transparency will be a key issue.

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RO-PAX PASSENGER SHIPS

SHIP MANAGEMENT

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Contractual negotiations

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30 vessels

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9 DOC

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he Hong Kong flag remains the fourth largest in the world and continues to grow both in terms of size and geographic reach. The total gross tonnage of ships registered with the Hong Kong Shipping Registry (HKSR) increased by about 2% over the past year. As of 31 August 2021, the registered gt was 131.58m. “Whilst promoting the growth of the HKSR, we have adopted a pragmatic approach and maximised our existing resources to safeguard the quality of Hong Kong fleet over the years,” says SY Chan, general manager of ship registration. Since December 2019, the Marine Department has established four regional desks in Shanghai, London, Singapore and Sydney to render direct and prompt services to shipowners and operators for their Hong Kong-registered ships when visiting ports within the regions.

Apart from technical support, the new overseas posts also help in promotional campaigns. In order to uphold the quality of the Hong Kong fleet, the foreign offices are also tasked to conduct free flag state quality audits on Hong Kong-registered ships. “The establishment of the regional desks has enhanced the quality of the Hong Kong fleet and the competitiveness of the HKSR in meeting the needs of global shipping business,” Chan insists. Further offices are set to open in San Francisco, Tokyo and Toronto in the coming 12 months. Administratively, the shipping register has streamlined its work

processes with regard to the issuance of exemptions and dispensations and continues to explore the use of digital technology.

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TECH

Start-up hub In an increasingly competitive landscape for start-ups in the maritime and logistics space, Tabitha Logan and Su Yin Anand, founders of The Captain’s Table, take a deep dive into what makes Hong Kong unique as a start-up hub

ong Kong is ranked as one of the world’s freest economies, so when we were approached in 2019 by start-ups looking to engage with the shipping industry, we partnered with the Starting Up Hong Kong - StartmeupHK team to understand the ecosystem that supports start-ups that have chosen Hong Kong as their base for business. Whether a start-up is at the growth stage or raising a seed round, Hong Kong provides ample opportunities to raise capital from both angel investors and venture capital. The territory’s close proximity to Asia, its role as a gateway to China and accessible markets provide the ideal business environment, enabling companies to scale. Most importantly, Hong Kong also has a deep pool of talent to recruit from locally, with three of Hong Kong’s universities ranked among the top 50 in the world. The government’s recent launch of its TechTAS program also provides fast-track visas for imported talent with specific technical skills,

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allowing for diverse and multicultural teams. With a simple and low tax system, common law jurisdiction and leading IP protection it’s no wonder that as of 2020 over 3,000 start-ups call Hong Kong home.

Home-grown talent The Captain’s Table was launched in 2019 as an independent pitch competition connecting tech start-ups from the maritime and logistics space with stakeholders in the shipping industry. Utilising Hong Kong’s status as a leading international maritime centre

and home to one of the world’s largest shipping communities, the Captain’s Table has developed a network that is proactive in supporting and engaging with start-ups, working on solutions relating to digitalisation, optimisation and the buzzword of the moment, decarbonisation. Of these 3,000+ start-ups, 26% of them have global founders and we have been lucky enough to work with some of these incredibly passionate leaders. They often quote the close-knit start-up community, multicultural environment and social scene as some of the key reasons they choose Hong Kong. Here are just a few of the innovative

The combination of infrastructure, maritime “expertise and a dynamic start-up ecosystem provide the ideal conditions for success”

TECH

start-ups originating in Hong Kong. Clearbot – Self navigating AI vision guided robots that collect marine trash autonomously. Carbonbase Enterprise - a startup leveraging AI and blockchain to mobilising citizens, scaling up beach cleaning and enabling a greener ecosystem. Open Ocean Camera - an AI-powered open-source underwater camera for research conservation in the oceans. archiREEF – building dynamic ocean ecosystems, the first artificial reef structure printed on terracotta, reef tiles that can enhance coral survivorship and growth. Irwin Marine Services – retrofitting and recycling old pipes onboard ships to reduce environmental waste. Where do these start-ups reside? In Hong Kong, there are over 90+ incubators and accelerators, numerous universities and start-up associations. A number of private accelerators also offer up to $500,000 in investments for

early-stage start-ups. Public support networks are vital too and a number of our Captain’s Table start-ups have been incubated at Cyberport and the Hong Kong Science and Technology Park, the Hong Kong government’s leading technology incubators, providing a great setting to collaborate with other start-ups. These public networks offer start-ups funding to develop their solutions and establish their operations. Our finalist from 2020, Virtual Control, a Cyberport alumni, is a good example. Virtual Control uses artificial intelligence to provide real time insights on your assets, both optimising operations and protecting them through real time visibility. We at The Captain’s Table are grateful to the Hong Kong government and the maritime industry for believing like us, that the combination of infrastructure, maritime expertise and a dynamic start-up ecosystem provide the ideal conditions for success.

Support our work in telling the maritime story.

Public support “ networks are vital” Splash is proud to be the media partner of The Captain’s Table. For more information on the competition, click here

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ARBITRATION

Asia’s premier maritime arbitration venue Arthur Bowring explains why the city is best placed to solve shipping disputes

ong Kong has certainly been in the news over the last couple of years. There is a quote from a 1995 story in Fortune magazine that is reinvigorated every time Hong Kong’s political situation is analysed in the media, “The Death of Hong Kong – the naked truth about Hong Kong’s future can be summed up in two words: It’s over.” But as Mark Twain is said to have said, but didn’t, “The reports of my death have been greatly exaggerated”. We, in the Hong Kong Maritime Arbitration Group (HKMAG), can reassure readers that the institutions that underpin Hong Kong’s illustrious reputation as a commercial and legal powerhouse remain as effective as ever. Hong Kong’s legal system is based on the rule of law, judicial independence, and a skilled and independent legal profession. Under One Country, Two Systems Hong Kong retains its common law system, and is the only common law jurisdiction in Greater China. Within that framework, the Hong Kong government and the courts are strongly supportive of arbitration. Hong Kong has a significant advantage over other seats of arbitration in the APAC region. Parties to arbitration often wish to seek interim measures, such as inspection and asset freezing, both in the arbitral seat and beyond. Whether such interim measures are available outside

the seat to assist foreign arbitration proceedings depends upon the procedural law of the national courts. In 2019, the Supreme People’s Court of the PRC and the Department of Justice of Hong Kong signed the ‘Arrangement Concerning Mutual Assistance in Court Ordered Interim Measures in Aid of Arbitral Proceedings by the Courts of the Mainland and the HKSAR’. Under this document, parties to arbitrations seated in Hong Kong and administered by eligible arbitral institutions can apply to the Mainland Chinese courts to enforce interim measures against parties and assets in Mainland China. HKMAG is one of the few designated institutions in Hong Kong that enjoy this eligibility. For those seeking administered arbitration with a view to enforcement in Mainland China and elsewhere, HKMAG has produced Procedures for the Administration of Arbitration under the HKMAG Terms 2021. The procedures describe a very light touch administered approach. There is no registration fee, and the total administration fee is fixed at only HK$5,000 ($642), regardless of the quantum of the dispute. Most companies engaged in international trade are familiar with the London Maritime Arbitrators Association (LMAA). With the consent of LMAA, HKMAG has adopted the LMAA 2021 Terms, including Schedule 6 on Virtual

Hearings, and the LMAA SCP (Small Claims Procedure) as the HKMAG Terms 2021 and the HKMAG Small Claims Procedure 2021, with minor changes to incorporate references to Hong Kong arbitral law. In recognition of Hong Kong’s leading role in Asia for dispute resolution, Hong Kong and HKMAG were added to the BIMCO Law and Arbitration Clause 2020. HKMAG does not measure its effectiveness by the number of international arbitrators on its panel. HKMAG’s full members and members are deliberately Hong Kong citizens or permanent residents in and of Hong Kong. They create and maintain a local pool of legal and technically qualified professionals with experience in maritime, technical and commercial issues. Companies involved in international trade are very likely to face contractual disagreements. The need for such disputes to be resolved efficiently, fairly, competently, and economically is essential. Hong Kong remains the best venue in Asia for dispute resolution, whether through arbitration or mediation.

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SUPERB SHIPPING PRACTICE IN HONG KONG FOR DECADES We are committed to marine. Home to the world’s largest and most diverse team of maritime lawyers, our network covers all major marine hubs. We have evolved with our clients, helping to keep the world moving from the beginning of the supply chain to the end. Whether helping our clients to negotiate deals, solve disputes or comply with the increasingly complex regulations which affect them, we are sector leading experts across the full breadth of the marine industry.

For information about how we can help your business, please contact: CHRISTOPHER CHAN Partner, Hong Kong T +852 3983 7638 E christopher.chan@hfw.com

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OPINION

Opportunity knocks Richard Hext on what linking up with neighbouring cities means for Hong Kong’s future

here are few places that can match Hong Kong in terms of its overall connectedness in the world of international shipping. The most important reason is that Hong Kong is the primary gateway between China, the dominant force in shipping, and the rest of the world. China’s economy now represents nearly 17.5% of world nominal GDP, a figure that has risen rapidly in recent years. In 1997, the year that China resumed sovereignty over Hong Kong, China’s economy represented 3% of world GDP. The relative importance of China’s economy is likely to grow given the education level and industriousness of its people, its access to capital and its relatively low starting point measured as current income per capita compared with the developed West. China is even more relatively significant in the world of shipping. China imports by far more bulk cargoes, and exports more containerised cargoes than any other country. China’s shipyards produce more ships than any other country. Chinese shipowners are the second largest in the world while the combined flags of Hong Kong’s and China’s registered fleets are the largest in the world. Beijing and Shanghai and, increasingly, Shenzhen all enjoy impressive international connections. But Hong Kong’s unique history, rule of law and deep infrastructure of financiers, lawyers and insurers (thus sophisticated capital market connections) make it easily China’s most international city. At the end of September, Hong Kong’s

stock market had a gross market capitalisation of more than $6trn, of which a major portion was made up of major Chinese SOEs. Hong Kong also has a very successful bond market: in 2020, the amount of bond issuance arranged by Hong Kong was $196bn, ranking first in Asia for international bond issuance. One of China’s most important policy priorities is to internationalise the RMB so as to free itself from the dominance of the US dollar and New York in global market transactions. Hong Kong is crucial to China in this respect. Given this, it is perhaps not surprising that Hong Kong is a flashpoint in the continuing geopolitical tussle between China and the US.

The Greater Bay “Area’s total GDP is equivalent to the GDP of Canada, the ninth largest economy in the world

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Hong Kong is currently working hard to exploit a myriad of opportunities in the Greater Bay Area (GBA) by more closely integrating its economy with its ten closest neighbouring cities .The potential is great. The other 10 cities in the Greater Bay Area have a population of more than 70m people and an annual GDP of about $1.3trn. Including Hong Kong’s $370bn of GDP, the GBA’s total

GDP of $1.67trn is equivalent to the GDP of Canada, the ninth largest economy in the world. These eleven cities each have their own strengths but Shenzhen deserves a special mention. Shenzhen (pictured) was a small village in 1978 but now has a population believed to be well over 15m and a GDP that exceeds Hong Kong’s. It is dubbed China’s Silicon Valley and hosts the headquarters of TenCent and Huawei as well as many technology startups. From a shipping perspective, the techgenerated wealth of Shenzhen suggests opportunity for Hong Kong’s shipowners and financiers wishing to expand their fleets. From a tech entrepreneur perspective, shipping assets represent great diversification potential. The Greater Bay Area cities are situated on the Pearl River Delta and are connected by numerous maritime links. As trade within this area grows, we can expect opportunities for more waterborne opportunities. A recent example of Hong Kong exploiting such opportunities is that during much of the time from 1992 to 2004 Hong Kong was the world’s largest container port; now the GBA ports collectively (using significant amounts of Hong Kongprovided capital and expertise) are the largest cluster of container ports in the world.

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OPINION

Still the one Hong Kong has taken a few knocks in recent years, but it’s still a major maritime centre, and, argues Tim Huxley, the best is yet to come

t’s been a tough few years for Hong Kong. Protests in 2019 and one of the strictest anti-Covid policies in the world have meant few have managed to get a first-hand impression of developments in what has always been one of the shipping industry’s favourite destinations. Whilst we look forward to welcoming everyone back once travel restrictions ease, the shipping world would be wise to keep Hong Kong very much on their radar - the next few years are going to see Hong Kong shift up a gear as a maritime centre. A good market always helps. August saw Hong Kong’s leading bulk carrier owner Pacific Basin post its strongest half yearly results for 13 years. Meanwhile, the privately held shipowners who are at the core of the Hong Kong shipping cluster are reaping the benefits of having stuck with shipping through the downturn, with the expansion of several fleets showing renewed confidence in the future. A recent exhibition at the city’s acclaimed maritime museum titled ‘Believe in Hong Kong’ celebrated 150 years of the Swire Group’s presence in the city and the diverse conglomerate that now exists, which started with shipping as its foundations. The message the exhibition gets across is that through good times and

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bad, seizing the opportunities that Hong Kong offers, believing in the city and its people and continuing to invest in them will always yield benefits for everyone. That remains as true today as it has been for the past 150 years. Pivotal moments such as the arrival of migrants from Shanghai in 1949 and the opening up of China in the late 1970s were seen by some as a threat to Hong Kong but ultimately proved to be crucial in making Hong Kong Asia’s world city. After all the dramas of the past few years, Hong Kong is now poised for another significant moment in its development with the growth of the Greater Bay Area. Integrating the economies of Hong Kong with nine municipalities in neighbouring Guangdong province will see Hong Kong take on the role as facilitator and connector for a burgeoning economic powerhouse with a population of over 70m people. The potential for Hong Kong’s shipping industry is vast. In addition to providing a massive new market for Hong

Kong’s established service providers, recent initiatives such as the Ship Leasing Bill, enacted in Hong Kong last year, will greatly increase the commercial authority vested in Hong Kong as well as access to more investment capital from across the border, which will further drive activity. With two of the three largest third party shipmanagers not only headquartered in Hong Kong but also founded here, Hong Kong is now the global leader in shipmanagement. Together with its existing world class shipping services, in areas such as law, broking and finance, all underpinned by a shipowning community where a 70-year-old enterprise is a relative youngster, Hong Kong has got the experience and talent to embrace this enormous new opportunity. It truly is time to believe in Hong Kong.

The city has always been one of the shipping industry’s favourite destinations

Hong Kong Market Report 2021

Articles inside

Tim Huxley

Richard Hext

Arbitration

Lines

Leasing

Shanghai Rivalry

Port

Executive Debate

Government

Flag

The Greater Bay Area