Propelling Growth Momentum in Hong Kong’s Logistics Sector
Interview with Ir. Yuen May Yee, Elsa, President, Hong Kong Logistics Association
30 August 2021
C H Poon
Trade and logistics are two of Hong Kong’s economic pillars. In 2019, they accounted for 19.8% of the city’s GDP, providing jobs for a total of 673,700 people (176,200 of them in the logistics sector)1. Between 2012 and 2019, the value-added of the local logistics industry grew steadily at an average annual rate of 2.7%2. However, with the logistics industry in mainland China developing in leaps and bounds and the global supply chain having undergone rapid changes in recent years, there are opinions from the society saying that Hong Kong’s position as an international logistics hub is facing challenges. Despite the various difficulties it faces, the Hong Kong logistics sector has devoted a great deal of effort in recent years to creating new forces which can drive the growth of the industry and give play to its unique advantages in the regional and global arenas.
In order to get a better understanding of the latest developments in the logistics industry, HKTDC Research recently interviewed Ir. Elsa Yuen, President of Hong Kong Logistics Association (HKLA). Established in 1996, HKLA is tasked with promoting the development of the logistics industry and enhancing its competitiveness. HKLA has formed strategic alliances with the China Federation of Logistics & Purchasing (CFLP) in administering certification examinations in Hong Kong. HKLA is the only authorised centre in Hong Kong for the examination which follows the national occupational standards of logistics professionals. The arrangement provides a pathway for Hong Kong logistics practitioners looking to obtain mainland logistics personnel qualifications. President Yuen outlined the functions and changing roles of Hong Kong’s logistics sector and the actions taken by industry players adapting to the new environment. She also highlighted how the guidebook (in Chinese only) recently published by HKLA on cold chain logistics management systems can help enhance the competitive edge of Hong Kong logistics practitioners.
Supply chain restructuring
Pointing out that the global supply chain has undergone great changes in recent years, President Yuen said: “As production costs go up in mainland China and the US-China trade war escalates, some enterprises are relocating their production bases from mainland China to Southeast Asian countries. This move has extended the ‘world factory’ concept from a single country to a region. In the current pandemic, the demand from the world market for products made in Asia has surged, consolidating the changes made to the global supply chain.
“Meanwhile, among electronic products, which account for the lion’s share of Hong Kong’s total trade in goods, those with a charging function have gradually become mainstream products on the global scene. Most of them use lithium batteries. As safety in transporting these products is a major concern, manufacturers and distributors have opted to use faster and safer ways (such as air transport) to deliver them.”
President Yuen explained that Hong Kong’s system and policies have helped the logistics industry adapt quickly to changes in global supply chains, saying: “Hong Kong’s position as a free port under ‘one country, two systems’ has offered great flexibility to the local logistics sector. In Hong Kong, customs declarations can be made within 14 days after goods are imported or exported. This gives businesses a lot of flexibility when using Hong Kong as a cargo transit point to ship cargoes through the territory to the mainland and other places such as Southeast Asian countries. At the same time, Hong Kong’s successful launch in July this year of 100% security screening for export air cargoes has also boosted clients’ confidence3.
“For the same reason, Hong Kong’s air and sea logistics enterprises have in recent years been actively adjusting their routes to focus more on Southeast Asia and other countries in Asia. As Hong Kong has forged closer economic and trade ties with the mainland and countries and regions in Asia led by ASEAN4, the volumes of raw materials and semi-manufactures imported and exported via Hong Kong have also been rising. The ‘one country, two systems’ framework in Hong Kong serves the logistics players well in adapting to the restructuring of global supply chains.”
According to Census and Statistics Department figures, during the period 2012-2020, total trade between Hong Kong and mainland China and ASEAN countries registered average annual growth rates of 1.7% and 4.4% respectively - rates higher than the 1.4% annual growth rate in Hong Kong’s global trade. The share of raw materials and semi-manufactures in Hong Kong’s total trade also rose, from 32.9% in 2012 to 43.9% in 2020. In the same period, Hong Kong’s total trade amount of lithium batteries (HS Code 850760) rose by an annual average of 13.5%5. Thanks to its institutional and geographical advantages, Hong Kong is developing into a regional logistics centre connecting production bases in mainland China and ASEAN.
Technology applications and developing new business models
As well as changes in the supply chain structure, logistics players also have to face changes brought about by advances in technology. Explaining how these advances have affected the logistics sector, President Yuen said: “Currently, the logistics industry is undergoing a phase of technology transformation, as 5G, artificial intelligence, big data, automated equipment and the like are already being widely used in different segments of global supply chains. This change has bred a number of new industry formats, greatly altering the ecology of the industry. These technologies help logistics players raise levels of efficiency and accuracy in cargo tracking, shipping space allocation and inventory management, and at the same time they bolster the development of e-commerce. Nowadays, consumers can just use their mobile phones to order daily necessities, including fresh food, and while they are waiting for goods delivery they can track the location of the deliverer in real time on their mobile phones. This is the convenience offered by technology.
“The rapid advance in technology, coupled with the changes in global supply chains, has prompted many logistics companies to adjust their business models. As well as actively investing in new systems and equipment, larger-scale logistics companies are branching out to B2C businesses on the basis of B2B. In the past, logistics companies in general only played a secondary role, helping all types of enterprises meet the demand for cargo flow – for example, delivering goods from the place of production to the shop for consumers to buy. Today, however, we have noticed that many larger-scale logistics companies offer a ‘last mile’ logistics service - i.e. delivering e-commerce goods directly to the consumer.
“As far as small and medium-sized logistics enterprises are concerned, it is more difficult for them to follow in the footsteps of their larger peers by jumping onto the B2C business model. After all, logistics is an industry that requires considerable investment in areas such as purchasing automated equipment and upgrading transport fleets, which cost hundreds of thousands of Hong Kong dollars. Even in the freight forwarding industry, upgrading logistics software is expensive. With the volume of global trade volume dropping6 amid the US-China trade war and the Covid-19 pandemic, the financial position of small and medium-sized logistics enterprises is already tight, so it is difficult for them to make further investments. In light of this, HKLA has been encouraging small and medium-sized industry players to implement technology upgrades progressively on the one hand, while raising efficiency and staff quality by reviewing operating processes and attending training on the other.
“Fortunately, many SMEs in the industry have responded to the current situation flexibly by launching various bespoke services and leveraging their staff’s expertise to tap niche markets, such as delivering goods like precision electronic products, imported foods and fashion. All the clients need to do is to provide the necessary information to the logistics company, such as the type of goods for delivery, time of arrival at destination, chosen means of transportation, and the processing required in Hong Kong. Most of the small and medium-sized logistics companies will then meet these demands the best they can. Flexibility and the ‘customer first’ attitude are qualities that have helped many small and medium-sized industry players maintain their competitiveness in the market at this critical moment of industrial transformation.”
Supporting the development of cold chain
In order to adapt to changes in global supply chains, it is not sufficient to rely on the efforts made by individual enterprises. A joint effort from the whole industry is needed. Cold chain logistics management is one of the areas actively promoted by HKLA. Describing how her organisation has gone about this task, President Yuen said: “With the industrial sector and consumer market in the Greater Bay Area (GBA) growing rapidly, the demand for various kinds of precision electronic goods, pharmaceutical products and quality foods has continued to surge. Many of these products require temperature-controlled handling.
“In order to help Hong Kong’s cold chain logistics management system effectively align with the latest developments in the international and mainland markets, and so raise the local management level, HKLA launched a guidebook on cold chain logistics management systems in March 2021. It was launched with funding from the Trade and Industrial Organisation Support Fund (TSF) granted by the Hong Kong Trade and Industry Department. The Hong Kong Quality Assurance Agency (HKQAA) was commissioned to compile a code of practice for cold chain logistics management systems for the guidebook. The code of practice is divided into seven sections, covering the duties and responsibilities of top-level management, cold storage management, and process management and so on, setting out in detail the practices recommended for Hong Kong’s cold chain logistics players.
“It is worth pointing out that the objective of HKLA in establishing the cold chain logistics management system is to provide the industry with operating guidelines that are effective and applicable, and practices that meet Hong Kong’s actual business environment and international standards. The system is not meant to replace the existing management system in use globally. In fact, in the course of formulating the Code of Practice for Cold Chain Logistics Management System, the HKQAA has referred to key standards and policy papers such as ISO 28000 Supply Chain Security Management Systems, Hazard Analysis and Critical Control Point System (HACCP) , and Chinese Government’s Opinions of the General Office of the State Council on Accelerating the Development of Cold Chain Logistics to Ensure Food Safety and Promote Consumption Upgrading. The code of practice has been well received by local logistics players, who reckon that it can help make cold chain logistics management and operation run more smoothly. The positive response from the trade has greatly encouraged us.”
Looking to the future, President Yuen outlined her hopes that Hong Kong can develop an edge in the GBA in cold chain logistics management, saying: “Hong Kong’s cold chain logistics sector started earlier than other GBA cities and has accumulated a rich amount of experience. Many of the cold storages in Hong Kong are located in multi-storey industrial buildings - unlike other places in the world, where single-storey large cold chain logistics centres are the norm. However, the temperature control measures taken by Hong Kong when moving goods from the loading and unloading area on the ground floor to the cold storage on high floors are impressive. We hope that by establishing a cold chain logistics management system and organising more training courses, we can build a bigger local cold storage logistics management team as quickly as possible. We expect that, in days to come, demand in the GBA for cold chain logistics management will be enormous. We hope more Hong Kong enterprises and experts in the trade can capture the development opportunities arising from the GBA. In doing this, Hong Kong’s logistics industry can not only seize the opportunities arising from mainland GBA cities, it can also promote constructive competition in cold chain logistics management in the GBA.
“For sure, the availability of logistics facilities and policy support are also very important. It is projected that the Premium Logistics Centre at the Hong Kong International Airport will be operational by 2023 and become the third largest warehouse in Hong Kong. This centre will be equipped with a smart temperature-controlled warehouse suitable for the storage of products such as pharmaceuticals. The industry in general is looking forward to new facilities like these.”
Logistics is by its nature a capital and labour-intensive industry. Logistics enterprises have to invest in building factories and purchasing equipment, as well as employing enough staff to carry out cargo sorting and delivery. Although nowadays the demand for labour resources has been reduced thanks to automation and smart technology, logistics enterprises still have to employ logistics specialists to see to clients’ requirements and perform certain procedures. In order to cope with various resource constraints, Hong Kong’s logistics industry players have face competition both from within the region and from overseas by forming a united front, upgrading technology, exercising flexibility, strengthening staff training, and establishing a logistics management system.
According to China’s 14th Five-Year Plan, support will be given to Hong Kong to enhance its position as an international shipping, trading and aviation hub. In addition to providing world-class professional services related to shipping, Hong Kong also keeps abreast of the leading development trends in the logistics industry around the world which can contribute to the development of premium and specialised logistics services, such as food and pharmaceuticals cold chain logistics, hazardous goods logistics-related services, and cross-border e-commerce logistics. This can not only help to raise the competitiveness of Hong Kong’s logistics industry, but can also promote constructive competition and complementariness within the GBA.
1 Source: Census and Statistics Department, HKSAR
2 Source: Key Statistics on Business Performance and Operating Characteristics of the Transportation, Storage and Courier Services Sector 2014, 2019, December 2015 and December 2020, Census and Statistics Department, HKSAR
3 The International Civil Aviation Organization (ICAO) issued an air cargo security policy direction in September 2016 in a bid to enhance air cargo security. One of the ways of meeting the policy direction is to implement security screening for all export air cargoes. The direction came into effect globally on 1 July 2021. The Hong Kong Civil Aviation Department rolled out an 18-month transition arrangement from January 2020 to June 2021 and has successfully achieved 100% security screening for export air cargoes in phases.
4 Hong Kong has concluded The Mainland and Hong Kong Closer Economic Partnership Arrangement with the mainland and the Free Trade Agreement between Hong Kong, China and the Association of Southeast Asian Nations with ASEAN.
5 Note: This figure refers to lithium batteries transported as a unique consignment. However, lithium batteries can be part of other electronic products and are not necessarily transported as a unique consignment. This figure is for reference only.
6 According to the World Trade Statistical Review 2020 and World Trade Statistical Review 2021 released by the World Trade Organisation, the freight volume of global trade in goods in 2019 and 2020 dropped 0.1% and 5.3% respectively.
- Hong Kong
- Mainland China
- Hong Kong