ISE12/15-16

• The port of Hong Kong has lost out to other Asian ports in recent years, as evident from its declining international ranking in container throughput handled. It lost the position as the world's busiest port in 2005, and slipped to the third in 2007-2012, and further to the fourth in 2013-2014. In 2015, it fell one place further to the fifth after Shanghai, Singapore, Shenzhen and Ningbo-Zhoushan. Hong Kong has been outcompeted by the above ports owing to their increased competiveness from lower terminal handling charges^{1Legend symbol denoting According to the Hong Kong Shippers' Association, the current terminal handling charges levied by the port of Hong Kong are much higher than those levied by many other Asian ports. For example, Hong Kong currently charges HK$2,140 per twenty-foot equivalent unit ("TEU") for Transpacific Eastbound shipments, much higher than Shanghai (HK$974), Singapore (HK$1,003), and Shenzhen (HK$1,188).} and/or pro-active trade facilitation measures implemented.^{2Legend symbol denoting The Mainland has invested heavily in port infrastructures to enhance its port competitiveness, whereas Singapore has constructed a new port at Tuas capable of handling up to 65 million TEUs per year. For Hong Kong, there is currently no plan whatsoever for expansion of its port infrastructures. Although the Preliminary Feasibility Study for Container Terminal 10 (CT10) at Southwest Tsing Yi shows that CT10 development is technically feasible, the project is not financially viable due to slow throughput growth.}
• Amid the above development, the Government has been seeking to strengthen the local maritime services cluster^{3Legend symbol denoting In Hong Kong, the maritime sector is diverse with a cluster of businesses engaging in a range of activities. Among them, there are currently over 700 companies offering a variety of high value-added maritime services, including marine insurance, maritime law and arbitration services, shipping finance, ship broking and ship management. Ship-broking companies mainly provide intermediary services in chartering and sale and purchase of vessels, whereas ship management companies mainly undertake day-to-day vessel operations outsourced by ship owners.} and develop professional and high value-added maritime services in recent years.^{4Legend symbol denoting This aims particularly to develop Hong Kong as a springboard for Mainland maritime companies "going global" and a platform for overseas maritime companies to tap the Mainland's expanding market.} Recently, the Chief Executive announced in his 2016 Policy Address the formation of a new Hong Kong Maritime and Port Board^{5Legend symbol denoting The new Hong Kong Maritime and Port Board will be formed by merging the existing Maritime Industry Council and the Port Development Council. The Board is to be chaired by the Secretary for Transport and Housing.}, tasked with promoting manpower development, marketing and research to develop a high value-added maritime services sector. The Government has also set up the Maritime and Aviation Training Fund with a commitment of HK$100 million for the promotion of manpower development in the maritime sector.
• However, Hong Kong has lagged behind other international maritime centres such as the United Kingdom ("UK") and Singapore in the provision of the professional and high value-added maritime services.^{6Legend symbol denoting See BMT Asia Pacific (2014).} Being the leading maritime centres, the UK thrives on its well-developed legal/financial infrastructures^{7Legend symbol denoting According to an investment bank, "London remains being the maritime centre not because of the number of ship owners, but because the legal system, the arbitration system, etc." See BNP Paribus (2014).}, and Singapore features a pro-active government policy to develop the local maritime services sector. This issue of Essentials studies the maritime services sector in the UK and Singapore, followed by a discussion on how Hong Kong may draw reference in developing its maritime services sector.

World-class maritime services in the United Kingdom

• The UK is renowned for being the global leading centre in the provision of professional business services in the international maritime community. Reflecting this, a government estimate published in December 2015 put the direct economic contribution of the UK's maritime business services sector at a high of £1.6 billion (HK$19 billion).^{8Legend symbol denoting See Maritime UK (2015b).} Specifically, the city of London is positioned as a "one-stop shop" for maritime business services. Although London is no longer competitive in port services nowadays, it has been able to grow into a premier maritime business services centre, largely building on its inherent strengths in legal and financial services.

Strengths in legal and financial services

• The UK has a well-established legal infrastructure. The application of English common law and a pool of legal and judicial expertise have made the UK a premier centre in providing legal and arbitration services. There are also specialized courts hearing maritime dispute cases. For example, the Admiralty Court handles maritime cases relating to loss of, or damage to, a ship, its cargo and an installation. On arbitration, the number of maritime dispute cases referred to arbitration in London is higher than any other places with arbitration services.^{9Legend symbol denoting See the website of the London Arbitrators Association.}
• The supportive financial environment has facilitated the development of the maritime services sector in the UK. Building on its financial services strength, London is one of the leading markets in ship finance.^{10Legend symbol denoting According to a 2013 survey, over one-third of the respondents in the global shipping industry considered London as the best city to provide for their financing needs, followed by New York and Singapore. See TheCityUK (2013).} Notably, it is the world's leading centre for marine insurance, which is dominated by a marketplace where independent insurance underwriters join together to sell insurance under the brand name of Lloyd's.^{11Legend symbol denoting Lloyd's is not an insurance company but a society of members, both corporate and individual, which join together as syndicates to insure risks.}

Other supporting factors contributing to the international status

• There are also other supporting factors contributing to the premier status of the UK. For example, the UK has a pool of maritime skills with at least 24 universities and colleges offering maritime related courses.^{12Legend symbol denoting Programmes in universities focus on maritime law, oceanography, marine engineering and shipping economics, while colleges target at providing maritime vocational education. See TheCityUK (2013).} It has also made available a funding scheme, namely Support for Maritime Training, with a current budget of up to £15 million (HK$178 million) a year to support seafaring training. Besides, shipping companies enjoying tax benefits under the UK Tonnage Tax Scheme^{13Legend symbol denoting The UK's tonnage tax regime, introduced in 2000, provides an alternative means of calculating corporation tax for ship operating companies. Tax calculation is based on the carrying capacity of the ships instead of actual profits. Tonnage tax is widely adopted in European countries.} are obliged to provide training for seafarers.
• Besides, London is the base for the International Maritime Organization, a specialized agency of the United Nations which functions as the global standard-setting authority for maritime safety. Its presence has the symbolic significance and may encourage more maritime businesses to set up in London. Another notable organization based in London is the Baltic Exchange. It is a self-regulated marketplace, providing maritime market information daily to its members around the world for the trading and settlement of physical and derivative shipping contracts.^{14Legend symbol denoting See the website of the Baltic Exchange.}

Further efforts to enhance the maritime business services sector

• To ensure that the maritime business services sector remains competitive, the UK government formed in December 2015 a "maritime business services strategic partnership" with the maritime industry. The partnership has mapped out a strategic plan to foster the sectoral development of the maritime industry, through initiatives such as (a) attracting shipping and cargo companies to base their operations in the UK; (b) supporting and creating professional apprenticeships; and (c) encouraging entrepreneurs and innovators to contribute in the UK's maritime cluster.

Singapore as a leading international maritime centre in Asia

• Singapore was the world's busiest container port during 2005-2009. Since then, it has been overtaken by Shanghai to become the second busiest. Despite losing the top position, Singapore is still recognized as the premier centre in both port services and professional maritime services. Over the years, the Singapore government has made concerted efforts through the Maritime and Port Authority of Singapore to promote the local maritime services sector. In particular, the Authority has put in place a wide range of incentives and support to help position Singapore as a favourable city for shipping-related companies to set up and operate there.
• Currently, there are over 100 ship-broking companies operating in Singapore, of which over 20 are leading international firms. Meanwhile, there are over 30 local and international law firms with maritime practices, and over 20 banks with ship finance portfolios. The above development is attributable to the government's pro-active measures including (a) the establishment of the Maritime Sector Incentive Scheme and the Maritime Cluster Fund to support the maritime services sector; and (b) the formulation of policy initiatives to groom local maritime talents.

Maritime Sector Incentive Scheme

• The Maritime Sector Incentive Scheme is a comprehensive incentive scheme providing tax benefits to ship owners and operators, maritime lessors, and other shipping service providers. Under the Scheme, there are three broad categories, namely (a) International Shipping Operations, (b) Maritime (Ship or Container) Leasing, and (c) Supporting Shipping Services. As shown below, the tax benefits under each category vary:
  
  

  (i)	International Shipping Operations - including tax exemption on qualifying income granted for companies operating Singapore-flagged or foreign-flagged ships;
  (ii)	Maritime (Ship or Container) Leasing - including tax exemption or concessionary tax rate of 5% or 10% (as opposed to 17% standard rate) offered to ship leasing companies; and
  (iii)	Supporting Shipping Services - including 10% concessionary tax rate offered to companies such as ship management companies and agencies providing supporting shipping services.15Legend symbol denoting See Maritime and Port Authority of Singapore (2011).

Maritime Cluster Fund

• The Maritime Cluster Fund ("MCF") is a co-funding scheme established with the twin objectives of developing manpower for the maritime industry and enhancing port competitiveness. Companies can draw on MCF to co-sponsor their (a) manpower development ("MCF-MD"), (b) business development ("MCF-BD"), and (c) productivity enhancement ("MCF-PD").
• Specifically, MCF-MD provides for training, manpower and capability development of employees in the maritime services sector, while MCF-BD incentivizes new maritime businesses setting up offices in Singapore or existing maritime companies expanding into new lines of maritime businesses. For MCF-PD, it subsidizes maritime businesses and associations for enhancing business processes or adopting new technology.^{16Legend symbol denoting See the website of the Maritime and Port Authority of Singapore.}
• Among the three components of MCF, MCF-MD is notably the core part with a total funding commitment of S$115 million (HK$649 million) from the Singapore government, compared with MCF-BD's S$45 million (HK$254 million) and MCF-PD's S$25 million (HK$141 million). Over 20 000 individuals have so far received training support under MCF-MD.

Policy initiatives to promote manpower development

• Singapore attaches great importance to manpower development in the maritime sector. In addition to co-funding businesses for maritime education and training programmes under MCF-MD, the Singapore government has also stepped up its efforts to raise public awareness and interest in the maritime sector. For instance, it has recently launched the Singapore Maritime Ambassador Programme to engage students and professionals from the maritime sector to volunteer as Singapore Maritime Ambassadors, with a view to inspiring the younger generation to join the maritime sector. The Singapore government has also announced that it will set up an office, known as Maritime Singapore Connect Office, in collaboration with the industry association Singapore Maritime Foundation to promote maritime careers.^{17Legend symbol denoting See Maritime and Port Authority of Singapore (2015b).}

Concluding remarks

• Hong Kong has the aspiration to strengthen the professional and high value-added maritime services amid the declining role of port functions. It is worth noting that for the UK, while its capital London is no longer competitive in port services nowadays, the city has been proved successful in building on its strengths established in the legal and financial services to develop itself as a leading "one-stop shop" in the maritime business services sector. Hong Kong's legal and financial services, which are also fundamentally strong, should be able to form the essential software for the development of the maritime services sector.
• Geographically, Hong Kong has its advantage given its proximity to the Mainland, and is well-situated along the 21st Century Maritime Silk Road (under the "One Belt One Road" initiative) connecting the Mainland's coast to Europe and South Pacific for economic co-operation. Yet to tap the opportunities present there, it may be necessary to have a holistic plan with dedicated efforts in the maritime sector. Today, Singapore is ahead of Hong Kong not only in port services but also in maritime business services. Its government, through the Maritime and Port Authority of Singapore, has all along been adopting a pro-active strategy of providing a range of tax incentives along with commitment of a great deal of resources on manpower development. In gist, the experience of London and Singapore indicates that a well-established legal infrastructure, a strong and supportive financial sector, a favourable business environment, adequate supply of manpower as well as appropriate government support are conducive to developing a high value-added maritime services sector.

Prepared by Tiffany NG
Research Office
Information Services Division
Legislative Council Secretariat
3 March 2016