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New HK competition ordinance risks driving Maersk to Shenzhen

MUCH of Hong Kong's container shipping will be made illegal next year if the new competition ordinance is implemented, says Maersk's North Asia chief Tim Smith.

If the problem isn't fixed - and it is not susceptible to a quick fix - Hong Kong customers will migrate to more tolerant Shenzhen - Maersk Line included.

"Companies like ours do not like uncertainty. We don't want to do something that is not in Hong Kong's interests, like move our business out," he said.

"The law makes no allowance for vessel sharing agreements. From January 1. All vessel-sharing alliances [VSA] will be illegal in Hong Kong," he told the Journal of Commerce.

"Fines are huge - 10 per cent of turnover, which for us is US$2.7 billion if we do not comply. The way it is going, we will be breaking the law from January 1," he said.

"Ninety-five per cent of the container throughput in Hong Kong comes in or goes out in VSAs and that could be quite problematic," he said.

While it is expected to take force on January 1, Hong Kong's Competition Commission still has chance to make changes, said Mr Smith.

"We are trying very hard to persuade the government to allow exemptions, or more time to arrive at solutions that don't hold back trade in Hong Kong," he said.

"We think there are grounds for an exemption. In all other major jurisdictions - China, the US and Europe - there are exemptions that allow VSAs to operate."

The commission has indicated that it will look block exemptions. But Mr Smith said there was lot more to consider than what first appears.

"There are quite a few industry segments saying 'we need an exemption'. The process will take months, or even years. What we don't want is business impacted in the meantime."

Hong Kong has evolved from a port handling direct China exports to a major transshipment hub, and this cargo could easily move to Shenzhen, he said.

Once the world's busiest container port, a refusal to tackle the cost of exporting a box from Hong Kong vis-a-vis Shenzhen saw its market share reduced by the terminals across the border.

"Hong Kong will never be back to being the world's number one container port, but there will be a substantial amount of business here for some time and it is a maritime industry that is worth supporting," Mr Smith said.