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Focus On Modern Logistics Reinforces Position Of Strength(HKTDC Hong Kong Trade Services, Vol 01,2002)

Vol 1, 2002


Focus On Modern Logistics Reinforces Position Of Strength

Warehousing Strategy Works Wonders

GPS Places Logistics In Pole Position

E-Logistics Spur Economic Rise

Efficiencies For The World
Maersk Logistics Hong Kong Ltd

Logistics Solutions Provided On Regional And Global Terms
Kuehne & Nagel (Asia Pacific) Management Ltd


Focus On Modern Logistics Reinforces Position Of Strength

Geography, expertise and world-class infrastructure, including one of the world's busiest airports for cargo, place Hong Kong in a strong position for logistics services as the Chinese mainland enters the WTO.

THROUGHOUT Hong Kong's history, its geographic position as the finest natural harbour along much of Asia's coast underpinned its major economic activities: shipping and trade.

The simple era of seafaring clippers and coasters is now replaced by the more complex modern world of integrated logistics, with land, sea and air transport closely managed alongside sophisticated warehousing and cargo-handling facilities.

"The Chinese mainland's entry to the World Trade Organization (WTO) transforms how businesses regard their logistics strategy and operations, which generates new opportunities for Hong Kong," says consultancy Asia Logistics Ltd's managing director Bill Galvin.

"Three forces act together. First, foreign multinationals want to develop sales on the mainland and have more flexible choices in terms of import or production there. Secondly, domestic companies realize they must provide better services to compete with overseas businesses. Often this means offering quick delivery and all sorts of added value. Thirdly, WTO membership encourages heavyweight multinationals in the third-party logistics service sector (3PLs) to develop the mainland market."

"Things are not as straightforward as they seem," says Galvin, whose tasks include advising a state-owned enterprise on new logistics capabilities for the WTO era.

"Big international 3PLs are learning a bit too slowly that what works in Dallas doesn't work in Dalian. Cost parameters and supply-chain infrastructure are totally different. So 3PLs are sticking to core sectors like consumer products and express parcels where they feel less exposed. Indications are that these sectors will become saturated while niche markets are underdeveloped.

"Meanwhile, Western multinationals in niche markets like chemicals are uninterested in running their own logistics and wish to outsource. But to whom?"

According to Galvin, the answer comes from Hong Kong: companies from this pioneer city in facilitating export trade from the Chinese mainland move with more expertise than global 3PLs in developing domestic/import logistics services and have clear advantages in understanding the market. With low margins in 3PL work, this understanding counts for all.

Just-in-time manufacturing cycles and Internet-based fulfilment systems create increasing pressure on companies to do more than merely deliver good products at appropriate prices. The products must be delivered on time - as fast and cheaply as possible.

United Parcel Service's senior vice-president for the Chinese mainland Liu Kai Ming says: "It used to be that whoever had the best product, or perhaps the best marketing, always won. Now it takes much more than just having the product."

All parts of the supply chain need careful controls to ensure prospects for success, Liu adds.

For example, one Hong Kong-based company, e-commerce Logistics Ltd (ecL), offers "fully integrated solutions aimed at resolving back-end logistics problems for merchants who want to do business in the Asia-Pacific".

Large and efficient logistics centres appear as companies in Hong Kong and the southern Chinese mainland become adept at facilitating export trade.
"The biggest challenge we anticipate for the logistics industry due to the WTO accession of the Chinese mainland is the real-time online information flow, which includes online ordering, order status checking and inventory level checking all on a real-time basis," says ecL chief operating officer Edmon Fung.

Using services such as ecL's, Fung says, can offer substantial advantages. These include cost-savings, real-time data for better inventory control, operating in a truly e-commerce environment without much capital investment, speedier reactions to new market demand and a focus on core competencies.

"We offer merchants anywhere in the world complete end-to-end logistics solutions for immediate access to key markets. The ecL solutions eliminate substantial investments and time delay for merchants by providing a turn-key transaction-management infrastructure," says Fung.

Hong Kong remains the world's busiest container port and busiest air-cargo centre. Yet as KH Koo noted in his inaugural speech as chairman of the Hong Kong Shipowners' Assn: "We are paranoid about improving what we do to ensure we maintain our position."

A Digital Trade Transportation Network (DTTN) provides a foundation for the Hong Kong government's logistics programme. The network should tie together diverse existing systems and capitalize on opportunities emerging from the Internet.

Will this structure and Hong Kong's increasing pro-logistics outlook be enough to top competition from such rival centres as Shanghai, Shenzhen or even Taipei? For multinationals, Hong Kong remains "an integral part of supply-chain strategy", says Dow Corning Corp supply-chain manager Marc van der Veen.

For Dow Corning, Hong Kong fulfils two vital roles. The company "uses Hong Kong to manage Southern China ports and logistics activities and as a backup in handling other parts of the Chinese mainland in the next 3-5 years, especially to handle non-tariff barriers such as special quality checks imposed by the Chinese government", van der Veen says.

Hong Kong's role as a logistics hub is unlikely to diminish in the near-to-medium term because it remains the biggest and most efficient port in Greater China and a bridge to Southeast Asia, he adds.

Logistics Foundation Looks Firm

THE Hong Kong government is determined to provide a structural framework allowing Hong Kong to enhance its expanding role as a leading regional centre for trade logistics services.

Chief executive Tung Chee Hwa used his most recent policy address to cite a commitment to accelerate Hong Kong's development as "the preferred international and regional transport and logistics hub, as well as a base for coordinating and integrating service providers for the supply-and-demand chain".

To promote such development, two new organizations were created: a Steering Committee on Logistics (LOGSCOM) and a Hong Kong Logistics Development Council (LOGSCOUNCIL).

Headed by government financial secretary Anthony Leung, LOGSCOM will blend public and private-sector interests while providing policy to support the ongoing development of advanced logistics.

LOGSCOUNCIL will implement the resulting policies and has created five project groups for specific areas:

  • P-logistics, led by the chief executive's brother, CC Tung from Orient Overseas Container Line (OOCL), focusing on physical and regulatory infrastructure;
  • E-logistics, headed by John Hammond of Standard Chartered Bank, dealing with the cyber/IT infrastructure necessary to support the logistics industry;
  • H-logistics, under Willy Lin of the Hong Kong Shippers Council, reviewing human-resource issues;
  • M-logistics, led by Swire's James Hughes-Hallett, focusing on marketing and promotion; and
  • S-logistics, led by transport-industry legislator Miriam Lau, stressing SMEs.

Mainland Of Much Potential

WITH its exposure to global markets through the World Trade Organization, the Chinese mainland needs new logistics partners. Many of those partners will come via Hong Kong.

The mainland government's 10th five-year plan, 2001-05, identifies logistics as a priority for development. Some estimates peg logistics, in one form or another, as accounting for 20% of the mainland's GDP. In 2000, the country's logistics market reached US$200bn - or 20% of that in the US.

Hong Kong Logistics Assn vice-chairman Anthony Wong says modern logistics with state-of-the-art management skills and cutting-edge technology provide SMEs with comprehensive distribution services. These value-added services can trim operational costs and build competitiveness, all very useful as SMEs expand to new sectors on the Chinese mainland.

"Logistics have a very important role to enhance mainland competitiveness," Wong says.

To propel growth, the mainland government plans to strengthen logistics infrastructure, management skills and service levels to international standards. Such cities as Shanghai, Shenzhen, Qingdao and Tianjin set prime examples in developing modern logistics. Mainland enterprises, like Haier, Qingdao Beer, Dongfeng Truck, Baogang, Orient Int'l, Hangzhou Jinsong and Guangdong Robust, nurture in-house logistics teams and facilities.

Amid globalization, third-party logistics are an important growth area, ideal for Hong Kong logistics companies using their access to international freight forwarding networks and customers.

Hong Kong's world-class transport facilities and the Pearl River Delta's high productivity mean Hong Kong can become a logistics hub linking the mainland to the world.

Useful Contacts

Hong Kong Article Numbering Assn
Tel: (852) 2861-2819
Fax: (852) 2861-2423
E-mail: info@hkana.org
Web: www.hkana.org

Hongkong Assn of Freight Forwarding Agents Ltd
Tel: (852) 2796-3121
Fax: (852) 2796-3719
E-mail: enquiry@haffa.com.hk
Web: www.haffa.com.hk

Hong Kong CFS and Logistics Assn Ltd
Tel: (852) 2409-5271
Fax: (852) 2480-1041
E-mail: joansiu@sagawa-hk.com

Hong Kong Container Terminal Operators Assn Ltd
Tel: (852) 3126-9471
Fax: (852) 3126-9472
E-mail: enquiry@hkctoa.com
Web: www.hkctoa.com

Hong Kong Int'l Courier Assn
Tel: (852) 2400-3987
Fax: (852) 2361-0860
E-mail: bechan@hk.dhl.com

Hong Kong Logistics Assn
Tel: (852) 2777-9656
Fax: (852) 2900-6262
E-mail: secretary@hkla.org.hk
Web: www.hkla.org.hk

Hong Kong Sea Transport Assn Ltd
Tel: (852) 2544-9037
Fax: (852) 2544-6104
E-mail: info@hkseatransport.com
Web: www.hkseatransport.com

Hong Kong Shippers' Council
Tel: (852) 2834-0010
Fax: (852) 2891-9787
E-mail: shippers@hkshippers.org.hk
Web: www.hkshippers.org.hk


Warehousing Strategy Works Wonders

Efficient warehousing enhances product flow as packages move from city to city, reducing capital tie-up and enabling just-in-time delivery, all part of optimizing the supply chain.
UNTIL recently, business people on the Chinese mainland and in Hong Kong regarded warehousing management as a simple task. Executives focused on maximizing the amount of cargo given space constraints.

Considerations and circumstances do change, often very quickly. "Warehouse management has become an integral part of handling the supply chain. This is increasingly important on the Chinese mainland," says Hong Kong Productivity Council supply and logistics management consultant David WK Chan.

"Companies need 'intelligent' warehouses, not the traditional ones providing only storage functions. Intelligent management can ensure accurate balance in inventory levels with market demand, minimum error, guaranteed on-time delivery and enhanced customer satisfaction. Increased operating efficiency and responsiveness are vital to streamline the entire supply chain," Chan says.

In warehouse management, manufacturers and logistics operators always want to enhance materials flow, product accessibility and space utilization. This means placing maximum cargo in a given space, storing goods for efficient retrieval or identification, and discharging or loading cargoes as quickly as possible.

Many people stress the importance of warehouse management in a market as huge as the Chinese mainland, where products popular in one province may flop in another.

But ATL Logistics Centre Hong Kong Ltd managing director Peter Wong says, "The importance of warehousing is not a function of market size, but rather of how advanced a country is in its logistics infrastructure.

"Given that the Chinese mainland is at an early phase in developing logistics expertise and infrastructure and that it remains a developing country without some advanced road and rail infrastructure, especially inland, goods probably still linger in warehouses longer than ideal."

Warehouse management becomes all the more important because of potentially conflicting goals. "You try to minimize inventory, yet always ensure you have enough product to supply all customers in a land where the infrastructure is not so well developed," Wong says.

Another Hong Kong company, e-commerce Logistics Ltd, commands a total net storage area of more than 1.2 million cubic feet on the mainland, complete with automated storage and retrieval systems.

"Comprehensive warehouse management enables us to provide advanced storage capabilities, real-time inventory status, complete history of all stock items and timely, cost-effective product distribution and administration of returned goods," says the company's director and chief operating officer Edmon Fung.

In addition, e-commerce Logistics offers a range of value-added services, such as bar-coding, relabelling, repackaging, gift-wrapping, product engraving, quality control, assembly and kit-building.

Warehousing management is part of a digital revolution triggered by the rapid development of cyber-era logistics. Yet many companies active on the Chinese mainland remain conservative in equipping their warehouses with computerized systems.

Low inventory levels are needed to reduce capital tie-up and for just-in-time delivery. By integrating warehouse management with digital tools, effective and reliable management systems can monitor inventory and optimize the supply chain.

Hong Kong University of Science and Technology assistant professor of industrial engineering Jiyin Liu says warehousing on the mainland is becoming increasingly important and undergoing huge changes.

In the past, most warehouses were state-owned, offering only storage. Now companies want to chop costs and boost flexibility by shifting toward zero-inventory management. They are beginning to outsource their warehouse management and operations to flourishing third-party logistics providers (3PLs).

"Warehousing management is crucial to meeting market demand. Logistic centres provide purchasing- and supply-information services, inventory management and other value-added services like repackaging, simple assembling, reconfiguration and distribution," says Liu.

He mentions JOS Technological Group, which can act as a computer agent providing logistic-support services. To meet customer needs, JOS does PC reconfiguration as a value-added service in its warehouses.

Factory and warehouse work is converging. In the US, Federal Express uses logistics and warehouse facilities near its hub in Memphis to assemble PCs for Dell. Previously, Fedex shipped parts to Dell. PCs were assembled and returned to the Fedex hub for loading on other planes to the final destinations. The new arrangement opens huge opportunities for logistics providers, eliminates steps in the manufacturing process and makes both companies more competitive.

Wong says warehouses on the Chinese mainland and in Hong Kong will become places buzzing with value-added services like packaging, labelling and other tasks traditionally done at factories. As a result, IT systems must improve to strengthen communications all along the supply chain.



GPS Places Logistics In Pole Position

Global Positioning Systems can prove indispensable to ensure timely and secure delivery of valuable inventory, once it leaves the confines of a factory or warehouse.

USING a network of satellites to make small businesses more efficient sounds like a futuristic idea. Yet that is precisely what happens using the Global Positioning Systems (GPS) network.

Business benefits in applying GPS to logistics and fleet vehicle management can translate into significant gains for business-to-business and business-to-consumer purposes. GPS technology allows companies to track their vehicles at all times.

The benefits are simple, according to companies producing the technology. Knowing a vehicle's location can indicate if it is being used effectively.

GPS technology can also, through services available from various vendors, control numerous vehicle functions. It can remotely disable a vehicle in the event of theft or a delinquent customer and even help to manage fuel consumption.

A system developed by Accord Software and System Pvt Ltd, for instance, can use a mobile terminal installed in a vehicle to track its progress. The terminal, which can also connect to an onboard computer, transmits data to Accord's Fleet Management System (AFMS) software through a radio or GPS system. This is relayed to a central computer network and provides real-time data on the vehicle's position and other useful details.

There are also lower-cost alternatives. "Some customers require an off-line fleet tracking system. They want a low-cost solution allowing them to validate if drivers take vehicles on specified routes. These customers hire drivers on contract and pay them based on accumulated mileage. Often the drivers may accumulate miles without covering the intended route. Customers want a mechanism to prevent this and need something like data loggers," says Accord director Raghavan Devanathan.

Data loggers record vehicle position, velocity and time. When drivers return from trips, the customer downloads the data and plays it on a map against the "intended" routes. The customer does not pay for any route deviations.

"The advantage for customers is to avoid run-time expenses. This is a low-cost solution since the device has no radio communication equipment built in," says Devanathan.

GPS technology has many business applications and some major benefits in logistics. One benefit is lower operating costs. By linking the relevant data to a computer system, companies can work to lower costs through point-to-point delivery, better use of driver hours, maximized fuel consumption and reduced liability-insurance costs.

Another company operating a fleet management system based on wireless technology is Vetronix Corp. Senior vice-president Walter Ware told visitors to the Comdex 2001 trade fair in the US that "a Vetronix WirelessRoadTM telematics solution turns a vehicle into a fully interactive node (connection) on the Web" by linking vehicle systems to the Internet.

"Equipped in this way, we can achieve the truly intelligent vehicle that can self-diagnose and provide cost-cutting, preventive maintenance in conjunction with a designated service provider," Ware said.

Another GPS benefit is improved customer satisfaction when systems accurately estimate delivery times and track products along the logistical chain. To expedite a delivery, information can be relayed via a GPS transmitter to alert the delivery person of priority changes.

Yet another benefit lies in the reporting and analysis of services provided to enhance operating efficiency. Planning improves due to capturing and applying all the information gathered through GPS technology, providing estimates of future delivery times and compiling data for profit and loss reporting.

Some SMEs may consider GPS technology unnecessary or beyond reach. For those simply running trucks from southern Guangdong Province to container terminals in Yantian or Hong Kong, that may be true, but only temporarily.

The Chinese mainland's new status as a member of the World Trade Organization opens a wealth of transport opportunities. Consider a company wishing to deliver toys made in the southern mainland to department stores across the country. Ensuring that trucks take the quickest routes puts new products on the shelves more quickly.

Should a delivery truck break down or encounter bad weather, GPS technology can report the problems in real time to the manufacturer. Alternative arrangements are possible immediately, thereby improving customer satisfaction.

As the Chinese mainland's retail market becomes more competitive, such advantages are crucial.


E-Logistics Spur Economic Rise

AS businesses prepare for an international economic recovery later in 2002, the biggest winners will be companies driving the most cost from their supply chains. With up to 10% of product cost devoted to delivery, any increases in supply-chain efficiency achieved using new tools like e-logistics will prove critical in the global fight for market share.

Such was the message that e-business software-solutions provider SAP Hong Kong Co Ltd's managing director, Lee Boon Lee, delivered to executives recently during a site visit to a freight-forwarding logistics centre at the Hong Kong Int'l Airport.

The centre, owned and operated by E-Supply Chain Management Ltd, a subsidiary of Sun Hung Kai Properties Ltd, uses e-business solutions for the entire logistics process, including in-bound/out-bound activities, warehousing and inventory management, customer service and financial accounting.

"As the world emerges from its economic slump, businesses cannot afford complacency," Lee says.

"They must look for every possible advantage to avoid losing out against more nimble and technologically savvy rivals. E-logistics, focusing on Internet technologies to make supply chains easier to manage and businesses more competitive, will play a major role."

A large part of e-logistics concerns the supply chain, now in cyberspace just as in the physical world. Few supply chains are self-contained. Organizations must trade resources, creating networks of separate, electronically linked businesses.

Analysts predict that by 2012 the e-logistics business will reach annual values of US$920bn.

"Competition will be among supply chains as much as companies. In this environment, supply chains gain the attributes of an independent organization, forcing management to communicate across organizations, sharing goals, objectives and information," Lee says.

One highlight of the site visit was demonstration of a Warehouse Management System (WMS) that helps to define and administer complex warehouse structures. These can be divided into physical units like high-rack and block-storage areas. The system also uses defined strategies to manage stock and pinpoint where goods can be placed in storage, from where they are to be taken and where order-picking is needed.

With such state-of-the-art technologies as radio frequency devices, WMS allows the efficient flow of materials and helps suppliers to provide broad, comprehensive, yet integrated, services to solve logistics and supply-chain problems.

"We live in the now-generation, and customers expect greater speed in filling orders. They want what they want, and they want it now," says Lee.

"Companies cannot afford to lag in maximizing the efficiency of their supply chains and other components in the e-logistics matrix," he concludes.

Efficiencies For The World

Maersk Logistics Hong Kong Ltd

Winning recently in the 2001 Hong Kong Awards for Services - Export Marketing was Maersk Logistics Hong Kong Ltd. Here is a profile of this outstanding company.

Maersk Logistics Hong Kong Ltd has become an important logistics management provider handling substantial export volumes mainly to Europe and North America.

MAERSK Logistics Hong Kong Ltd, a subsidiary of the Danish conglomerate AP Moller Group, has established a strong presence in the Asia-Pacific region.

"Our most important service is global integrated logistics solutions," says managing director Tomas Bay, describing his company's one-stop service for clients. "We start when a purchase order is placed and take care of all the ensuing processes until the product is delivered to the store."

The company offers four core business units: supply chain management, international forwarding, air freight, and warehousing and distribution.

Much of Maersk Logistics' work involves handling exports. "In Asia, we are operationally focused and working closely with manufacturers on the Chinese mainland and in other countries. We work with small and medium-sized enterprises (SMEs) who supply merchandise for our clients overseas, and we make sure that whatever comes out of Asia is delivered smoothly. In Europe and the US, we are import focused," says Bay.

Active in Hong Kong since 1978, Maersk Logistics has experienced strong growth. Today, more than 500 of its 4,300 employees are based in this Asian hub. Its full operations cover more than 70 countries.

"Together, Hong Kong and the Chinese mainland have one of the world's most dynamic economies. A lot of buyers procure merchandise here," Bay says.

"Hong Kong and the Chinese mainland dominate the Asia Pacific, although we do have extensive coverage throughout the region enabling us to serve our clients with multi-country sourcing strategies."

Maersk Logistics strives to deliver certainty in the flow of merchandise and information. M*PowerTM, its proprietary logistics information management system, is a value-adding service, giving clients full supply chain visibility through advanced reporting capabilities, allowing informed decisions.

Bay believes Maersk Logistics offers several advantages. "Our people are skilled and dedicated. We have our own global network of offices. In addition, we have elaborate work processes and procedures to help us better understand our clients' requirements and workflow.

"Also important is our IT capability on which we focus to remain at the forefront of information management."

Maersk Logistics conducts systematic research to identify new opportunities and monitor market developments. "Global sourcing is increasingly popular as a way to access new opportunities and to strengthen any company's competitive edge. Today, it is very common to develop a product in the US, for example, to manufacture in the southern Chinese mainland and sell in Europe," Bay says.

"We have a clear vision of remaining a prominent global logistics provider and have set significant and aggressive growth targets."

Maersk Logistics Hong Kong Ltd

4-7/F, Sunning Plaza,
10 Hysan Ave,
Causeway Bay, Hong Kong
Tel: 852-2830-2999
Fax: 852-2237-4870
E-mail: hkglogmktgen@maersk-logistics.com


Logistics Solutions Provided On Regional And Global Terms

Kuehne & Nagel (Asia Pacific) Management Ltd

Among the recent winners of 2001 Hong Kong Trade Development Council Services Awards for Export Marketing was Kuehne & Nagel (Asia Pacific) Management Ltd. Here is a profile of this outstanding company.

Reliable logistics solutions from Kuehne & Nagel (Asia Pacific) Management Ltd roll efficiently through the streets of Asia.

THE strong market position enjoyed by Kuehne & Nagel (Asia Pacific) Management Ltd arises from integrated freight-forwarding and IT-based logistics and supply-chain management solutions.

Founded in 1890 in Bremen, Germany, Kuehne & Nagel has its global headquarters in Switzerland. Its Hong Kong operations began in 1965 and focused on freight forwarding. The company now employs 400 people at three offices in Hong Kong.

Globally, Kuehne & Nagel has more than 17,000 people at 600 locations in 90 countries. Using a Global Logistics Network, it serves customers in the Asia-Pacific region, Europe, the US, Canada, Africa and the Middle East. This ISO-certified enterprise has access to nearly four million square metres of warehouse and distribution capacity around the world.

The company's Asia-Pacific services concentrate in such core industries as IT, electronics, electrical appliances, communications, medical care, aerospace, automotive products, chemicals, food and apparel.

"Within our region, some markets have room for good development while others are restricted to a certain extent," says regional sales and marketing director Franz Hasenohrl.

The company's best business prospects are not only on the Chinese mainland, but also in South Asia, Vietnam and Myanmar.

Kuehne & Nagel uses proactive, customer-focused marketing strategies combined with integrated value-added services, staff training and advanced technology to produce high standards of service.

"We are unique, with IT systems, for instance, not found elsewhere," Hasenohrl says.

The company also offers specialized services in hotel, airport and defence logistics while engaged in such niche sectors as the transport of forestry products or perishables, customs clearance, exhibitions logistics and oil or energy projects.

Kuehne & Nagel constantly expands its portfolio of value-added services, even supplying spare parts to airlines.

Its history in Hong Kong features steady advancement spurred by burgeoning economic activity on the Chinese mainland. "Because of economic strength on the southern mainland, we believe Hong Kong will remain a powerhouse for us this year," Hasenohrl predicts.

Mainland exports through Hong Kong are a major source of business. SME customers are essential, providing 70% of Kuehne & Nagel's Hong Kong sales.

The company has 14 offices on the Chinese mainland and vows to open more.

A surge of business in January provided a good omen for 2002. "In terms of new business, we are very optimistic," Hasenohrl says.

Kuehne & Nagel (Asia Pacific) Management Ltd

25/F, Mass Mutual Tower,
38 Gloucester Road,
Wanchai, Hong Kong
Tel: 852-2823-7688
Fax: 852-2527-8396
E-mail: elisa.chan@kuehne-nagel.com

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