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Mainland Airfreight Soars(HKTDC Hong Kong Trade Services, Vol 01,2003)

Vol 1, 2003

Transport, Courier & Logistics

Mainland Airfreight Soars

Mainland Airfreight Soars

The first choice: Hong Kong's strong infrastructure and flight frequencies will ensure it remains the main airport hub for the southern mainland region

The rapid growth of airfreight services as the Chinese mainland economy expands offers new opportunities for SMEs with mainland operations to send their goods by air, both domestically within the country and to the outside world.

These services are complementing those provided by Hong Kong International Airport at Chek Lap Kok, which will continue to play a dominant role as the gateway for air cargo entering and leaving the booming Pearl River Delta (PRD), the mainland's largest manufacturing and trading base known as "the factory of the world".

The China Aviation Industry Corp I (AVIC I), one of the mainland's two aerospace equipment makers, forecast in a report last October that air cargo traffic would increase at an average of 11.8% annually until 2021, outpacing the 8.2% growth for passenger traffic.

Seeing the opportunities, foreign carriers are pushing hard to expand their mainland freight services. US express cargo airlines such as FedEx Express and UPS are rapidly growing their mainland networks.

A key regional carrier, Singapore Airlines Cargo, said in late January it was planning direct services between the mainland and the US from April this year. Singapore Airlines already operates four weekly freighter services between Shanghai and Singapore and bellyhold capacity on 42 weekly flights to Beijing, Shanghai and Guangzhou.

Not to be left in the slipstream, mainland carriers have made clear their intention to compete in the global cargo marketplace. For example Guangzhou-based China Southern Airlines, the mainland's largest carrier, has offered three dedicated cargo flights per week between Shenzhen and Chicago since 2000.

China Southern also operates a cargo service between Los Angeles, Shanghai and Shenzhen, launched a new cargo route to Belgium last October and is eyeing a freight service to Australia.

"China Southern Airlines is seizing the new business opportunities brought about by China's entry into the WTO and is implementing an all-new strategy to expand its cargo business," said Li Kun, vice president of China Southern, at the announcement of the Belgium service.

"We've created an all-new Cargo Department to specialise in cargo business management and large cargo bases have been set up in Guangzhou and Shenzhen."

Shenzhen airport now ranks fourth in total throughput of cargo, mail and luggage among all mainland airports. Beijing and Shanghai have recently opened new airport facilities that remove constraints on their ability to handle growth in cargo demand, and Guangzhou's new Baiyun airport is due to open in October this year.

Everyone, including SMEs with operations on the mainland, will benefit from the improved overall infrastructure in the whole of the Chinese mainland, says Victor Mok, managing director for Hong Kong, South China and the Philippines for Exel Hong Kong Ltd, the Hong Kong arm of the UK-listed supply chain management company.

"I think SMEs in particular will also have a window of opportunity," he adds. "When the speed and flexibility that airfreight offers is taken into account, I think they definitely have a niche in the growing airfreight market."

Mok says that while the production base and infrastructure in the southern part of the mainland will continue to grow strongly, this will not be at the expense of traffic passing through Hong Kong. "Hong Kong is and will continue to be the main airport hub for southern China."

He sees the hubs at Hong Kong, Shenzhen and Guangzhou as playing slightly different roles, with the mainland bases of Shenzhen and Guangzhou gathering importance not just as centres for international traffic, but for moving cargo within the mainland itself.

This is to the benefit of Hong Kong, which can focus on long-haul cargo movements. "Hong Kong has a very strong network and flight frequencies, which is something we have built up over all these years and it is not easy to replicate."

Adding a note of caution, Mok says Hong Kong must take care to remain cost-effective in all aspects of business - a view echoed by Eligio Oggionni, vice chairman of the Hong Kong Association of Freight Forwarding and Logistics Ltd.

Oggionni, who is also managing director of medium-sized freight forwarder Asia Pacific Cargo (HK) Ltd, says the efficiencies offered by Hong Kong as a transport hub remain second to none.

However for manufacturing companies in the southern mainland, airport and seaport fees are lower on the mainland, and it is cheaper to truck goods within the mainland than to send them to Hong Kong. "We should make Hong Kong more competitive in order to keep its status as a regional hub," he believes.

Hong Kong Air Cargo Terminals Ltd (HACTL), which handles 80% of the airfreight passing through Hong Kong, is also sensitive to the competitive challenges; despite having chalked up its highest annual tonnage throughput in 2002 - a total of 1,903,507 tonnes, up 19.6% year-on-year. Summit Chan, HACTL's director - marketing and customer service, says that 70% of the air cargo handled by the company originates from or is destined for the mainland.

"While it is true that more and more goods are flown directly in and out of the mainland, Hong Kong, having efficient cargo handling facilities, a massive and dynamic freight forwarding and support services community, also grows together with the Chinese mainland in a much bigger pie."

Hong Kong has the advantages of being in the heart of Asia with a comprehensive air route network, linking the mainland with the rest of the world, Chan notes.

"It is vital that Hong Kong maintains its competitive edge in the provision of intermodal services that would enhance the relative ease of goods moving across the border, thereby enhancing the connectivity between Hong Kong International Airport and the catchment areas in the PRD," Chan adds.

As part of measures to streamline the traditional supply chain, HACTL introduced in August 2000 its SuperLink China Direct service, an air-road connection for goods moving between Hong Kong and the PRD that cuts out the need to pass through multiple customs checkpoints and drastically reduces the transit times for cargoes to and from the mainland.

SuperLink started with a scheduled trucking service from Chek Lap Kok to Guangzhou airport and has now extended to Shenzhen airport, Huangpu Free Trade Zone and 14 other destinations in the PRD.

Chan adds: "The notion of just-in-time in supply chain management is becoming an even more predominant industry concept, contributing to the use of airfreight to transport goods which are getting more and more time critical."

Hong Kong's leading airline Cathay Pacific Airways, which also recorded stellar growth in air cargo traffic growth in 2002, agrees that while more airfreight is being sent direct from the mainland, there is more than enough business for operators in both Hong Kong and the mainland.

"The point to note here is that though the slice is increasing, the size of the pie is growing even faster," says Patrick Garrett, Cathay's corporate communications manager, product.

"The volume of hi-tech goods continues to grow as more international manufacturers move their operations to the mainland. One interesting trend has been the transport of fashion goods by air - because their already short shelf life can be extended by fast delivery, which despite the extra costs of airfreight is an economic choice."


There's no business like shoe business

Martin Merz's trading company is at the smaller end of the SME spectrum - it employs just four people in Hong Kong and four in Guangzhou, the bustling capital of Guangdong Province.

But the modest staff numbers belie the scale of his business, which is to source footwear, mainly for the North American market. Merz's company, NJB Merz Ltd, of which he is co-partner, has regular dealings with roughly 30 factories up and down the mainland coast, and ships a lot of shoes - about a couple of million pairs each year.

"It's not a big operation, but we are terribly efficient," says Merz, an Australian who came to Hong Kong in 1986 "on a lark". Big it may not be, but the business requires Merz, a fluent Chinese speaker, to travel to the mainland at least once a week to liaise with factories, pick up samples, push manufacturers to meet production deadlines or sometimes, as he says, "get down on my knees and beg for help".

Ordinarily Merz's customers prefer their products to move by sea, which is obviously cheaper than airfreight: sending shoes by sea to North American costs about US$0.50 a pair, while airfreighting means between US$2-5 a pair.

But a significant volume moves by air, either for the wrong reasons - because a shipment is late and has to be sent quickly - or for the better reason that the orders are selling so well that the overseas customers are desperate to get more product.

There is no question that use of airfreight out of the mainland will expand, says Merz. "The rates will come down, the volumes will go up and it will become quite natural to airfreight more goods. There's less paperwork involved, less bureaucracy and it's easier to make a freight booking. It's fast and simple."

One key aspect of doing business on the mainland - communications - has improved dramatically. "Fifteen years ago when we started it was faster to go to a factory in mainland China than to try to make a telephone call. Now everyone has got a mobile phone so there is almost instant communication. Even very primitive factories in remote areas have broadband connections, so they can send pictures of their product back and forth."

The mainland, with its cheap land and labour, has largely taken over the business of making shoes from Taiwan, but the Taiwanese still have a role in the industry, with marketing and technical expertise. Says Merz: "It makes a wonderful marriage."

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