From new markets to new technology the territory’s logistics sector has a number of reasons to be cheerful, writes Keith Wallis
Hong Kong’s logistics industry, long considered one of the territory’s four economic pillars, faces significant changes and opportunities in the years ahead amid closer integration of Hong Kong and the Pearl River delta and the growing digitisation of trade.
One of the key drivers of change is the creation of the Greater Bay Area, a megalopolis centred on nine cities plus Hong Kong and Macau in the Pearl River delta, which aims to create an economic powerhouse by integrating cities in the delta. The nine cities include Shenzhen, Guangzhou, Foshan, Dongguan, Zhuhai, Zhongshan and Jiangmen.
The move will facilitate industrial and economic development while reducing bureaucratic barriers and creating work and study opportunities for people in the region which in 2017 had a total population of 69.6m and GDP of US$1.6trn.
Tom Gaffney, regional managing director of CBRE Greater Bay Area & Hong Kong, says:
“The Greater Bay Area takes up only 0.6% of China’s land area and makes up 5% of the total population, but accounts for 12% of China’s GDP, surpassing the economic efficiency of the two other major city clusters in China including the Yangtze River Delta.
“As the 11 cities further integrate, the Greater Bay Area will put itself in the same league as the three largest bay areas in the world—Tokyo, New York and San Francisco.”
Capitalizing on the GBA
Commenting on the impact of the area on Hong Kong’s logistics sector, Willy Lin Sun-mo, chairman of the Hong Kong Shippers’ Council, says: “I can see an ample number of opportunities for the industry to seize.
“This is to be achieved through expansion and integration of operations and markets; the establishment and adoption of common standards, technologies, and platforms; realisation of big data analytics and its full potential; and the development of more overseas businesses,” he says in a commentary.
He thought Hong Kong logistics companies needed to expand to enhance their competitiveness in China’s domestic market, which firms had largely side-lined, as trade wars and protectionism took their toll on international trade.
“The Greater Bay Area will foster market liberalization and create opportunities for Hong Kong logistics business to tap into the rapidly growing domestics market, as well as new businesses that come from a much bigger integrated market,” Mr Lin adds.
Mr Gaffney adds: “The Greater Bay Area represents the growth of a connected economic powerhouse and offers vast business opportunities. The launch of new infrastructure will energise the logistics sector, triggering stronger demand for warehouses, while the Greater Bay Area serves as an important logistics hub for e-commerce.”
These developments come amid a lacklustre performance by Hong Kong’s logistics industry, burdened by high land and labour costs and a shortage of facilities, which grew by an average of 0.6% a year between 2006-2016, according to a research paper.
The report, by the Legislative Council, the territory’s de facto parliament, said logistics and trading still made up 21.7% of Hong Kong’s GDP in 2016, the highest of the four pillars. Logistics contributed 3.2% to Hong Kong’s total GDP of US$341.4m in 2017, transport services made up 29.2% of its service exports in 2017, according to Hong Kong Government figures.
New initiatives for logistics
While it is recognized the logistics industry has been in the doldrums, a raft of initiatives are underway or proposed to boost the sector in Hong Kong.
An extensive warehouse building programme is taking place on the site of former open-air container storage areas in the north-west New Territories close to the Shenzhen Bay bridge link to western Shenzhen. The opening of the Hong Kong-Zhuhai-Macau bridge also offers quicker road access to cheaper land for the development of warehousing and storage facilities for Hong Kong freight forwarders and distributors.
Lawmaker, Frankie Yick Chi-ming, who represents the transport industry in the Legislative Council, put forward five recommendations to China’s top advisory body, the Chinese People’s Political Consultative Conference, earlier this year.
These include rationalization of the Pearl River ports cluster with Hong Kong focused on transhipment cargo as a way of cutting unnecessary competition and improving overall port efficiency.
“In so doing we’ll create a level playing field with the hope of building a bigger pie to benefit all. We have to have a clear demarcation between the ports which plays to each of their strengths,” Mr Yick said.
Hong Kong Seaport Alliance
That came as four of Hong Kong’s five terminal operators, including Modern Terminals and Cosco-HIT, launched the Hong Kong Seaport Alliance in April to collaborate on port operations at Kwai Chung container terminal.
Peter Levesque, Modern Terminals chief executive and group managing director, thought the alliance could recover 2m teu Hong Kong has lost to other ports by combining to improve operational and cost efficiencies.
Mr Yick’s suggestion mirrors the integration of ports taking place elsewhere in China including the provinces of Zhejiang and Jiangsu. China Merchants Group, parent of the Hong Kong-listed ports company, has a 49.9% stake in Liaoning Port Group formed in 2017 to integrate the ports in Dalian, Yingkou and Jinzhou in Liaoning province.
The Shandong Port Group was similarly created in August to integrate seven ports including Qingdao, Rizhao, Yantai and Weihai in the province.
Mr Yick has proposed creating logistics and transport related internships at Chinese companies in the Greater Bay Area to bolster employment opportunities for graduates.
“We’re asking for enterprises to come up with intern opportunities for Hong Kong graduates who would be immersed for one or two years,” he says.
Mr Yick has also targeted Hong Kong International Airport as the logistics industry faces the challenge of the 100% scanning of air cargo in 2021 to comply with international conventions. While there were doubts on whether Hong Kong possessed sufficient scanning capacity, Yick says he is confident the deadline will be met.
That comes as the Airport Authority is expanding its logistics facilities following an agreement with a joint venture led by Cainiao Network, the logistics arm of Alibaba Group, to create a smart logistics hub to foster more inclusive trade.
The 380,000 sq m automated complex, due to start operating in 2023, will feature large-scale robotics to facilitate shipments.
While the global focus by ocean and airfreight operators has been on Blockchain, digitization and automation are creating their own opportunities for Hong Kong’s freight forwarders.
The Hong Kong Monetary Authority launched eTradeConnect, a blockchain-based trade finance platform developed by 12 Hong Kong banks, in October that will digitize and accelerate the sharing of trade documents between buyers, sellers, banks, and logistics companies.
The platform’s primary objective is to digitize the exchange and use of fundamental trade documents such as purchase orders, letters of credit, invoices and shipment tracking data, KPMG said in a note.
“Logistics companies will become the central source of information pertaining to delivery confirmation, actual shipment conditions, or regulatory implications, including sanctioned countries for all associated trading parties. With a distributed ledger, this information is recorded and creates an immutable audit trail allowing participants of a transaction to access and validate information, recent changes, and agreements,” the accountancy firm added.
Pointing to the importance of digitization to the logistics industry, the Shippers’ Council Lin says: “It is not an exaggeration to say that digitalization of trade is the future.”
This article was first published in the Port of Hong Kong Handbook & Directory 2019. The full volume is now available on the homepage.
The opinions expressed herein are the author's and not necessarily those of The Xinde Marine News.
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