Port resources rationalization for better container barge services in Hong Kong

Lingnan University From the SelectedWorks of Prof. LIU Liming 2010 Port resources rationalization for better container barge services in Hong Kong Qi FU Liming LIU, Lingnan University, Hong Kong Xu ZHOU Available at: https://works.bepress.com/limingliu/7/

Port resources rationalization for better container barge services in Hong Kong Qi Fu *, Liming Liu, and Zhou Xu 1 * Department of Industrial Engineering and Logistics Management, The Hong Kong University of Science and Technology Department of Logistics and Maritime Studies The Hong Kong Polytechnic University Abstract The manufacturing base in the Pearl River Delta of China is moving westwards, where the Pearl River system has extensive coverage. This makes container barge transport a new growth area for Hong Kong Port. Traditionally, Hong Kong Port has been the main gateway for containers transported through the Pearl River system, but this advantageous position is under challenge from the adjacent ports in South China, especially from Shenzhen Port, which is keen to take a bigger share of the new growth by improving the access of barges to its port facilities. While services at Shenzhen Port are improving, barge operators have been experiencing high congestion at Hong Kong Port. Improving the quality of barge container services becomes crucial for Hong Kong Port. In this study, we propose and investigate three improvement strategies: to enhance the consolidation of small container flows, to increase the efficiency of berth allocations for barges, and to optimize the overall utilization of port resources in Hong Kong. These strategies can be instrumental for keeping Hong Kong s status as the gateway for the Pearl River system and help maintain its competitiveness as an international shipping hub. 1. Introduction The Pearl River Delta (PRD) Economic Development Zone is one of China's leading economic regions, and a major global manufacturing base. Since 1979, the PRD has experienced rapid economic growth mainly driven by the vast foreign direct investments (FDI), and has become a dominant export center. Hong Kong and the PRD are closely related. On the one hand, a major portion of the FDI in the PRD is from Hong Kong due to their close proximity. As shown by Guangdong Provincial Bureau of Statistics, over 70% of all FDI agreements signed during 1979-2006 were with Hong Kong companies [1]. On the other hand, the PRD has become the industrial hinterland of Hong Kong, allowing Hong Kong companies to shift manufacturing across the border to benefit from the cheap land and labor costs in the PRD, while at the same time to continue exploiting Hong Kong s advantages in logistic, financial, legal, design and marketing services to export cargos to the rest of the world. With the ever-growing trade in the PRD and 1 To whom correspondence should be addressed. E-mail: lgtzx@polyu.edu.hk 1

globalization, Hong Kong Port recorded a double-digit annual throughput growth the ten years from 1986 to 1996 [2], and established itself as a global logistics hub. However, in recent years, the PRD has become more than merely a low-cost workshop supporting Hong Kong [3]. Rather, it has been gradually building up its own ports, and has secured a significant increase of its share of the cargos from South China. The Hong Kong Port s throughput growth has slowed down as shown in Figure 1. Facing the increasing competition from the adjacent ports in South China, especially from Shenzhen Port [4], Hong Kong Port needs to look for new growth areas where it can retain advantages to continue expanding the cargo base and to maintain sustainable development. Figure 1. Container Throughputs in Hong Kong Port (HK), Shenzhen Port (SZ), and Guangzhou Port (GZ) from 1997 to 2009 ( 0000TEU). (Source: China Year Book of Port Statistics and Hong Kong Shipping Statistics) Though the PRD has experienced rapid economic growth as a whole, disparities exist in the pace of development in different regions. The Middle and Eastern PRD has attracted most of FDIs because of the convenient road connections with Hong Kong, and therefore has experienced faster growth in the foreign trade volume, which has also contributed to the major throughput growth in Hong Kong Port. However, in recent years, the road infrastructures between the Middle/Eastern PRD and Hong Kong have been almost saturated with the increasing cargo transport volume. The ever increasing cost of land, labor and other resources has made the Middle/Eastern PRD less attractive as a manufacturing base. In contrast, the development of the Western PRD has lagged behind in the past. The Western PRD has richer land and labor resources but has yet to realize its full economic potentials. Consequently, the Western PRD has been actively promoted in recent years as a new manufacturing base to attract the westwards migration of manufacturing activities in the PRD. With this migration, cargos from the Western PRD have been increasing. 2

Compared with the Middle and Eastern PRD, the Western PRD suffers from weak road connections to both Hong Kong and Shenzhen ports, but has good waterway connections to the two ports through the Pearl River system. Most cities in the Western PRD can be reached from Hong Kong by express ferry in 1-4 hours [5]. As there are many feeder ports in the Western PRD, barge transport serves as an important mode of cargo movement. Therefore, barge transport is a potential growth area through which Hong Kong may further expand its cargo base. However, the current transport network and the barge services in Hong Kong are not able to support the growth of the cargos from the Western PRD while maintaining Hong Kong Port s service standard. In our interviews with professionals from the shipping and the port industries, barge operators complained about the heavy congestion and the long waiting time at the terminals, and criticized the inefficient utilization of the existing port facilities of Hong Kong. This view was shared by deep-sea carriers as well. In fact, while barges have been experiencing long waits at the main terminals, the midstream operation, which can divert barge cargo flow from the main terminals, has sharply declined, and the River Trade Terminal, which is intended for smoothing the barge flow, is largely idle. (See Section 6 for details on these two port infrastructures.) It is clear that there is a need and possibility for Hong Kong Port to significantly improve the container barge service so as to maintain its attractiveness, against the adjacent ports in South China, to both shippers and carriers who use barges to move cargos between Hong Kong Port and the Western PRD. The objective of this study is to examine this area of future development for Hong Kong Port, and to explore the opportunities and challenges, especially in barge related port services. We will discuss the possible strategies for Hong Kong to improve its barge services, so that it can keep in step with the development of the Western PRD and strengthen its role as a logistics hub in the Pan-PRD 2 region. In the remainder of this paper, we first explain in Section 2 the current situation of Hong Kong Port and its relations with the PRD, and then illustrate in Section 3 the advantages that barge transport can bring to Hong Kong Port. To tackle the challenges explained in Section 4, we propose and discuss three major strategies in Section 5 and Section 6 for Hong Kong Port to improve the container barge services to attract containers from the PRD. The paper ends with conclusions in Section 7. 2. Ports and transport connections in Hong Kong and PRD According to Hong Kong Port Development Council (HKPDC), about 70% of container traffic handled in Hong Kong is related to South China of which the PRD is the main 2 Pan-PRD is the economic sphere encompassing the nine provinces and region of Guangdong, Guangxi, Hunan, Hainan, Yunnan, Guizhou, Jiangxi, Fujian, and Sichuan, plus the two SARs of Hong Kong, and Macau. 3

cargo generating center. The PRD includes nine cities in Guangdong province in South China, including Guangzhou, Shenzhen, Zhuhai, Dongguan, Zhongshan, Foshan, Huizhou, Jiangmen, and Zhaoqing. The Greater PRD includes the PRD together with Hong Kong and Macau. Figure 2 shows the distribution of the major cities and ports in the Greater PRD, most of which are located to the west of Hong Kong. Figure 2. Major Cities and Ports in the Great Pearl River Delta There are many feeder ports alongside the Pearl River and its tributaries, such as Foshan, Huangpu, Zhongshan, etc., which are operated mainly for inland river trade cargos. The seaports in the Greater PRD include Nansha Port in Guangzhou, Gaolan Port in Zhuhai, five ports (Yantian in the east, Shekou, DaChan Bay, Mawan and Chiwan in the west) in Shenzhen, and the Kwai-Tsing (KT) Container Terminals in Hong Kong. Due to their close proximity and the common hinterland, the five ports in Shenzhen are the most direct competitors of Hong Kong Port. As shown in Figure 1, the container throughput of Shenzhen Port almost reached the same level as that of Hong Kong Port in merely 10 years, from a negligible level in 1997. Hong Kong Port consists mainly four cargo handling facilities (as shown in Figure 3), including the Kwai-Tsing Container Terminal (KT Container Terminals), Midstream Sites, Public Cargo Working Areas, and the River Trade Terminal (RTT). Among them, the KT Container Terminals is undoubtedly the busiest one, with a 2008 container throughput of 17.726 million TEUs, which represents 72.4% of Hong Kong Port's total container throughput (24.494 million TEUs). However, in 2009, this percentage was 4

reduced to 66.9%, while the total container throughput at other places (which was due to the river trader) increased to 33.1%. Figure 3. Hong Kong Port facilities: the Kwai-Tsing(KT) Container Terminals, the RTT, Midstream Sites (green dots), and Public Cargo Working Areas (blue squares). (Source: HKPDC) Transport connections between Hong Kong and the PRD are a crucial factor that determines cargo movements. The Middle and Eastern PRD, including Guangzhou, Shenzhen and Dongguan, is directly connected with Hong Kong by convenient road transport linkages, and therefore has attracted most of the foreign investments. The volume of cargos by road transport to Hong Kong rose rapidly until the early 1990s, when inland ports started operation. Thereafter, the growth of road transport volume slowed, and in recent years, Hong Kong has even been losing its share of cargos carried overland by trucks. Figure 4 exhibits the total freight movement in Hong Kong by transport mode. Hong Kong experienced a decline in cross border road transport volumes for five consecutive years from 2005 to 2009, with growth rates of 4.3%, -3.6%, -3.2%, -12.2%, and -12%, respectively. Such decline is mainly due to the significantly higher cost of trucking containers to export from Hong Kong Port than from Shenzhen Port. On the one hand, the traveling distance to Hong Kong is longer than that to Shenzhen, which leads to a higher transportation cost. On the other hand, the Terminal Handling Charge at Hong Kong Port is almost 40% more expensive than its Shenzhen counterparts (c.f. Table 1(a) and Table 1(b)). Furthermore, more direct liner calls have been added to Shenzhen Port, and the efficiency of customs clearance procedures in Shenzhen Port has been improving continuously, closing the gap with that of Hong Kong Port. As the current 5

road infrastructures in PRD are almost saturated with high congestion, the room for Hong Kong Port to grow its road transport volume is limited. Figure 4. Freight Movement in Hong Kong by Transport Mode (Source: [6]) In contrast to the Middle/Eastern PRD, the Western PRD suffers from weak road connections with Hong Kong. The road transport must follow a roundabout route by taking cargos all the way up from the western side, crossing the Humen Bridge over the Pearl River to the eastern side, then going through Shenzhen, and crossing the border to Hong Kong, which adds at least one hour of extra travel time and is very costly. This inconvenient road transport linkage makes the Western PRD cities beyond the magic three-hour travelling from Hong Kong, which is the distance that can be travelled by car in three hours, and is a major consideration for Hong Kong investors to make decisions on where to invest and where to build factories in PRD [7]. Therefore, Hong Kong investors in the past were less interested in starting businesses in the Western PRD than in the Eastern PRD. For example, in 2005, the Western PRD attracted only 16.6% of the PRD total realized foreign investment, while the shares of the Eastern PRD and the Middle PRD were 47.3% and 36.1%, respectively [3]. As a consequence, the Western PRD received a relatively lower impact from foreign investments in the past compared with the Middle/Eastern PRD, and has yet to realize its full development. After years of growth, the Middle/Eastern PRD is now facing the problems of rapid cost escalation in land and labor, which has limited further growth of the manufacturing industry there. Yet the Western PRD holds many resources and lands that remain untapped, which should enable it to become a new manufacturing base of the PRD with impetus and room for further development. For this reason, the Guangdong provincial government has been actively promoting development in the Western PRD in recent years, under the proposed framework of the Pan-PRD cooperation. The development of the Western PRD is bound to bring opportunities to Hong Kong, because an increasing number of containers from the Western PRD can be shipped through the Pearl River system directly to Hong Kong Port by barges. The travel distances from the Western 6

PRD to Hong Kong Port and ports in the Western Shenzhen by barge are about the same, while Yantian Port is farther away from Hong Kong Port as shown in Figure 2. Table 1. The Costs of Moving a FEU 1 Container: Truck vs. Barge. (Source: [8]) (a) From Eastern Pearl River Delta (Dongguan) to US West Coast By Truck By Barge Industry data, 2006, US$ Via Via Via Via Via HKP Yantian Shekou/Chiwan HKP Shekou/Chiwan Ocean Freight Rate 1,850 1,850 1,850 1,850 1,850 (Basic)+/-$50 * Fees** 1,377 1,377 1,377 1,377 1,377 Terminal Handling Charge 366 269 269 366 269 Truck to Port Terminal 300 120 120 N.A. N.A. Truck to Barge Terminal N.A. N.A. N.A. 52 52 Barge Freight (all-in rate) N.A. N.A. N.A. 154 103 Total 3,893 3,616 3,616 3,799 3,651 Versus HKP -277-277 -148 (b) From Western Pearl River Delta (Zhongshan) to US West Coast By Truck By Barge Industry data, 2006, US$ Via Via Via Via Via HKP Yantian Shekou/Chiwan HKP Shekou/Chiwan Ocean Freight Rate 1,850 1,850 1,850 1,850 1,850 (Basic)+/-$50* Fees** 1,377 1,377 1,377 1,377 1,377 Terminal Handling Charge 366 269 269 366 269 Truck to Port Terminal 515 280 280 N.A. N.A. Truck to Barge Terminal N.A. N.A. N.A. 52 52 Barge Freight (all-in rate) N.A. N.A. N.A. 180 118 Total 4,108 3,776 3,776 3,825 3,666 Versus HKP -332-332 -159 1 FEU: Forty-foot equivalent unit=2 TEUs *Average based on consultation with shipping liners agreed rates between a specific shipping line and specific customer may diverge from this figure. ** Includes: Destination Delivery Charge (DDC), Fuel Adjustment Factor (FAF), documentation and declaration fees 3. Barging: A new growth area for Hong Kong Port Though the Western PRD and Hong Kong suffer from weak road infrastructures, they are well connected by waterways through the Pearl River system. The tributaries in this waterway network offer Hong Kong direct access to many feeder ports in the PRD, and 7

endow Hong Kong with a competitive container transport alternative, barging, which has considerable advantages over the congested road transport. First, barging containers from the Western PRD is far more efficient and cheaper than trucking the boxes to Hong Kong. As barges are capable of carrying as much as 100 to 150 containers, they can achieve greater economies of scale in transportation, and higher efficiency of fuel usage. Besides cost and fuel savings, the energy efficiency also leads to less air pollution, making the barge transport more environmentally friendly. In addition, barges can also reposition large numbers of empty containers at lower costs. Second, the customs procedures for containers crossing the border between the Western PRD and Hong Kong are relatively simple, since the whole shipment can be pre-cleared before a vessel leaves the mainland quay. In contrast, trucks carrying one box each all have to pass through two customs at the boarder between South China and Hong Kong, creating long waits. Therefore, barging provides significant time saving at the crossborder checking points. Third, most shipping liners visit Hong Kong Port last before departing the region, after calling at ports in Shenzhen and in other cities of the PRD. As the last loading point for most outward-going ocean vessels, the port in Hong Kong offers a faster transit time for container cargos than other seaports in the PRD. Therefore, Hong Kong is in a better position to attract the transshipment cargos from the Western PRD. Hence, river cargos from the Western PRD transported by barges can offer Hong Kong new opportunities to expand its cargo base, providing Hong Kong Port with more advantages over its Shenzhen rivals. It also helps to reduce pressure on the border control points and road congestion between South China and Hong Kong. Consequently, the volume of river trade cargos has contributed significantly to the throughput growth of Hong Kong Port in the past several years. The river trade volume increased substantially from 28,732 thousand tonnes in 1995 to 81,376 thousand tonnes in 2009 (c.f. Figure 4). In 2009, due to the financial crisis, cargos by other transport modes all experienced a downward trend, but river cargo still reaped an increase of 2.45%. This has led to an average annual increase of 15.6% in the barge throughput at the KT Container Terminals since 2000 [9]. According to HKPDC, more than 60% of the containerized cargoes to and from South China are carried by river feeders, and the rest are carried by container trucks. According to the information collected from industry (as shown in Table 1), it costs US$277 less per FEU (Forty-foot equivalent unit) for trucking cargos inland from the Eastern PRD (Dongguan) via Yantian to the US west than via Hong Kong Port, among which US$180 is the difference in inland trucking. If by barge, the cost difference per FEU is only US$148 with US$51 difference in inland barging, while for the Western PRD cargos (Zhongshan), the cost difference per FEU by trucks is US$332, and inland trucking accounts for US$235 of the difference. In contrast, barging via ports in Western 8

Shenzhen, including Shekou and Chiwan, offers only a US$159 cost advantage over Hong Kong Port with US$62 difference in barging. The rest, about US$100 of the cost differences, is Terminal Handling Charge. Therefore, barging to Hong Kong is more cost-effective than trucking, especially for the cargos from the Western PRD. As a consequence, the cost disadvantage in road transport and the increasing volume of the cargos from/to the Western PRD is leading to the fast expansion of container barge transport in Hong Kong. The cost advantage of barging over trucking can be more salient if larger numbers of containers are carried for longer distances. Although its transport costs and handling charges are higher than ports in the PRD, Hong Kong port still has many advantages. According to HKPDC, Hong Kong Port has a large number of international sea routes, with 400 container liner services per week to over 500 destinations worldwide. It offers easy customs declaration, so that customers do not need to worry about excessive and time-consuming customs inspection. As a free port, only liquor, tobacco, hydrocarbon oil and methyl alcohol are subject to duty in Hong Kong, and the taxes in Hong Kong are low and simple. Hong Kong also has a well-developed service industry in finance, law, insurance, etc. Therefore, Hong Kong Port is currently still attractive to customers, and should seize the opportunity to capture the bulk cargo base from the Western PRD. 4. Challenges faced by Hong Kong Port While barging offers Hong Kong a promising growth area to expand the Western PRD cargo base, the current situation of barge transport in Hong Kong Port is still under challenge. Therefore, the barge handling performance should be improved to make Hong Kong Port more attractive. The KT Container Terminals target mainly at large ocean-going vessels, and thus, reserve only limited space for barge handling. For example, Modern Terminals Limited, one of the four major operators of the KT Container Terminal, operates seven deepwater container berths for ocean-going vessels but only two feeder berths for barges. Therefore, due to the increase of the barging volume, barges experience heavy congestion and spend a long dwell time at the terminals. According to Hong Kong Port and Maritime Statistics, the average time in port (between the vessel arriving at and leaving Hong Kong Port) for river barges was 77 hours for the period of January - September 2009, increasing from 71 in 2008. It is quite common for a barge to spend one to two days in waiting for the completion of loading and uploading of containers at the KT Container Terminals [10]. However, since the distances between feeder ports in the PRD and Hong Kong Port are relatively short, the barge sailing time is normally within 24 hours. Compared with the sailing time, the dwell time in port is intolerable. 9

Barges can also be handled by midstream operation in Hong Kong, which is the operation of loading and unloading for cargo ships mooring at buoys or anchorage in the harbor, with barges transferring the containers. Midstream operation in Hong Kong functions both as a transshipment point between barges and ocean-going vessels (especially for Intra-Asia lanes), and as a consolidation point for barges dispatching cargos to the KT Container Terminals (Europe or America). Since midstream operation is done at sea, there is limitation as to the equipment type used for and the speed of loading and unloading operations. Therefore, while midstream operation has significant cost advantage (50% or less) compared with the container terminals, its operation can be dangerous to both the operators and the cargos especially during bad weather conditions, since it can be difficult to maintain the stability when moving containers at sea. For this safety reason, midstream operation is not encouraged by the government. The government provides a more favorable policy to the KT Container Terminals and subsidizes their operations, while imposing stricter licensing and labour requirements, and restrictive financial conditions on midstream operation. As a result, the number of midstream operators has dropped sharply in recent years (with only three larger operators that have direct land bases remaining in regular operation), and so has the volume handled by midstream operation. The RTT, which started operation in November 1998, was purposely built to cater for the increasing demand of river trade cargos to and from the PRD. It has a designed capacity of about 5 million TEUs a year with 3,000 meters seafront and a water depth of 6-9 meters. However, the RTT has not been effectively utilized. According to the restriction contained in the special conditions 16 ( SC 16 ) and 47(c) ( SC 47(c) ) of its operational guidelines (created in 1996 when the government approved to set up the RTT), the RTT is not allowed to handle ocean-going vessels, but can serve only as a transshipment point to support the operation of the KT Container Terminals and midstream operation. Cargos transited here have to be transported by trucks or barges to the KT Container Terminals, or by midstream operation to load onto ocean-going vessels. This adds additional container handling and transportation time and cost. Yet neither the port operators nor shipping liners are willing to bear the extra expense. Therefore, shipping liners have been reluctant to use RTT for transition of barged containers. Instead, most barges load and unload containers at the KT Container Terminals directly, creating heavy congestions at the berths allocated to barges at KT Container Terminals. Due to the long waiting time at the KT Container Terminals, barge operators need to reserve large margins for terminal visits to ensure reliable transport service, because the delay at Hong Kong Port may cause further delay at the next stop. This increases the overall transit time and cost of barge services, and hence threatens the competitiveness of barge transport in Hong Kong. In contrast, the ports in the Western Shenzhen have been very active in developing feeder collaborations with the Western PRD. The South China Shuttle Barge Service, which was 10

launched in 2001, has connected the Western PRD feeder ports with the Shekou seaport at Shenzhen, providing a common platform for barge transport. Over the years, Shekou has attracted an ever-increasing volume of barge transport from the Western PRD. This is partially because the barge and feeder operators have become frustrated with the inefficiency of operations at the KT Container Terminals in Hong Kong, which has essentially inflated their operating costs. As the manufacturing base migrates to the western side of the PRD, cargos carried by barges to Hong Kong Port will continue to increase. Although the recent financial crisis has slowed down world trade and container traffic has shrunk significantly worldwide, (which, to some extent, has mitigated the congestion at the KT Container Terminals), when the global economy recovers, the problems will reappear and get worse. If the current method of handling barges does not change, it may force barge operators to reduce port calls to Hong Kong in the near future. Obviously, Hong Kong Port needs to be forward-looking, and takes action to improve the efficiency of its port facilities, so as to keep pace with the future growth of cargos from the Western PRD. In the following two sections, we discuss three possible strategies to improve the barge services in Hong Kong Port. 5. Improving efficiency of existing facilities through consolidation and coordination One way to improve barge handling service, given the current constraints on capacity and regulations, is to improve terminal performance, so that the available resources are optimized and containers are loaded, unloaded, stored, and dispatched more efficiently. Currently, the minimum call size of barges at the KT Container Terminals is only 6 containers, and therefore the call size at the terminals can vary a lot. Modern Terminals Limited (MTL) reported in 2006 that 46% of the barges calling at Kwai-Tsing (KT) carried containers of 10TEU or below, while the overall average of their volumes was about 20TEU [11]. Barges with small call sizes lead to fragmented cargo flows and inefficient terminal operations. Sean Kelly, the managing director of MTL, once stated: Cargo is coming at us in small and fragmented bits, making it difficult to handle. Therefore, bundling small container flows at some point before going to the main terminals is one way to improve the handling efficiency of the terminals and to reduce the waiting time of barges. First, bundling eliminates smaller container flows at the seaport (the KT Container Terminals), lessens the number of calls, and thereby reduces the fixed handling time between arrivals, which can lead to more capacity for handling containers, and thus can increase the terminal handling efficiency. Second, containers can be sorted when being bundled according to their destination terminals. In this way, the container sorting function is, to a certain extent, shifted from 11

the seaport to the consolidation points. This allows the seaport to fully utilize its handling capacity by reducing unproductive container moves. In addition, through coordination, the sailing schedule between the consolidation points (e.g., the RTT, or midstream sites) and the seaport can be well organized to match the departure schedule of ocean-going vessels, so that it would be possible to synchronize the unloading and loading moves to shorten the dwell time of containers at the seaport. Third, the consolidated container flows between the RTT (or midstream operation) and the seaport can be transported more economically, because of the economies of scale in transportation. Since barge operation have a high fixed cost but a low variable cost, the larger the quantity shipped, the cheaper the unit transportation cost. Moreover, if barges with fewer containers carried only need to visit the consolidation point, their turnaround time can be significantly shortened. Besides this, barges with larger call sizes have shorter waiting time at the seaport, which can further increase the operational efficiency. Finally, the improved efficiency and time saving at the seaport could be converted into additional revenue by handling more containers. Enhancing terminal performance through the consolidation of container flows has been well studied in the literature. Slack [12] discussed the benefits of a hub network that maximizes traffic volumes by centralizing commodity handling and sorting, and by consolidating commodity flows. He suggested using satellite facilities as a hub to perform the consolidation and storage functions of terminals, and argued that the consolidation can reduce the terminal congestion through efficient connections between the satellite terminal and the seaport terminal. Notteboom and Rodrigue [13] introduced a port regionalization phase in port and port system development, in which a high level of integration with barge services and other intermodal transport systems is crucial. Konings [14] proposed to improve the barge handling in the port of Rotterdam by reorganizing the container barge services, so that the existing barge services can be split into a trunk line part that serves the hinterland, and a collection/distribution part that moves containers at seaports. Notteboom [15] described the dynamics of the European barging industry around the Rhine basin in the last twenty five years, and discussed the hub-and-spoke model as an alternative network configuration of the current line bundling network. Caris, Janssens and Macharis [16] examined the container barge transport in the port of Antwerp. Four alternative scenarios to locate the barge hub(s) in the port area were compared by simulation, and they concluded that all the scenarios can lead to significant improvements in barge handling at sea terminals. From this perspective, since the Pearl River system, which connects the KT Container Terminals, the RTT, and the PRD feeder ports, also constitutes a hub-and-spoke network, the potential benefit generated from this configuration should highly depend on the consolidation of container flows. Fremont, Franc and Slack [17] studied the inland barge services and container transport for the ports of Le Havre and Marseille in France. They mentioned five factors that are 12

essential for the competitiveness of inland waterway transport: infrastructure, characteristics of the market, service of terminals, end-haul road transport, and organization of the market. The first two factors are structural, and the barge operators, terminal operators and road haulers have little control of them. In contrast, the other three factors largely depend on the operations of these players in the transportation network. Franc and Slack argued that the major obstacle to build competitive barge service is the uncoordinated operations among various players, who act separately in most cases. This is also the current situation in Hong Kong. Though an inherent disadvantage of consolidation is that every container will be handled one more time with additional costs, these extra expenses may be offset by handling containers carried by barges faster and cheaper at the main terminal with the consolidated system. To evaluate the benefit of consolidation, we propose a simulation model for the following three cases of barge operations: Case 1: No Consolidation (NC): Barges go to the KT Container Terminals directly to unload their containers. Case 2: Consolidation with Wait/Go Shuttle Service (WGSS) Barges stop by the RTT for cargo consolidation. Shuttle service is available to transport consolidated cargos from the RTT to the KT. Under WGSS, shuttle barges will leave the RTT and ship containers to the KT when they are full or the maximum waiting time is reached. Case 3: Regular Shuttle Service (RSS) Similar to Case 2, barges stop by the RTT for cargo consolidation. However, under the RSS, the shuttle barges that transport consolidated cargos to the KT depart from the RTT on a regular basis, according to the departure frequencies specified in a fixed timetable. Based on the current situation of Hong Kong Port, we assume that the KT has limited berths to handle barge arrivals, whereas the RTT has relatively sufficient berths to handle barges. Barge arrival is assumed to follow a Poisson distribution, and the number of containers carried per barge follows a truncated normal distribution. We assume that all the containers are of the same size, one TEU. Table 2 presents the benchmark setting used in the simulation model in accordance with the real situation. Since barges have to leave the feeder ports of the PRD before the close of customs there, there is often a daily peak period of barge arrivals at the KT, which lasts about four hours, from 9:00 to 13:00. According to the data provided by a local barge operator, the barge arrival rate at the KT during the peak period is on average about four times the rate during the non-peak period. For RSS, the timetable of shuttles is also adjusted accordingly for peak and non-peak periods. 13

Table 2. Benchmark Setting of Parameters for the Simulation Model Parameters Definition Value b KT number of berths at the KT for barges 2 b RTT number of berths at the RTT for barges 4 b RTT,Shuttle number of berths at the RTT for shuttle barges 3 s RTT size of yard at the RTT for temporary container storage in 3000 number of containers λ np,λ p arrival rate (Poisson distribution) of barges in non-peak and peak (2.5,10) periods in barges/hour t np,t p length of non-peak and peak period per 24 hours (20,4) μ,σ mean and standard deviation of number of containers carried per (20,20) barge v min minimum number of containers carried per barge 6 F fixed berthing time of barges in hours 1/6 H container handling time in hours/container 1/60 t transportation time between the RTT and the KT in hours 0.5 n number of shuttles barges operating between the RTT and the KT 4 c barge capacity of barges and shuttle barges in number of 150 containers/barge t WGSS,max maximum waiting time of WGSS shuttle barges in hours 3 f np,f p departure frequencies of RSS shuttle barges during non-peak and (3/20,2/4) peak periods in number of shuttles per hour We run the simulation for 360 hours, i.e., 15 days, and record the average of the total waiting time per container for each case. For case 1, the total waiting time is simply the waiting time at the KT, while for case 2 and case 3, the total waiting time consists of three parts, the waiting time at the KT and the RTT, together with the waiting time at the yard of the RTT, which can be estimated by the ratio of average yard usage to the average cargo arrival rate. The result for the benchmark setting is shown in Table 3. The comparison shows that with consolidation, the congestion at the KT can be mitigated significantly, barge operators can expect much shorter waiting time, and the total waiting time per container can be reduced. However, a moderate-sized space of the yard at the RTT needs to be allocated to store containers temporarily. To gain more insights, we vary the values of the parameter, and repeat the simulations as follows. First, we alter the mean of the number of containers carried per barge while keeping the cargo arrival rate constant (around 80.1 containers/hr), and plot in Figure 5 the total waiting time per container for each of the three cases. The result shows that without consolidation at the RTT, the average waiting time per container (i.e., the congestion) at the KT increases dramatically as the number of containers carried per barge decreases. Yet, for case 2 and case 3, with consolidation, the average waiting time per container is rather stable, as long as the container arrival rate does not change. The 14

result can be explained intuitively, since when the number of containers carried per barge is low, the arrival rate of barges at the KT increases, which would consume much of the capacity of the KT, resulting in high congestion. If containers are first consolidated at the RTT, and then go to the KT, the capacity of the KT could be utilized more efficiently. The total waiting time per container can be shortened, even though the consolidation adds additional time and effort at the RTT. The benefit of the consolidation is more salient, as the number of containers carried per barge decreases. Table 3. Summary of Simulation Results for the Benchmark Setting Average Cargo Rate Case 1 Case 2: Case 3: (80.1 containers /hour) WGSS RSS Average waiting time per container at KT (hours) 15.49 0.05 1.23 Average waiting time per container at RTT (hours) -- 1.60 1.60 Average storage time per container at RTT yard (hours) -- 2.11 0.38 Average of RTT yard usage in number of containers -- 169.00 30.15 Maximum of RTT yard usage in number of containers -- 863 345 Average. total waiting time per container (hours) 15.49 3.76 3.21 Figure 5. Total Waiting Time per Container vs. Number of Containers Carried per Barge. Another important consideration regarding cargo consolidation at the RTT is the departure frequency of shuttle service between the RTT and the KT, because it has a significant impact on the total waiting time of cargos. To see this point, we run the simulation for case 3 with various departure frequencies of RSS shuttle barges, and 15

present the waiting time per container in Table 4. In the table, W RSS represents the average total waiting time per container under case 3, W KT and W RTT denote the average waiting time per container at the KT and at the RTT, respectively, and W Yard denotes the average storage time per container at the yard of the RTT. For comparisons, the average total waiting time per container (W NC and W WGSS ) for case 1 and case 2 is also presented. The result shows that having more frequent shuttle service reduces the waiting time of containers at the yard of the RTT, but increases the waiting time of containers at the KT. Therefore, the overall effect is U-shaped. The minimum total average waiting time per container occurs when the departure frequency (f np ) of the four shuttle barges reaches 3/20 per hour, i.e., three departures during every non-peak period. Moreover, when the frequency of shuttle barges is relatively high (e.g. f np is above 3/20 per hour), the average waiting time per container at the RTT and at the yard is short, not exceeding 1.61 hours and 0.40 hours, respectively. Under this setting, the yard always has enough space so that no barges at the RTT need to wait for vacancies to unload cargos to the yard. In contrast, when the frequency of shuttle barges is low (e.g. f np equals 1/20), the cargo throughput of the yard becomes slow, which increases the space shortage at the yard, and forces barges with incoming cargos to wait at the RTT. Therefore, as shown in Table 4, when f np equals 1/20, the value of the cargo waiting time at the RTT and the yard jumps to much higher levels of 156.33 hours and 29.29 hours, respectively. Table 4. Impact of Shuttle Frequency on Average Waiting Time per Container RSS W NC W WGSS f np W (hours) (hours) (per RSS W KT W RTT W Yard Yard max (hours) (hours) (hours) (hours) (containers) hour) 1/20 185.97 0.34 156.33 29.29 3000 2/20 5.73 1.09 1.60 3.03 1215 3/20 3.21 1.23 1.60 0.38 345 15.485 3.763 4/20 3.33 1.41 1.60 0.33 248 5/20 3.68 1.77 1.60 0.30 135 6/20 4.00 2.10 1.60 0.30 133 7/20 4.61 2.71 1.60 0.30 133 8/20 5.19 3.29 1.60 0.30 131 The simulation results demonstrate that consolidation at the RTT can create a triple-win situation, in terms of reducing the waiting/handling time, for the KT Container Terminals, barge operators, and shippers. As previously noted, the RTT is far from fully realizing its role as a consolidation point, mainly due to the additional time and cost of handling. If the overall barge transport service and handling efficiency in Hong Kong are improved, it can generate higher revenue by handling more river cargos from the PRD to compensate the cost for consolidation. Of course, to realize the consolidation, the parties need to coordinate and share information, so that container flows can be centrally controlled. To raise the minimum call size for barges, the KT Container Terminals may consider 16

offering a discount for handling charges on consolidated containers, or to subsidize the transition at the consolidation points, because terminal operators are the direct beneficiaries of the improved efficiency. 6. Other strategies to enhance barge handling service Besides utilizing the existing RTT for consolidation, Hong Kong Port can also rationalize the berths utilization at the KT Container Terminals to reduce the barge waiting time, and/or to reorganize the usage of the overall port facilities strategically. In this section, we discuss these two approaches not only for improving the barge services, but also for increasing the overall container handling capability of Hong Kong Port without investing new facilities. 6.1. Rationalization of capacity utilization at the KT Container Terminals The congestion of barge traffic at the KT Container Terminals shows the need for allocating more berths for barges. Expanding the handling capacity for barges at the KT Container Terminals would be a direct and effective solution. The KT Container Terminals are well equipped with modern facilities, and thus are mainly targeted at handling large ocean-going vessels. Terminals in Hong Kong are owned and operated privately. The layout and operators of the KT Container Terminals are shown in Figure 5 and Table 5, respectively. Among the five companies, Hong Kong International Terminals (HIT) and Modern Terminals (MTL) are the two dominant operators. Each of them owns several container terminals (CTs). CT8 East is owned by COSCO-HIT, a joint venture of HIT and China Ocean Shipping Company (COSCO), which mainly deals with COSCO s cargos. Dubai Ports International (DPI) and the Port of Singapore Authority (PSA) are the two principal shareholders of CT 3 and CT8 West. However, CT3 is among the early built container terminals, measuring just 295 meters in length, so it is too short to handle most modern ocean-going vessels (about 305 meters or larger). As a result, the usage of CT3 is constrained, unless it leases space from its two neighbors, HIT and MTL, to accommodate large ocean-going vessels. CT8 West is also underutilized, with barely any ocean liner customers. Figure 6 shows the growth of container throughput in Hong Kong Port during 1995-2008, by location and vessel type. According to the figure, more and more ocean-going vessels choose the KT Container Terminals, though the service charge at the KT is quite expensive. Meanwhile, the volume of containers carried by ocean-going vessels and handled by other berths (including midstream operation) is shrinking significantly. Specifically, in 2008, 89.7% of the containers carried by ocean-going vessels were handled at the KT Container Terminals. In contrast, river vessels lean more towards midstream operation or other berths, due to the congestion at the KT Container Terminal. 17

Containers carried by river vessels account for an increasing portion of Hong Kong Port s total throughput, representing 30.3% of the total volume in 2008 compared with 12.6% in 1995. Figure 5. Layout of the Kwai-Tsing (KT) Container Terminals. Table 5. Operators of the Kwai-Tsing (KT) Container Terminals Terminal Operators Terminals Modern Terminals Limited (MTL) CT1, CT2, CT5, CT9 (South) Hong Kong International Terminals Limited (HIT) CT4, CT6, CT7, CT9 (North) COSCO-HIT Terminals Limited CT8 (East) Asia Container Terminals Limited (ACT) CT8 (West) Dubai Ports International (Hong Kong) Limited CT3 However, with the recent global financial crisis, international trade has been facing downward pressure. The decreasing demand in external markets has been translated into the shrinkage of export container volumes in Hong Kong and the PRD, which has mitigated the congestion at the KT temporarily. However, the 2008-2009 Chinese economic stimulus program is boosting the volume of inland trade in China, as well as helping to stabilize the world economy. In the long run, the congestion problem remains and will intensify with the ever increasing volume of river cargo, if the current way of handling barges is not improved. Therefore, Hong Kong Port should take this chance to 18

restructure the use of the port facilities to improve barge services, in anticipation of the future cargo expansion. Figure 6. Container Throughput by Location and Vessel Type. (source: Summary Statistics on Port Traffic of Hong Kong [8]) As CT3 and CT8 West are currently underutilized in handling ocean-going vessels, it is worthwhile to consider allocating some of their berths to handle barges. On the one hand, opening CT3 and CT8 West to barges would be an immediate solution to resolve the traffic congestion at the KT. On the other hand, by handling additional cargos from barges, the operators of CT3 and CT8 could increase their operational efficiency and total revenues. Moreover, as CT3 and CT8 are close to other terminals in the KT, the increase of time and costs, due to additional truck transport needed to move cargos from CT3 and CT8 to other terminals, is not significant. Despite these potential benefits, the operators of CT3 and CT8 will be concerned about the possible increase of their operational costs if they allocate part of their berths to handle barges, because such a change requires investments in new equipment as well as changes in their current operational processes. Furthermore, the decision on how to allocate berths to barges and ocean-going vessels is challenging, because it needs to take into consideration several complicated factors, such as the uncertainties of barge arrivals, the availability of barge handling equipment, the service quality committed to barge operators and to deep-sea carriers, etc. Therefore, more in-depth studies with alternative methodologies are needed on this strategy. In recent years, Hong Kong has been debating whether to build the No. 10 Container Terminal (CT10) to promote the sustainable development of Hong Kong Port as an international shipping hub. Certainly, building a new terminal will increase the overall handling capacity of Hong Kong Port and solve the problem of congestion. However, facing the current economic environment, the plan for building CT10 is still unclear, 19

because new site development takes time and is very costly. Moreover, although the possible sites of CT10 have currently been narrowed down to be at either southwest Tsing Yi or northwest Lantau, since neither site is close to the KT, there are some concerns with the additional time and cost for trucking cargos between CT10 and the KT, questioning on the potential benefits of CT10. 6.2. Utilization of Hong Kong s overall port assets Prior to the RTT coming into operation, river vessels had to load and unload their cargos by midstream operation at buoys and anchorages or at public cargo working areas at various locations in Hong Kong. Thus most of the barges, originating from or bound for the PRD, would have to enter and traverse the KT Container Terminals in order to use the cargo handling facilities located in central and eastern parts of Hong Kong. The proliferation of river vessels has increased the congestion of the traffic lanes used by large ocean-going vessels, especially in the Ma Wan Channel adjacent to the major container terminals. Therefore, the RTT was built to cater for the increasing river cargos and alleviate the marine traffic through the Ma Wan Channel. Its location is strategically selected as an entrepot for the PRD trade, which is at the mouth of the Pearl River at Tuen Mun, in the north-west of Hong Kong. The RTT was planned to function as a consolidation point of PRD river cargos for onward ocean carriage, and as a distribution point for inbound cargos carried by ocean-going vessels to PRD ports. The RTT is mandated to handle river cargos only, and is not legally allowed to handle ocean-going vessels. This restriction seriously limits the RTT s ability to operate profitably. Since all the cargos unloaded to the RTT have to be moved to the KT with additional handling time and cost, shipping liners are reluctant to stop by the RTT. As the bulk of transshipment cargos from the PRD do not pass through it, the RTT mainly functions now as a depot for empty containers. No doubt, opening a limited number of berths at the RTT for ocean-going vessels can assimilate some of the barge traffic at the KT Container Terminals, leading to alleviation of the congestion there. Moreover, since most vessels carrying intra-asia cargos only need to pass through the western side of Hong Kong, allowing RTT to handle these cargos can enable these vessels to avoid the round trips between the RTT and the KT. Therefore, it is time that government and various stakeholders came together to reexamine the mandate of the RTT, to allow it in full utilization so that the interest of Hong Kong as an international shipping hub is served. Of course, the operators at the KT will have concerns regarding the shift of their cargo volumes, and may be against the role changes of the RTT. The government needs to help to resolve the potential conflicts of interests between the operators of KT and RTT so as to drive the changes for the overall improvements. Midstream operation has been abandoned in most places, and is not encouraged currently by the Hong Kong government mainly for safety reasons, as it requires operations at sea. 20