Next year, Hong Kong’s status as a port will continue to decline, while a modest recovery for the container shipping sector of Hong Kong and China is the best that can be hoped for, analysts predict.

This year, Hong Kong ceded its status as the world’s third busiest container port to Shenzhen, falling to fourth place.

So far, Hong Kong has suffered two consecutive years of negative growth in container throughput, said Sunny Ho Lap-kee, executive director of the Hong Kong Shippers’ Council. “Next year may still have negative growth.”

In the first 11 months of this year, Hong Kong’s container throughput fell 4.2 per cent to 20.36 million twenty-foot equivalent units (TEUs), after decreasing 5.2 per cent to 23.12 million TEUs last year, according to the Hong Kong Port Development Council. In contrast, Shenzhen’s container throughput increased 1.2 per cent to 21.3 million TEUs in the first 11 months, while the container throughput of Shanghai, the world’s busiest port, rose 4 per cent to 30.95 million TEUs, according to official Chinese data.

Hong Kong’s port throughput is feeling the aftershocks of the strike at Kwai Tsing container terminals from March 28 to May 9, said Ho. Hong Kong has a shortage of land and labour, he added. “We have difficulties in handling more transshipment. That has formed a constraint to further growth.”

Next year, Hong Kong’s decline as a port will be exacerbated as more factories will leave the Pearl River Delta to countries with lower costs like Vietnam, Ho said. Exports from factories in the delta account for a large share of Hong Kong’s container trade.

For example, Hong Kong industrialists are setting up factories in an industrial park in Myanmar, which will see a significant increase in output next year, Ho cited.

In contrast to Hong Kong, US investment banking firm Jefferies expects the mainland’s container port throughput growth to accelerate to 7.6 per cent next year from 6.7 per cent this year, as the economic environment continues to improve in the developed world. European inventory is at a low since the global financial crisis in 2008, which should boost Chinese exports next year, a Jefferies report said.

As for the container shipping of Hong Kong and China next year, “we do not see a strong recovery but a moderate recovery,” Ho predicted.

There will be an improvement in trans-Pacific trade, because the US economy appears to be improving, Ho said. The shift of manufacturing from the Pearl River Delta to Southeast Asia will boost shipping between China, Hong Kong and the rest of Asia, he added.

Geoffrey Cheng, an equity analyst at Bocom International, said: “Next year, the market should be slightly better than this year. The market demand is recovering, but we’re not talking about double-digit growth, but probably in high single digits.”

Jefferies remains cautious on container shipping because the sector may struggle to stay profitable next year, as surplus capacity will depress freight rates.

Globally, container shipping’s capacity growth will accelerate to seven per cent next year from six per cent this year, since container liners have pushed to next year some new capacity originally scheduled for delivery this year, said a Jefferies report.

Tapering in the US could depress currencies in emerging markets, which may slow down emerging markets’ purchasing power of Chinese exports, warned Jefferies.

“There may be a lot of volatility of freight rates as the container liners may show pockets of collective strength, but generally, surplus capacity will dictate the direction of freight rates. We could continue to see both lower freight rates and lower unit costs among container liners,” Jefferies said.

On a bright note, Chinese government policies such as a ship scrapping subsidy and free trade zones will benefit both the shipping and shipbuilding sector of China, said an Industrial and Commercial Bank of China (ICBC) report.

The market expects the central government to implement a subsidy for scrapping old vessels, which will benefit Hong Kong-listed shipping firms like China Cosco and China Shipping Development, said ICBC. The scrapping subsidy will also benefit Chinese shipyards by creating orders for new ships, ICBC added.

More free trade zones besides Shanghai are expected to emerge in the mainland after the reforms of the Third Plenum in November, ICBC predicted. Cities that will possibly have free trade zones include Guangzhou, Tianjin and Xiamen, which have many shipyards, ICBC said. “The land value of shipyard properties is expected to surge, if ore free-trade zones are allowed.”