03 / 06 / 2015
TO be based in Hong Kong is to be sat on one of the hotspots of global air freight, but there have been worrying signs recently that the pot is going off the boil.
After a year in which Hong Kong Air Cargo Terminals Limited (HACTL) saw 8.7% growth in tonnage handled, January and February looked to be continuing the trend, albeit with a boost in the latter month due to the position of Chinese New Year.
Mark Whitehead, HACTL chief executive, then expected a bit of a dip in early March as the Chinese New Year effect played out, but did not expect it to carry on into the second half. In fact the negative trend continued right through the month and throughout April.
The reason, as has now become clear from official statistics, is a fall in China’s trade with the rest of the world. It fell 10.9% year on year in April, with exports down 6.4% and imports 16.2%. That followed a 15% fall in exports in March.
Some pundits see this as a major long-term trend, with China’s working age population now having peaked and its wage costs going up. Growth in the Chinese economy also continues to slow (though it has not yet gone into reverse).
Whitehead says it is too early to say what the reasons for the fall in airfreight is, but remains upbeat. “Is this a long term phenomenon? I think not and expect volumes to pick up at the end of the summer.
”If volumes do continue to fall it will exacerbate what is already an increasingly competitive position in the Hong Kong handling market. Until 2006 HACTL had a monopoly. Then a new competitor, Asia Airfreight Terminals (AAT) entered the market, but remained a relatively small player.
Far more serious for HACTL was when Cathay Pacific won the right in 2008 to become the third cargo handler at the airport. After some delays its terminal became fully operational in October 2013.
That removed 40% of HACTL’s business at a stroke, and the two handlers now have 40% of total cargo business at the airport each, with AAT on 20%. But Cathay is still gearing up its operation and has only just started signing up third party customers, who now include Air Asia, Royal Brunei and – since January – EVA Air.
Further competitive pressure on HACTL in the coming year is inevitable, Whitehead concedes. “They are very focused on third-party business and there will be more focus on this in the coming year, no question,” he says. “So our strategy is protecting our existing customer base and giving customers no excuse to move on by providing the service levels they are looking for and giving them a trouble free time.
”Asked if the new competition won’t lead to price cutting, he chooses his words carefully. “I don’t believe it is a price game. If service is good, then they will stick with the service provider they are with. But that being said, when you have overcapacity you have to be flexible.
”Losing the Cathay business obviously created challenges for HACTL, but Whitehead claims it made the transition without laying off staff.
“Obviously we knew the Cathay business was going, so coming up to 2013 we introduced casual labour, which we had not used before. The unions said they did not like this, and so we got rid of the casual labour and gave our staff more overtime.
“When Cathay left we reduced the overtime, and through natural retirement over time we have got back to the staffing level that we needed. We were pretty lucky that the market was buoyant all the time this was going on.
“Labour in Hong Kong is also pretty cooperative. It probably would have been difficult in any other part of the world.
”Keeping staff and their expertise was key to HACTL because its pitch now is that because its terminal is not so crowded it can offer an even better service. It has been focusing on improving its offer for pharmaceuticals and perishables – going for GDP certification in the former area for example – and expanding its HACIS road feeder services to the Pearl River Delta.
The latter should get a boost in a couple of years when the Zhuhai-Macau-Hong Kong road bridge opens. “This will open up the whole western Pearl River Delta and cut trucking and transit times to that region significantly,” says Whitehead. “It will boost development in that part of the Delta, which can only be positive.
”Combined with a third runway for Hong Kong, which is still subject to two judicial reviews, but has now passed an environmental assessment and been approved by Excom, the group of advisors to Hong Kong’s chief executive, this makes Whitehead optimistic about Hong Kong’s future as a hub.
“I think Hong Kong is extremely well placed to continue as a major hub for the area,” he says. He notes that whereas once there was talk of Shanghai taking business from Hong Kong, in fact there has proved to be growth for all. “There is also still plenty of freighter traffic in Hong Kong. It is not that Guangzhou and Shenzhen are not expanding their business, but that freighter business in Hong Kong is so vibrant.
”Another plank in HACTL’s continued focus on better service has been COSAC, its IT system. It still employs 120 people to maintain and develop this IT platform, which is accessible to the whole Hong Kong air cargo community.
The system provides full e-freight capability to anyone that cares to use it, and e-freight uptake in Hong Kong is quite high, but Whitehead is nevertheless a bit despairing about the project as a whole.
“I have stopped talking about e-freight,” he says.
“The technology is not difficult and at HACTL we are geared up for it, so why is it not moving forward at the same speed as happened with passenger e-tickets? The question is: where does the benefit lie and where does the cost lie? The benefit is with airlines and the cost is with forwarders.
”He suggests that the reason for a relatively high uptake in Hong Kong is because Cathay made a big push on e-AWB some years back, but says that even so there are forwarders in Hong Kong who have still not embraced it. From a handler’s perspective he says e-freight equals efficiency. “People who re-key are harassed people who are therefore prone to mistakes.
”One technology that everyone has embraced, however, is the smartphone, and in the past six to nine months COSAC has been offering new apps to make processes more efficient.
Truckers can now use an app to track the arrivals of aircraft and can be pre-assigned a loading dock.
They can register their vehicle so that they can be tracked by GPS and HACTL knows when they are coming.
In a fully e-freight world they would then be able to pick up their cargo from the loading dock and drive off, but in practice they still often have to go to a documentation centre to show various bits of paper.
Whitehead would dearly love to be able to eliminate this unnecessary step, but can only move at the pace of the industry. “It is not that I am frustrated by the lack of progress,” he says. “I just don’t understand the blockages.”