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Showing the way(HKTDC Enterprise, Vol 05,2007)

Logistics

 

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Hong Kong has a well-earned reputation as one of the world's foremost logistics hubs, rightly famous for its efficiency and user-friendliness, superb strategic location and advanced infrastructure.

For example, Hong Kong International Airport has ranked as the world's busiest for air cargo since 1996 and in 2005 handled 3.4 million tonnes, up 9.9% from 2004.

Throughput is expected to grow by 6% per year until 2010 and maximum capacity will be reached at 9 million tonnes, straining even the 274,000-square-metre SuperTerminal 1 that is presently the world's largest stand-alone air cargo handling facility.

The city is equally adept at shipping sea cargo, handling throughput of 230 million tonnes or 22.6 million TEUs in 2005, up 2.8% from 2004.

The Hong Kong Port Master Plan released in 2004 expects total container throughput to reach 27.9 million TEUs by 2010 and 40.2 million TEUs by 2020.

However, despite these achievements, the rapid economic and infrastructural development of the Pearl River Delta region means Hong Kong has strong competition on its doorstep.

As a result, its logistics providers are clearly going to have to run harder to maintain their lead in the race, as well as continuing to offer the best services in the region.

Exactly how that lead is to be maintained was one of the topics addressed at a recent Hong Kong Logistics Technology Management forum organised by the Hong Kong Productivity Council (HKPC).

The "Enhancing the Logistics Industry's Competitiveness through Integration of Technology into Supply Chain Management" theme offered local logistics companies the opportunity to bring themselves up to date on global trends and review potentially beneficial new technology.

More than 400 logistics practitioners attended the March 2007 forum, which brought the most pressing issues facing the industry sharply into focus, according to Dr Lawrence Cheung, the HKPC's principal consultant on IT industry development.

"We had speakers from different areas of IT and technology," states Cheung. "We also had logistics users, who gave us an account of using IT in their own operations and how they see IT and technology helping them."

Cheung believes that the adoption of new technology needs to be implemented strategically by logistics providers if shippers are to realise the full benefits, and sees a need for independent consultancy services to evaluate the requirements of individual operations and recommend appropriate solutions.

"The logistics industry seems to have difficulty in picking the right tools and systems," he maintains. "They are not unwilling to invest, they just don't know which system is the right one for them."

Cheung believes government funding should be allocated to offer independent consultancy services to logistics suppliers, in the interests of sharpening Hong Kong's competitive edge.

"The companies are willing to pay for the IT systems, but sometimes they just need that catalyst," he says. "Agencies like the HKPC or the universities could help them if there were some kind of funding or seed money to help them get services from these agencies."

Historically, he notes, Hong Kong's logistics services have been founded on an aggressive policy of infrastructural development, primarily its airport and nine container terminals.

However, Cheung believes that the emphasis must now switch from infrastructure to technology and the enhancement of services. "Hong Kong has been focusing very strongly on infrastructural development, but there is no capacity problem – there is a cost problem," he avers.

It probably costs US$250-300 more to ship one container to the US or Europe from Hong Kong compared with Yantian, Cheung says, which is why Yantian throughput is growing by 30%-40% per year.

"Yantian is one of the major container ports in the Pearl River Delta and the major competitor to Hong Kong," he advises. "In two or three years‘ time Yantian will be the busiest container port in the world."

He doubts that Hong Kong can compete with Yantian on costs, because of the high prices that must be paid for land and labour, but points out that the Chinese mainland ports have a considerable distance to go before they will be able to seriously compete with Hong Kong in terms of services.

"Hong Kong's advantages are our very strong banking centre and financial services, very good management systems and very clean and simple customs procedures," Cheung maintains.

"They will continue to be advantages for the next few years, and I think we should make the most of what we have rather than compete at a disadvantage in terms of cost."

Cheung believes companies want to ship through Hong Kong because of the city's proven financial services and service levels at its ports. "We should look into strengthening that rather than cutting costs, and we should be looking at how technology can help us do that in terms of our accuracy and in terms of delivery and customer services," he states.

He believes that Hong Kong can develop further as a distribution centre for high-value goods and components. "Hong Kong has been the regional distribution centre for precious goods such as high-value watches for many years," Cheung notes, adding that tax, labour and security issues preclude this trade shifting to China.

He suggests that Hong Kong should become the distribution point for components for electronic goods or other higher-value products. "Whole shipments could come to Hong Kong and be distributed to the Pearl River Delta and other parts of China," Cheung explains.

Quality of service also distinguishes Hong Kong's trucking operations from those of the mainland, he points out, and the conference discussed the ways in which value is added to services locally.

"There are now a lot of higher-value services provided to customers, such as Global Positioning Systems (GPS) and other technology to help ensure timely deliveries," Cheung remarks.

In addition, Hong Kong drivers are uniformed, have health checks and good driving records, which is very reassuring to customers who don't receive this standard of service on the mainland.

"However, price is still a sensitive issue so local logistics providers are still looking to keep a cap on their costs."

Many Hong Kong-based trucking companies are cutting costs by shifting some of their operations north of the border, just as manufacturers have done in recent years.

Cheung believes that customs procedures need urgent improvement as the lengthy delays that trucks currently experience cost money. "The boundary between the mainland and Hong Kong is definitely detrimental to logistics operations in Hong Kong," he insists.

He says the Hong Kong government is actively looking into ways to smooth the customs procedures, but there are still some problems that need to be solved.

"The government now is pushing for a unified customs regime within the Pearl River Delta – which would be a good way forward," Cheung says. "If waiting times can be cut, even by 10% or 20%, costs can probably be cut by about the same amount."

Here, too, technology could provide a way forward with improved surveillance of cargo in transit reducing the need for procedures at the border.

"The mainland is already using GPS, electronic seals, optical character recognition for number-plate recognition and driver fingerprint checks for customs procedures," he reveals.

However, Cheung says Hong Kong is slow in adopting this kind of technology. "We need to work together with the customs on the mainland to have a smoother faster customs checking procedure, which I think will eventually happen," he remarks.

Similarly, although Hong Kong leads the world in airfreight, he believes that the city could and should be doing even more business in this area.

It is an interesting anomaly that while international air cargo accounts for around 30% of the value of Hong Kong's trade, it takes up only 1% of its total volume.

"We are number one in the world in terms of airfreight by a long way and I think we still have a few years to go before being caught by our mainland counterparts, but we still have room to expand and I think we should look at how we can expand further," Cheung advises.

"We should be looking at alliances with our regional airports to see how we can work together, and in fact we have some advantages because of our air service agreements."

Hong Kong reached a new aviation agreement with the Chinese mainland in July 2006, adding 11 new routes, with each side able to designate three airlines to operate passenger and cargo services and one airline to carry cargo exclusively.

The city now has direct flights to 56 mainland cities and the new agreement could see flights per week expand from 1,200 to as many as 2,000.

Forward-thinking developments and agreements such as these reassured Cheung that the Hong Kong logistics industry has a bright future.

Conference attendees also felt that while Hong Kong logistics providers may be more expensive than those on the mainland, the right strategic investment in new technology will allow them to continue to offer shippers real value for money.

"Processing time in terms of airfreight and sea freight is much better in Hong Kong," Cheung concludes. "We must look into what to develop and develop in a more focused way and should be looking at value-added services if we wish to maintain our current leadership position in the regional logistics industry."

 

Fast Facts

  • Hong Kong is a leading international logistics hub with highly developed infrastructure
  • The Hong Kong logistics industry needs to strategically upgrade its technology to add value to its services
  • Government funding is needed to finance independent consultancy services to help businesses adopt the most suitable IT solutions
  • Hong Kong's status as a financial and banking centre and its straightforward customs procedures give its logistics businesses a competitive edge
  • Hong Kong has the potential to increase the value and capacity of its world-leading air cargo businesses
  • Hong Kong can be developed as a distribution centre for China of high value goods and components
  • Processing time for container trucks at the border between Hong Kong and the Chinese mainland needs to be reduced drastically.