Some shipping firms pulling back from Hong Kong to skirt US-China risks

HONG KONG/LONDON – Some shipping companies are discreetly moving operations out of Hong Kong and taking vessels off its flag registry. Others are making contingency plans to do so.

Behind these low-profile moves, six shipping executives said, lie concerns that their ships could be commandeered by the Chinese authorities or hit with US sanctions in a conflict between Beijing and Washington.

Beijing’s emphasis on the role of Hong Kong in serving Chinese security interests and growing US scrutiny of the importance of China’s commercial fleet in a possible military clash, such as over Taiwan, are causing unease across the industry, the people told Reuters.

Strategic maritime operations have shown up on President Donald Trump’s radar. In his inauguration speech in January, Mr Trump threatened to “take back” the Panama Canal, which he said had fallen under Chinese control.

Mr Trump’s remarks focused attention on two Panama ports operated by a subsidiary of Hong Kong conglomerate CK Hutchison Holdings. The group agreed this week to sell a majority stake in the subsidiary to a consortium of investors led by BlackRock,

giving US interests control over the ports

.

Mr Trump told Congress on March 4 that his administration would create an office of shipbuilding in the White House and

offer new tax incentives

for the sector.

The US Trade Representative’s office in February proposed

levying steep US port fees on Chinese shipping companies and others that operate Chinese-built vessels

to counter China’s “targeted dominance” of shipbuilding and maritime logistics.

Washington in September warned American businesses about the growing risks of operating in Hong Kong, where the US already applies sanctions against officials involved in a security crackdown.

Hong Kong for more than a century has been a hub for shipowners and the brokers, financiers, underwriters and lawyers supporting them. Its maritime and port industry accounted for 4.2 per cent of gross domestic product in 2022, official data showed.

The city’s flag is the eighth most-flown by ships worldwide, according to VesselsValue, a subsidiary of maritime data group Veson Nautical.

Reuters interviews with two dozen people, including shipping executives, insurers and lawyers familiar with Hong Kong, revealed growing concern that commercial maritime operations could be ensnared by forces beyond their control in a US-China military clash.

The concerns of shipowners and their actions to curb exposure to Hong Kong have not been previously reported. The perceptions of risk have grown in recent years, coinciding with a tightening security climate in the Chinese-ruled city and tensions between the world’s two largest economies.

Turning tide

Commercial ships must be registered, or flagged, with a particular country or jurisdiction to comply with safety and environmental rules.

Despite an influx of Chinese-operated ships onto Hong Kong’s registry, the number of ocean-going vessels flagged in the city fell more than 8 per cent to 2,366 in January from 2,580 four years earlier, according to an independent analysis by VesselsValue. Government data shows a similar drop.

Among the ships that left Hong Kong’s registry, 74 re-flagged to Singapore and the Marshall Islands in 2023 and 2024, chiefly dry bulk carriers designed to transport commodities such as coal, iron ore and grain. Some 15 tankers and seven container ships separately left the Hong Kong registry for those flags, according to VesselsValue.

The outflow of ships since 2021 marks a reversal for Hong Kong’s registry, which official data shows grew roughly 400 per cent in two decades following 1997.

In response to Reuters’ questions, Hong Kong’s government said it was natural for shipping companies to review operations given changing geopolitical and trade circumstances, and normal for the number of ships on registries to fluctuate in the short term.

Hong Kong would “continue to excel as a prominent international shipping centre”, a spokesperson said, outlining a range of incentives for shipowners, including profits tax breaks and green subsidies.

Neither the laws governing the registry nor emergency provisions empowered Hong Kong’s leader to commandeer ships to serve in a Chinese merchant fleet, the spokesperson said.

The spokesperson declined to elaborate when asked about industry players’ concerns over how colonial-era emergency powers might be applied during a US-China conflict. The provisions allow the city’s leader to make “any regulations whatsoever”, including taking control of vessels and property.

China’s defence and commerce ministries did not respond to questions about the role of a merchant fleet in Beijing’s warfighting plans, the potential involvement of Hong Kong-flagged vessels and the worries of commercial shipowners.

The US Treasury and Pentagon declined to comment about potential sanctions, shipping executives’ concerns and the role of Hong Kong-registered vessels in a Chinese merchant fleet.

Lawyers and executives say ships can be re-flagged for various reasons through sale, charter or redeployment to different routes.

Mr Basil Karatzas, a US-based consultant with Karatzas Marine Advisors & Co, said Singapore had become the preferred domicile for companies with lesser exposure to Chinese shipping and cargo trade because it offered many efficiencies, including its legal system, but less risk than Hong Kong.

The Maritime and Port Authority of Singapore said decisions about domiciles and flagging were based on commercial considerations. It had not observed any “significant change” in the number of Hong Kong-based shipping companies relocating operations or re-flagging vessels to Singapore.

Hong Kong remains an important base for shipowners, despite the geopolitical challenges. But some are quietly hedging their bets.

One company founded in Hong Kong in 2014, London-listed Taylor Maritime, now has a smaller presence in Hong Kong after making several strategic moves over the past few years.

Since 2021, it has kept its ships flagged in the Marshall Islands and Singapore. Its offices are in London, Guernsey, Singapore, Hong Kong and Durban.

The firm “really de-risked Hong Kong”, said a person familiar with the matter, citing investors’ concerns about a Chinese invasion of Taiwan and the Communist Party of China’s increasing control of Hong Kong.

A Taylor Maritime spokesperson said that initially, the company moved its Asia-based commercial teams to Singapore from Hong Kong to be closer to clients.

With its acquisition of shipping company Grindrod, which had its Asia office in Singapore, Taylor Maritime expanded its operation there and relocated some functions from Hong Kong to the point where Singapore became its primary Asia hub, the spokesperson added.

Hong Kong-listed Pacific Basin Shipping has traditionally flagged its 110-strong fleet of bulk carriers in Hong Kong but is drafting contingency plans to register them elsewhere as it gauges potential risks, said two people familiar with the matter.

A Pacific Basin spokesperson said the company was constantly evaluating geopolitical risks but that its fleet was still flying the Hong Kong flag, “which at least for now outweigh(s) the challenges”.

“Being in Hong Kong positions us close to China’s 40 per cent share of global dry bulk import/export activity and close to Asia’s strong economic and industrial growth regions,” the spokesperson said.

Mr Angad Banga, chairman of the Hong Kong Shipowners Association, said shipping firms adjusted contingency plans based on risk assessments in a complex geopolitical environment but he had not encountered concerns about the commandeering of vessels.

“While some may be reviewing operational strategies, we as an organisation do not to see any widespread exodus or loss of confidence in Hong Kong,” Mr Banga told Reuters, adding that the city remained attractive for maritime commerce.

Yet, some industry figures described a broad unease about Hong Kong that was affecting their planning.

Three lawyers said that until recent years, contracts hammered out for the growing number of ships built in China and financed by Chinese banks typically stipulated that they must fly the Hong Kong flag.

But over the last two years, some have included a caveat demanded by owners to provide flexibility. A few other prominent flags are listed as options alongside Hong Kong, the lawyers said. Reuters could not independently verify the changes. REUTERS