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Trends in container freight and the port policy

Late 1960s – Global trends in container freight

In 1987, Hong Kong surpassed Rotterdam and New York as a container port, handling a total of about 3.43 million TEUs (twenty-foot equivalent units) of containers, with 76% of the business handled at the Kwai Chung container port. This success story dates back to the 1960s.

Hong Kong’s container industry started in the early 1960s, before the construction of the container terminals. At that time, standardised containers were only handled at three facilities, namely the Kowloon Wharves of Hongkong & Kowloon Wharf & Godown Co. Ltd., the North Point Wharves, and the Kowloon Docks. These facilities provided services similar to those offered by present-day container terminals, except that they lacked equipment of their own, and had to use the cargo-handling equipment installed on ships.^[1]

The trend towards containerisation began globally as early as 1960, when container ships were already commonly found in the Mediterranean, North Africa and the United States.^[2] However, specialised port facilities had to be installed before the large rectangular boxes could be handled and the enhanced efficiency could be enjoyed. Without a specialised container port to meet the increasing berthing demands from container ships, Hong Kong was in no position to process the goods brought by such ships. This would undermine Hong Kong’s competitiveness in the maritime trade.

In 1966, in view of the growing international adoption of containerised freight, a special committee was established by the Government to determine whether container facilities should be provided in Hong Kong. Even though the committee agreed with the suggestion to build a container terminal, owing to the huge initial investments and uncertainties over future demand, the plan was not initiated until after the number of container ships had gradually increased over the following three years.^[3] In August 1969, on the recommendation of the committee and following a detailed engineering feasibility study by the Public Works Department, the Governor-in-Council decided that a container terminal should be privately developed on sea-bed lots at Kwai Chung. Tenders for Kwai Chung Lots No. 1, 2 and 3 (Berths 1, 2 and 3 respectively) were awarded a year later. With Container Terminal No. 1, Hong Kong’s first container terminal, completed in 1972, Kwai Chung Lot No. 4 (Berths 4 and 6) was granted by land exchange in December 1973 and Kwai Chung Lot No. 5 (Berth 5) by private treaty in November 1974. The five container terminals became fully operational in 1976.

In 1981, in order to meet Hong Kong’s needs in the 1990s, and having considered the recommendations made by the consultants, the government decided to extend the container terminal facilities at Kwai Chung through further reclamation. Kwai Chung Lot No. 6 was granted by private treaty at the end of 1985 for the development of Berths 7 and 8, which aimed to be completed in phases in 1988 and 1989. The tender for Kwai Chung Lot No. 7 was awarded in 1988 and, Berths 9 and 10 were completed in 1990. The two phases of Container Terminal No. 8, the last terminal built before 1997, were completed in 1994 and 1995 respectively.

Plate 1: The Kwai Chung Container Terminals, 1980s

Hong Kong’s decision on building container terminals – The container port policy

On 18 August 1970, the Government announced the successful bidders for the first phase development of Container Terminals No. 1 to 3. Modern Terminals Limited (MTL) got Container Terminal No. 1, whilst Kowloon Container Warehouse and Sea-Land Orient took Container Terminals No. 2 and 3 respectively.^[4] The three operators came from Europe, Japan and the United States respectively. They started constructing world-class container terminals in Hong Kong, with the first phase fully completed in 1973.

The Government took an active role in harbour planning to transform the port of Hong Kong into a container port, whilst various policies were introduced to ensure the healthy development of the industry. The policy on container port development has been reviewed from time to time to keep up with the rapid growth of international demands. The Port Development Strategy Study conducted in the early 1980s recommended a strategy and development programme for the provision of major new port facilities in Hong Kong up to 2011.

On the one hand, the strategy study, completed in 1986 anticipated future demands derived from the latest trade forecasts, and on the other hand, evaluated the efficiency and throughput capacities of existing planned and projected port facilities, which made possible the anticipation of medium- and long-term strategic development opportunities. Thus, the study comprehensively examined various port activities, including: (i) containerised cargoes; (ii) non-containerised and partly containerised cargoes; (iii) trade along the Pearl River and other coastal trade; (iv) public cargo working areas; (v) bulk storage facilities; (vi) passenger handling facilities; (vii) sheltered anchorages and typhoon shelters for small craft; (viii) repair and maintenance facilities; (ix) sea access and port traffic control systems; and (x) transport connections to the hinterlands served, including internal and external ferry terminals. The report concluded that not only would the existing container terminal facilities continue to be fully utilised, increasing shortfalls would arise after the completion of Container Terminal No. 8. It also recommended that a detailed plan be initiated to introduce container and other port facilities through reclamation on Stonecutters Island.

The 1986 Port Development Strategy Study revealed the tone of the government port policy from the 1970s to the 1990s. The style of “trigger point” development was evident in different governmental reports. In the face of increasing demands, the government could always determine the future direction of port development in an efficient way. The pace of container port development, which had been reviewed from time to time, was fully monitored by the government, making it possible to embark on a new development project promptly when required.

Building more container terminals – The unique operating system

Container port development in Hong Kong has proceeded, since the establishment of the first dedicated terminal in 1972, on the basis that the government would provide infrastructural support such as access roads, drains and public services at its own expense; and that the terminals would be reclaimed, equipped and operated at the expense of the private developer. For example, although parts of the land had been reclaimed by the operating companies, the Government was responsible for maintaining the seabed at a suitable depth in the approaches to and alongside berths at Kwai Chung. If the operating companies found that the depth was not sufficient for future use, suggestions for dredging would be made to the government. This made port development much more feasible and efficient. For Container Terminals No. 1 to 6, the rights to develop a new terminal were granted by private treaties, but then in 1988 the operator of Container Terminal No. 7 was determined through the tender process.

By adopting the “trigger point mechanism”, the government would only build a new terminal if the current facilities were expected to be fully utilised. Although there were chances that the estimated demand for the services of the container terminals would be greater than the supply, thereby overburdening existing capacity, the system was nevertheless able to protect the interests of the operators of existing terminals.^[5]

One of the advantages of this system was that operating companies had a certain guaranteed return on their investments. Building a container terminal without government funding was expensive, as one could never estimate economic conditions years after initial investments. For example, the Hong Kong International Terminals (HIT) outbid the MTL and other companies for the construction rights of Container Terminal No. 7 at around HK$4.39 billion. It was estimated that the total cost for building docking and controlling facilities and procuring other equipment such as forklifts and cranes would exceed US$1 billion.^[6] In this case, just as the “trigger point” clauses had applied to Container Terminals No. 5 and 6, the government formally agreed not to sell development rights for any new container terminal unless the current ones were close to maximum capacity^[7], ensuring companies that their investments would not be affected by future terminal developments. This system gave confidence to potential investors in new container terminals.

Container Terminals No. 1 to 8 – A timeline of changing ownership

Owing to the strategies of different operators, the ownership of container terminals has been continually changing through buying, selling, and exchange of berths. The numbering of the container terminals does not reflect their locations, but only the order of development. On the whole, the general order is from north to south. The container terminals starting from Kwai Chung to Stonecutters Island are Container Terminals No. 5, 1, 2, 3, 4, 6, 7 and 8. In order to maximise economic returns, the exchange of berths among companies was not uncommon. For example, the HIT bought Container Terminal No. 2 from Oyama Shipping, the parent company of Kowloon Container Warehouse, in 1976 and sold it to the MTL in 1988, in exchange for some important parts of Container Terminal No. 6.^[8] As the operator of Container Terminal No. 7, the HIT gained a larger piece of land for handling containers, which greatly enhanced its economic efficiency. The following timeline shows changes in the companies operating Container Terminals No. 1 to 8 from 1972 to 1995.

Abbreviations:
COSCO - China Ocean Shipping Company
HIT - Hongkong International Terminals
Kln C W - Kowloon Container Warehouse
MTL - Modern Terminals Limited
SeaLand - Sea-Land Orient Ltd.
SLOT - Sea-Land Orient Terminals

The construction of the container terminals and their facilities

The starting point – Engineering Report on the Proposed Container Terminal at Kwai Chung, 1969

The Engineering Report on the Proposed Container Terminal at Kwai Chung published in 1969 marked the beginning of facility construction at the container terminals.^[9] As the first comprehensive report covering various practical matters involved in the building of a container terminal, it revealed the reasons and logic behind the decision-making process. As mentioned earlier, the global trend towards container freight contributed to the process. By 1955, container ships had been operating in the United States, and between the United States and Europe. The number of container ports then increased exponentially. According to the report, at the end of March 1969 “there were 53 specially designed container ships in existence and 149 being built, while 98 ports had been constructed or adapted for full-scale container operation, a further 58 were under construction and 46 planned.” As a result of the revolution in cargo transportation throughout the world, it was concluded that although the concept of container freight might not be ideally suited to Hong Kong, some facilities for the handling of container ships would have to be provided.^[10]

The report focused on satisfying current demands as well as providing room for future development. It stated that in the first phase of Stage I, one berth would be constructed as quickly as possible so that it could be put into use whilst the second berth was being built. The berth would have a “back-up” area of 22 acres for a container-marshalling area, a packing station, lighter berths, offices, and a workshop and store. This flexibility in design and layout was a factor of the greatest importance, leaving room for future modifications and expansion.^[11]

The hardware – Facilities involved in the daily operation of the container terminals

To allow for the most efficient use of the limited land area of the container terminals, the containers need to be processed quickly. To this end, the facilities at container terminals are in constant evolution, ever shortening the time required for handling each box. Specially designed for container stacking, straddle carriers are important for moving containers in the stacking area. Tractors are indispensable for carrying containers between the quaysides and the stacking yards, while huge cranes serve as a link between ships and the shore .

Numerous port facilities are involved from the packing of containers to their departure from Hong Kong. After their transfer to the container freight stations, goods are packed and stored into a container, which will be locked and towed by a tractor. When inside the terminal, the tractor is guided to the stacking area, where it will be unloaded and stacked by a movable straddle carrier, according to the destination of the ship carrying it. In most cases, the stacked containers are stored and handled within seven days, until the ship which is to carry them arrives at the port. When the day comes, straddle carriers will resume their duty, loading the containers onto the internal trailers of the terminal. Taken to the quayside, the containers are then transferred by gantry cranes onto the container ship.

The software – Systems involved in the daily operation of the container terminals

Information technology (IT) is also essential for increasing the productivity as well as the competitiveness of the terminals. Computers have played an increasingly important role in managing the container terminals, in tracking container arrivals and departures, or in monitoring containers within the terminals. Starting from the early 1970s, computers have been introduced to keep inventories of goods and containers, making stock management much more efficient compared with the days when paper records were used. Some operating companies have developed their own systems to suit their specific needs.^[12]

The central computer system maps out daily management plans. Such action plans give directions for the movement of containers within the terminals, and promptly provide the controllers with real-time data of the whereabouts of the containers.^[13] The MTL, for example, developed a programme that “coped with the flow of containers and streamlined work patterns for staff from the ship deck to the exit gate and in the control and accounting offices.”^[14] As a result, different aspects of container-related work, including shipping, yard management, container control and freight shipments, are all under control.

Moreover, by applying IT in tracking the arrivals and departures of containers, the operating companies can assess the time required for loading and unloading weeks before the ship is actually berthed alongside the terminal. It is especially important for large operating companies, which operate numerous berths and need flexibility when encountering delays. Such pre-planning enables them to decide berthing in accordance with vessel size, the number of cranes required to serve it, and “proximity to the preferred area in the container yard chosen to accommodate the containers to be loaded.”^[15] For departures, the IT system enables efficient stacking of containers on ships, taking the vessel’s dimensions, layout and weight into consideration.

The success of the container terminals

The development of container-related industries

The period from the 1970s to the 1990s marked the climax of the development of the container industries in Hong Kong; the success of the container terminals was not only beneficial to the operating companies but also to the whole container-related industry, boosting the general competitiveness of Hong Kong’s economy. Related businesses include those involved with “empty container depots, carparks for tractors and trailers, garages for repairing tractors and trailers, container yards, container freight stations, [and] container storage and holdings.”^[16] These container-related businesses form a huge cluster of industry.

The tractor-operating companies, for example, benefited greatly from the growth of the container industries. In the early years, some companies might sometimes find it difficult to provide a tractor during the peak hours for transporting a container from the terminal to a consignee, which could push up the costs of the consignee as he had to pay more for storage. Stimulated by these huge demands, the industry blossomed, and more than 6,000 container trucks had been licensed in Hong Kong by 1992.^[17]

World competitiveness – Changing throughput, 1972-1996

In 1974, the container throughput in Hong Kong first broke the world record with the capacity to handle 3,561 TEUs a day, a figure that grew to 4,630 TEUs in 1982. The annual total TEUs handled at Hong Kong container terminals in 1974 and 1982 were 0.726 million and 1.507 million respectively.^[18] The figures rose to 4.033 million TEUs in 1988 and 4.464 million TEUs in 1989. Hong Kong has become one of the world’s busiest container ports. The rising figures show that Hong Kong enjoyed flourishing international sea trade, and that its container industry was increasingly competitive.

The key to 1980s success – China’s open-door policy

As a vast hinterland for Hong Kong, Mainland China has played a very significant role in the territory’s entrepot trade. Even during the period of political instability in the 1960s, trade between Hong Kong and Mainland China continued uninterrupted. The imports were mainly foodstuffs, textile yarns, fabrics and made-up articles, and livestock and vegetables, for reselling to Southeast Asian countries.^[19] As for exports, Mainland China was the major export market for Hong Kong, accounting for 81% of total exports in 1970, an astonishing figure compared to 5.3% in 1950.^[20]

After years of political and economic chaos and disruption in Mainland China, things started to change with the implementation of Deng Xiaoping’s open-door policy. In the 1980s, thanks to the modernisation programme which led to the gradual opening up of the coastal cities, southern China experienced impressive economic growth, and closer economic relations with Hong Kong developed. Trade between Hong Kong and Mainland China blossomed.

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