Published: 10:45, June 14, 2024
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Picking up the pieces for logistics players
By Oswald Chan

Hong Kong’s sea and air freight sectors saw stark, divergent performances last year. Now the entire business is due for a huge shakeup. The disparity calls for more robust high value-added services in both industries. Oswald Chan reports.

Editor’s note: With the onset of  Sino-US friction and geopolitical tensions, global trade and supply chain operations have become fragmented. This in turn exerts  far-reaching consequences on Hong Kong’s trade and logistics business. In the first  of a three-part series, we examine how the city’s logistics sector can gear up to pursue development in high value-added services in both the aviation and shipping industries.

The significant disparate throughput recorded in the sea and air cargo sectors in the Hong Kong Special Administrative Region in 2023 set off alarm bells in the city’s trade and logistics operations.    

Hong Kong was the world’s busiest container port for much of the 1980s and 1990s — a position it held until 2005 — but ultimately dropped out of the top 10 busiest global port rankings for the first time last year. Hong Kong Port slipped to 11th place, according to shipping industry data provider Alphaliner. Its trade volume plunged 14.1 percent year-on-year to 14.3 million twenty-foot equivalent units amid growing competition from ports on the Chinese mainland, notably in adjacent Guangdong province.

If Hong Kong fails to maintain its superiority in air cargo transport, its edge in the industry may wane as competitors pull their socks up.

Sunny Ho Lap-kee, executive director of the Hong Kong Shippers’ Council

The bleak picture painted for sea freight, however, was in stark contrast to the brilliant performance of the local air cargo business. Hong Kong International Airport (HKIA) has been the world’s top cargo hub for 13 years, handling 4.3 million metric tons of freight in 2023 — up 3.2 percent from the previous year — Airports Council International said.

The performance discrepancy is attributed to the SAR’s sustained advantages in offering prompt and efficient air cargo delivery services. In contrast, the sea cargo business relies more on freight charges than quality of service.

Ryan Ip Man-ki, vice-president and co-head of research at Our Hong Kong Foundation, hopes Hong Kong will concentrate on developing high value-added aviation and shipping services.

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“Goods transported by air tend to be of higher value and time sensitive, requiring additional security arrangements and better time management. This creates greater opportunities for value-added logistics services,” he explains to China Daily.

Sunny Ho Lap-kee, executive director of the Hong Kong Shippers’ Council, agrees that the city should capitalize on its niche in the air cargo business. He is confident the SAR’s status as an air cargo transportation hub can be secured as long as it continues to be a global finance, business and tourism hub.

With the expected completion of HKIA’s three-runway system later this year, the airport could handle 10 million tons of cargo annually. Now that the aviation sector’s staffing bottleneck created during the COVID-19 pandemic has been removed, airlines can expect upgraded services. Hong Kong’s super-efficient airport operations and customs clearance have enabled air cargo to be delivered within a day, which may be a hurdle for mainland airports. The SAR is also open to various cargo transportation businesses, such as freight forwarders, warehouse operators, and inland transportation.

HKIA is the first airport in the world to attain the full suite of Center of Excellence for Independent Validators certifications from the International Air Transport Association for its handling of high-value goods including pharmaceuticals, perishables, live animals and lithium batteries.

But Ho warns Hong Kong must not become complacent. “If Hong Kong fails to maintain its superiority in air cargo transport, its edge in the industry may wane as competitors pull their socks up.”

Eugene Wong Yin-cheung, associate professor and associate head at Hang Seng University of Hong Kong’s Department of Supply Chain and Information Management, says even with a container terminal port and an efficient airport, Hong Kong should strive to be a multimodal transportation hub with complementary infrastructure, including roads, terminal ports and an airport.

Ip says the SAR’s air-sea intermodal transshipment model can facilitate cargo flows in the 11-city cluster Guangdong-Hong Kong-Macao Greater Bay Area.                                                                                                                                          

He adds, “As HKIA has the most international flight routes among airports in the GBA, the airport will be an effective air cargo transshipment hub for the region.”

Air-sea cargo synergy

Hong Kong’s cargo air-sea transshipment operation model allows security screening, palletization, cargo acceptance and other services to be completed upstream at the HKIA Dongguan Logistics Park, before freight is shipped to HKIA by sea for air transshipment to destinations worldwide. A similar process is in place for international imports in the mainland.

Such a sea-air transshipment operation model is vital as Hong Kong expands its air cargo capacity to meet growing cross-border e-commerce and intra-Asian trade, says Ip. Global logistics operators like DHL, China Post Group Corp, Cainiao Smart Logistics Network and United Parcel Service have set up cargo handling facilities at HKIA to cope with increased e-commerce business opportunities.

As Hong Kong continues to build high value-added aviation and shipping services, it should not abandon its traditional sea freight business completely. “The point is how to create synergy between Hong Kong Port and other container ports in the South China region. Developing high value-added maritime services should include deploying expertise in trading and sales, traffic and network planning, and equipment planning,” says Wong.

Ho argues that Hong Kong Port still has various advantages over its mainland counterparts. Unlike ports in Guangzhou and western Shenzhen, Hong Kong harbor is a deep water port, which saves dredging and reduces maintenance costs. Hong Kong’s container port is relatively concentrated in the Kwai Tsing area while Shenzhen’s port operations are divided between Yantian in the east and Shekou in the west, which undermines efficiency.

Hong Kong container port owners have formed a business alliance in the past few years to centralize port operations, as well as berth and ship arrangements, raising the utilization ratio of port infrastructure and hardware. Kwai Tsing container port can handle complex transit operations efficiently with adequate berthing positions.

Reviving shipping industry

Industry stakeholders and logistics experts agree that coordinated development, institutional revamp, nurturing talent, cutting costs and technological investment are needed to revive Hong Kong’s sea freight business.

For coordinated development, Ho suggests that the central government coordinate with the SAR in preventing disorderly and wasteful expansion of container ports in the GBA. As low value-added manufacturing activities relocate to Southeast Asia and Mexico, the volume of international trade is not growing expeditiously as it has been in the past two or three decades, and the profits of many government-initiated port investments in the GBA are up in the air. “When cargo throughput at GBA container ports increases drastically, there will be vicious business competition. This is just a zero-sum game from the perspective of a region’s port cluster. The issue here is how to prevent a waste of resources,” Ho says.

Ip says the central government can help strengthen cooperation and form an alliance among Hong Kong and other GBA ports. “With coordinated development, the market mechanism would result in an efficient distribution of cargo and shipping transport prices.”

Wong, who is also the director of HSU’s Policy Research Institute of the Global Supply Chain, believes the SAR government and industry stakeholders can explore creating a statutory body to develop the maritime industry. He points to Hong Kong’s air cargo industry already having a statutory body — the Airport Authority Hong Kong — as well as an international airport for boosting the air freight business in areas like talent cultivation, infrastructure development, technology application and airport operations.

“While Hong Kong Science Park nurtures technology startups, our shipping industry lacks the physical space for planning maritime development, advancing operation processes, and cultivating logistics technologies to accelerate the commercial operations and technological development of the shipping business,” he says.

Wong suggests that Hong Kong can consider making the existing Hong Kong Maritime and Port Board a statutory body. “If there is such a statutory body, it can liaise with similar mainland organizations in promoting the integrated development of the sea freight sector. It may also offer policy incentives for promoting container and business operations of the sea freight trade, attracting shipping companies to relocate their businesses back to Hong Kong, and nurturing industry talents.”

Ip warns that the performance disparity in Hong Kong’s aviation and shipping operations could result in a “winner-take-all” scenario, where talents and resources in the logistics sector turn to aviation, and the shipping segment is left out in the cold.

“The perception of shipping has to be changed, with greater efforts needed to promote the development of high value-added maritime services. Stronger partnerships have to be built among local academic institutions, industry organizations and nonlocal institutions to provide clear career development paths and industry-relevant skills,” Ip suggests.

As for reducing operating costs, Ho says Hong Kong should mull easing current restrictions on cross-boundary land transport, such as allowing mainland trailers to transport goods to Hong Kong to cut costs. “The average cost of each container handled at Hong Kong container port is HK$2,000 ($250). This is higher than that charged by mainland container ports due to the cost of cross-boundary land transport and the handling fee levied by Hong Kong’s container port.”

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In his view, logistics players need to be green, smart and innovative. Hong Kong’s container ports are mainly controlled by private enterprises, and when they hesitate to invest in port technology, the city’s container port would be less competitive than mainland and overseas ports in terms of digitalization. The problem is that Hong Kong does not have a statutory maritime port authority to propel the digitalization of port operations. “Industry stakeholders would like the government to take the lead in driving the digitalization of port administration. The success rate would not be high if ports are controlled by private companies. Hence, the government should consider taking a mandatory approach,” says Ho.

The decline in Hong Kong’s container throughput can be attributed to various factors, such as manufacturing activities gradually being relocated out of the mainland, thus curtailing vessel-to-vessel transshipments through Hong Kong; port authorities, such as Yantian and Nansha in the GBA, actively adopting policies to attract shipping companies to dock their vessels at their terminals; Hong Kong lagging behind in developing freight railways; the city’s high logistics operation costs; and the negative effect the COVID-19 pandemic had created on land transport between the city and the mainland.

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