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US-China deal to drive HK bunkering role

The phase one trade agreement signed between the US and China can revive Hong Kong’s standing as an international trading port, and points to its potential re-emergence as a supplier of bunker fuel

Hong Kong’s civil disturbances and the US-China trade war have led to the city losing ground to rival ports. Yet competition between Hong Kong and Singapore, which has enjoyed a long period of stability and dominates Asian bunker fuel supply, is “not a zero-sum game”, says Lawrence Brennan, a former navy captain who is a professor at Fordham University specialising in maritime law. “Both can and should survive and prosper.” 

Hong Kong historically prospered due to its proximity to China; close enough to attract investors seeking to capitalise on the mainland’s development yet beyond the reach of the authoritarian hand of its Communist Party. With the protesters filling the streets accusing China of breaching the territory’s democratic norms, its semi-autonomous status is under threat. Although it has historically bounced-back strongly from regional downturns, such as in 1997 and 2008, the city has already slipped into recession as a result of the protests and crackdowns.  

China’s expanded road and rail networks and the modernisation of its ports have reduced the need to trade through Hong Kong. Shanghai, Shenzhen, Ningbo and Guangzhou each handle more container traffic than Hong Kong, according to the World Shipping Council. But improvements in US-China trade will “inevitably” help the port of Hong Kong and increase the demands on bunkers, Brennan says.

Containerised cargo ships are more likely to try to obtain bunker fuel and other necessaries at routine ports of call, rather than deviate to other ports merely to obtain fuel, Brennan notes. Only substantial differences in price or quality would justify a special call. “China should be able to create storage supply capability for bunker fuel in and near Hong Kong.”  

Ownership centre

Most US container ships exporting to China have no clear reason to call at Singapore, so this will tend to favour Chinese port suppliers. “This may favour Hong Kong over Singapore”, particularly for ships that deliver US grain in China, Brennan says. “Unless the vessel is in global trade, it is unlikely to call at Singapore. Hong Kong potentially has significant benefits that Singapore cannot hope to meet.” 

According to Brennan, the average turnaround time for container vessels in Hong Kong is about 10 hours. For conventional vessels working in midstream at buoys or anchorages, this is extended to 42 and 52 hours respectively. Hong Kong’s status as a major centre of ship ownership and management means that Chinese flag ships, and ships calling or registered there have incentives to purchase bunkers.

“Hong Kong potentially has significant benefits that Singapore cannot hope to meet” Brennan, Fordham University

Hong Kong was ahead of the International Maritime Organization (IMO) 2020 rules—which banned the use of fuels with sulphur content of more than 0.5pc from 1 January, well below the previous limit of 3.5pc—with the implementation of its local 0.5pc sulphur cap from 1 January 2019. The port has strict rules on the use of “scrubbers” to meet the requirements; shipowners must apply for an exemption from using compliant fuel at least 14 days prior to a ship’s first visit to Hong Kong.

“The storage and distribution systems would be major and expensive undertakings that could significantly enhance Hong Kong’s position in the worldwide bunker market,” Brennan says. Everything turns, he says, on whether China will be willing to bear the cost. If political stability in Hong Kong can be achieved, then “Singapore and Hong Kong can coexist and prosper as much as Exxon and BP.”

 

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