In 2023, Hong Kong emerged from the shackles of the pandemic. With the removal of all associated social and travel restrictions, the city anticipated a vigorous rebound in the overall economy. However, 16-month decline in total merchandise trade since the end of Q2 2022 casted a pall over expected economy recovery. The year ended with a 6.7% decline in total trade volume, following a 7.9% drop in 2022.

Upon a closer examination, Hong Kong’s trade figures reveal more nuances. Despite the annual decline, total trade value in 2023 fared relatively well compared to pre-pandemic levels in 2018, reaching approximately 99% of the recorded trade value. This highlighted the gradual recovery of trade volume to pre-pandemic levels.

Figure 1: Hong Kong total trade volume 2018-2023

Source: Census and Statistics Department, JLL

Amidst the various modes of transport, air freight volume in Hong Kong exhibited a noteworthy recovery in Q3 2023, experiencing a substantial growth of 7.3%. This impressive rebound was accompanied by a visible increase in its share of total trade (Figure 1), rising from 41.8% in 2018 to 47.2% in 2023. In stark contrast, the share of shipping cargos saw a decline, plummeting from 15.1% in 2018 to 10.5% in 2023.

Figure 2: Logistics Performance Index 2023

Source: World Bank, JLL

The decrease in the proportion of shipping cargo in Hong Kong can be attributed to higher operating costs and the ageing port infrastructure. Since the relaxation of cabotage regulations on foreign-flagged container liners in Shanghai pilot free trade zone in 2021[1], Hong Kong has experienced a gradual erosion of its logistical competitiveness as a result of the lower costs of shipping goods directly to or from mainland China. This cost advantage is driven by enhanced operational efficiency and reduced labour costs resulting from the widespread implementation of intelligent port systems, exemplified by the Yangshan Port in Shanghai and the Qingdao Port in Shangdong.

As mainland China undergoes a remarkable transition to fully automated ports, Hong Kong’s port system still relies heavily on manual operations. The World Bank’s Logistics Performance Index in 2023 (Figure 2) revealed that mainland China’s infrastructure score was on par with Hong Kong’s. This indicates a shrinking edge for Hong Kong as the preferred transshipment hub between mainland China and other regions.

In the paper “Action Plan on Maritime and Port Development Strategy” published in 2023, the Hong Kong Government has adopted a proactive stance to address the existing shortcomings within the maritime sector such as the expansion of the digital platform Port Community System beyond cold chain goods to encompass all shipping cargos.

While the suggestions hold potential benefits, they appear to be insufficient in addressing the underlying weaknesses associated with escalating costs. To enhance operational efficiency, the Government must actively facilitate the digital transition across all echelons of maritime logistics, including actual port operations. To exemplify this approach, the Government can consider procuring cutting-edge equipment such as automated guided vehicles (AGVs) or computer-controlled electrified yard cranes that can be leased to logistics operators at reduced rental costs, incentivising technology adoption.

The Government can also spearhead a comprehensive revitalisation scheme for the port area by implementing Internet of Things (IoT) technologies into the existing port infrastructure. Given that the port area is currently operated by various private landlords, the Government can collaborate with these private owners by offering tax rebates to those willing to participate in the scheme, fostering greater cooperation and alignment.

[1] HKTDC, Shanghai Eases Cabotage Restrictions on International Container Liners, 3 December 2021

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