To remain a key player in global logistics, Hong Kong must adapt and cooperate with neighbours

Despite supply chain chaos, geopolitical tensions and rising competition, Hong Kong can still thrive in an evolving regional economy
Improving infrastructure connectivity and adopting smart technology can help the city hold onto its position as a leading trade and finance hub

Wai-Hong TangandNeville Lai

Published: 6:45am, 6 Jan 2022

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While the blockage of the Suez Canal by the stranded cargo ship Ever Given last year cost billions of dollars of trade, the impact of global supply chain disruptions was perhaps more strongly felt in Hong Kong when McDonald’s replaced its hash browns with cups of sweetcorn and suspended sales of McWings.

As a global city, Hong Kong’s identity has been largely defined by logistics, having played a key role in the growth of regional and global production networks. At the same time, the city is very sensitive to slight hiccups in the global economy.

In recent years, however, Hong Kong’s role in global logistics has become more precarious. Although the city was still ranked at No 4 in the 2021 Xinhua-Baltic International Shipping Centre Development Index, it has not only fallen increasingly behind Shanghai and Singapore but also been overtaken by Ningbo-Zhoushan, Shenzhen, Guangzhou, Busan and Qingdao in container traffic.

The pandemic and the global supply chain disruptions have put further pressure on Hong Kong’s businesses. As we begin 2022, Hong Kong will continue to grapple with the challenges of the ongoing pandemic, geopolitical uncertainty, China’s economic transition and growing regional competition.

Nonetheless, Hong Kong has every chance of succeeding in consolidating its position as a regional logistics hub by adapting to an increasingly regionalised economic order, enhancing the city’s capacity and connectivity, and further promoting its world-class legal and financial services.

In 2022, plans for regional economic integration will gain momentum. The 15-member Regional Comprehensive Economic Partnership (RCEP) took effect on January 1.

Meanwhile, notwithstanding their political differences, East Asian states are likely to continue their economic cooperation through various institutional platforms such as Asean Plus Three and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

Although Hong Kong is already extensively connected with other East Asian economies, deepening integration will create a favourable environment for the city to build its economic resilience against global challenges.

Against the backdrop of China’s transition, Hong Kong needs to adapt to the changes and challenges from China’s economic development to consolidate its position as a unique hub between the mainland and the rest of the world.

The temporary shutdown of the Yantian International Container Terminal last year due to a Covid-19 outbreak, port congestion and rising shipping costs have led some companies to use Hong Kong as an alternative route.

Deeper connectivity with the Greater Bay Area, other inland manufacturing centres such as Chongqing or Wuhan, and potentially Belt and Road Initiative partner countries in Central Asia such as Kazakhstan can help Hong Kong reposition itself and maintain its comparative advantage within the context of China’s economic transition.

As the global supply chain is adapting to a world of perennial pandemic, development of intermodal connectivity and capacity – such as air-to-sea and sea-to-air – will be the key to consolidating Hong Kong’s role as an international logistics hub for high value-added goods.

Cargo shortages, terminal congestion and shutdowns have significantly increased the land and maritime shipping costs of time-sensitive or time-bound freight; air shipping is increasingly considered a feasible alternative for high value-added goods.

With one of the world’s largest and busiest air cargo terminals, Hong Kong should continue to develop its world-class air logistics facilities to provide safe and flexible solutions to Chinese and international businesses, particularly as global supply chain disruptions are expected to remain in 2022.

In addition to the development of intermodal connectivity, technological upgrades are equally essential to the resilience of supply chain management. Shanghai’s Yangshan Port, for example, is one of the world’s largest “smart ports”, using automated guided vehicles in loading and unloading operations.

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The Port of Rotterdam, meanwhile, uses a Digital Twin – a digital version of the port – to generate insights for real-time monitoring of all operations. The use of smart technology will not only increase the capacity and efficiency of terminal operations, but can potentially simplify the implementation of health and safety measures during the pandemic.

Hong Kong International Terminals (HIT) should continue to take cues from other international pioneers in the sector. New initiatives, such as the introduction of remote monitoring systems for refrigerated containers, should be further encouraged.

Another key to consolidating Hong Kong’s position in the regional and global supply chain is the city’s mature legal and financial services. The city continues to boast the world’s fourth-largest ship register.

Although Singapore is considerably more established than Hong Kong in arbitration services, the Hong Kong International Arbitration Centre still reported a record 318 arbitration filings, worth approximately US$8.8 billion last year. Of the 483 total registered cases, 27 per cent concerned the international trade sector, and 18.6 per cent the maritime sector.

Hong Kong should continue to build on its strength as an international financial centre to provide world-class services in areas such as shipbroking, shipping finance and marine insurance.

In 2022, Hong Kong must be prepared to navigate through the changing landscape of the global supply chain amid the pandemic and geopolitical uncertainty, not only to consolidate its position as the leading international logistics hub, but also to preserve the city’s identity as a global, open and free city.

Wai-Hong Tang is an independent researcher on the international political economy of East and Central Asia. Neville Lai is an independent researcher on global affairs