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Cutting Costs Vital To Saving Status(HKTDC Hong Kong Trade Services, Vol 02,2004)

Vol 2, 2004

Transport, Courier & Logistics

Cutting Costs Vital To Saving Status

Cutting Costs Vital To Saving Status

Bigger and still better: Hong Kong has more shipping links with foreign ports than its immediate mainland competitors

More effort is needed to improve transport links between Hong Kong and the Pearl River Delta (PRD) to cut costs, several speakers said at a recent two-day Logistics Hong Kong conference.

Hong Kong Shippers' Council chairman Willy Lin, whose organisation represents about 50,000 shippers, said sending a container of garments from Dongguan through one of the Shenzhen ports could take two or three days longer than via Hong Kong because it had to pass at least two mainland Customs jurisdictions.

"I wonder how long Hong Kong would enjoy this time advantage as internal border controls on the mainland are eased?" he asked.

Maersk Hong Kong managing director Charles Wellins said that while Hong Kong had more shipping links with foreign ports compared with Shenzhen ports, Hong Kong still had two main disadvantages - high costs and less connectivity with cargo sources.

"The proposed Hong Kong-Zhuhai-Macau bridge would help Hong Kong see a huge growth in cargo coming from the western part of the delta, but further progress is needed to make it easier for containers to be trucked across the border," he said.

Hong Kong Container Terminal Operators Association chairman Alan Lee observed that mainland authorities impose high licensing charges on Hong Kong truck drivers, while mainland truckers are banned from operating in Hong Kong.

"The mainland authorities' enforcement of the 'four up, four down' rule - where a driver has to use the same tractor unit, trailer and container on the outbound journey as on the inbound trip - has inflated transport costs but offered no flexibility," he noted.

"With container volumes on the southern mainland growing by between three and four million TEUs a year, it is important that Hong Kong's port does not lose market share to Shenzhen."

Minister of Communications Zhang Chunxian said Hong Kong and the PRD had a major symbiotic role as the mainland authorities continued to help Hong Kong develop its logistics and infrastructure links with the mainland.

"The Closer Economic Partnership Arrangement that came into effect on January 1 has brought more opportunities for Hong Kong and the mainland to cooperate with, and benefit from, each other," Zhang claimed.

But Kerry Logistics executive director Vincent Wong said Hong Kong and international logistics companies planning to start operations on the mainland faced shortages of skilled logistics staff, licensing issues and "hidden costs".

"While it is easy to recruit junior office staff, drivers and sales people, professional logistics is still a relatively young sector on the mainland and its growth is hindered by an acute shortage of experienced staff," Wong explained.

Senior marketing personnel can command monthly salaries of 50,000 yuan (US$6,041) or more, depending on their experience. Taxation is also an issue, with a basic business tax of 5%, coupled with a profits tax of up to 40% taking its toll on logistics companies, whose average net profit margin is 3-4%. "There are also hidden taxes, including a levy on vehicles painted with company colours or logos," Wong added.

There are also restrictions on vehicles entering certain cities - for example, Tianjin-registered trucks have to have a permit to enter Beijing, but Beijing-registered vehicles do not need a permit to operate in Tianjin.

"Despite the concessions granted under CEPA, there are difficulties obtaining appropriate licences to operate as a logistics company," Wong claimed, noting that only six integrated logistics licences were issued last year and adding that Kerry Logistics had applied for its own licence.

Swire Group chairman James Hughes-Hallett said there was a danger of over-investment in infrastructure in the delta. "Guangzhou's new Baiyun airport means there are now five airports - including those in Hong Kong, Macau, Shenzhen and Zhuhai - serving Guangdong Province," Hughes-Hallett noted.

He added that with 21 container berths coming on-stream on the southern mainland in the next four years, Container Terminal 10 should not be built in Hong Kong. "The proposal to build the terminal seems to have been floated at a time when throughput at Hong Kong's Kwai Chung container port is peaking and is expected to fall behind Shenzhen's this year," Hughes-Hallett maintained.

Wallem Group managing director Rob Grool, who helms one of the world's largest ship management companies, said the government needed to improve English-language skills to help maintain Hong Kong's position as a leading international maritime centre in Asia.

Hong Kong should not repeat the mistakes made by countries such as the UK and the Netherlands, Grool insisted, citing the UK's move to turn technical colleges and polytechnics into universities as a backward step.

"Through funding cuts and lack of interest in English-language education, Hong Kong is in danger of making the same mistake," Grool said.

He also berated the scrapping of maritime studies from university curricula in Hong Kong. "Hong Kong is competing with the world, and its education standards have to get back on the agenda," Grool said. "By contrast, Singapore has had a relentless, systematic focus on education and insists on the highest possible standards."

Grool said a large number of international ship managers and shipbrokers were based in Hong Kong mainly because a lot of tonnage is owned and controlled locally and it had an excellent communications infrastructure.


Moving on

One of Hong Kong's leading logistics companies hopes to have a wholly-owned subsidiary operating on the mainland next year. Kerry Logistics executive director Vincent Wong says the company will apply for the licence under the Closer Economic Partnership Arrangement, which came into effect on January 1 this year.

The licence will initially restrict the company to operate in a designated location, but allow it to open branch offices in other cities after one year.

Kerry Logistics has eight joint-venture offices on the mainland - one each in Beijing, Tianjin, Qingdao, Shanghai, Ningpo and Xiamen and two in Shenzhen (Yantian and Futian). A Guangzhou office will open in October, followed by another in Wuhan early next year.

The company's US$5.4m distribution centre in Shanghai's Waigaoqiao port district opened on August 5, and another one under construction in Songjiang in Pudong is due to begin operations around June next year.

Part of the international Kuok Group, Kerry Logistics also operates in Thailand, South Korea, Australia, Singapore, Vietnam, Malaysia, Cambodia, Myanmar, Indonesia, the UK and the US.

Its pan-Asian logistics business was built on more than two decades of warehousing and logistics operations in Hong Kong. Kerry Logistics started expanding its third party logistics business in 1998 and now encompasses contract logistics, distribution centres, international air and sea freight forwarding, transportation, distribution and value-added services.

It serves thousands of companies, many of them Fortune 500 multinationals, around the world. Market segments include industrial products, telecommunications, branded consumer goods, fast food shops, retail chains and convenience stores.