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Hong Kong terminal operators agree to collaborate

Cosco-HIT Terminals, Asia Container Terminals, Hongkong International Terminals and Modern Terminals Ltd have entered into an alliance agreement to consolidate management and operations of their berth facilities. Their aim is to improve the value proposition of the combined facilities amid growing regional competition

The Hong Kong Shippers’ Council says it has ‘deep concern over the negative impact on competition’ of the alliance.

HONG Kong's leading container terminal operators have formed an alliance to combine their berth facilities, aimed at bringing better efficiency to the city’s declining port.

Cosco-HIT Terminals, Asia Container Terminals, Hongkong International Terminals and Modern Terminals have pledged to collaborate on the management and operation of the 23 berths across nine terminals in Kwai Tsing.

Under the so-called Hong Kong Seaport Joint Operating Alliance Agreement, the objective is to improve the value proposition of the combined facilities amid growing regional competition, to enhance terminal utilisation and cost synergies, as well as to make the port more environmentally-friendly, said Cosco Shipping Ports in an exchange filing.

“Taking into account the changing dynamics of the shipping industry, in particular with the formation of strategic alliances between shipping lines and the growing use by lines of larger vessels, the company is of the view that the Hong Kong Seaport Alliance will enable better utilisation of the existing capacity by increasing the flexibility in the overall berth and yard planning,” it said.

But the Hong Kong Shippers' Council issued a statement expressing "deep concern over the negative impact on competition" of the alliance.

The council said the four operators already handle over 95% of container terminal business in the city.

"With 95% market share, the industry virtually has no choice," council chairman Willy Lin said. "The alliance could agree on non-competition agreements over clients and pricing."

He added "there is no mechanism to monitor, not to mention regulate, the competition behaviours (sic) of the members of the alliance".

CSP and Hutchison Port Holdings Trust each holds a 50% stake in CHT, which owns two berths in Terminal 8 East. The Chinese port giant and Hong Kong-based HPH Trust respectively own 60% and 40% in ACT, which runs another two berths in Terminal 8 West.

HIT, a wholly-owned subsidiary of HPH Trust, owns 12 berths in Terminals 4, 6, 7 and 9 North, while MTL owns 7 berths in Terminals 1, 2, 5 and 9 South. The two largest shareholders of MTL are Hong Kong-based The Wharf (Holdings) Ltd and China Merchants Port, with respective stakes of 68% and 27%.

But DP World’s CSX World Terminals, which operates the remaining container berth in Kwai Tsing, has not taken part in the agreement.

To better integrate the business, the alliance members have also agreed to establish a new organisation within the partnership, including an executive committee, a joint management committee, a commercial committee, a finance committee and an operations coordination team.

The revenue and costs from running the combined facilities would be shared among the parties at a pre-agreed ratio, CSP added. The agreement may be terminated in certain circumstances by giving at least six months’ written notice.

The latest partnership is a development from an earlier initiative launched by CSP and HPH in December 2016 to collaborate on the operations of 16 berths owned by the pair.

It comes as the Port of Hong Kong has been suffering a persistent decline in container throughput in recent years, with its ranking down to the world’s fifth-largest in 2017 from first place a decade ago.

The downwards trend continued in 2018, having seen volume for the first 11 months down 5.4% from the year-ago period.

At the recent Lloyd’s List Hong Kong Business Briefing, MTL chief executive Peter Levesque said the multiple terminal operators in Hong Kong were in active dialogue about how to work together as one port.

He had also pointed out cities such as Shanghai and Singapore that have a single port group and were thus more effective at driving investment in expensive infrastructure and cutting-edge technologies.

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