As the largest air freight terminal at the world’s busiest cargo airport, Hong Kong Air Cargo Terminals Limited is confident that its edge over others remains, but at the same time isn’t complacent about the many risks and challenges that it will have to overcome in the months and years ahead.

The terminal achieved a year-on-year growth of 16.6% and handled 860,242 tonnes of cargo in the first half of 2017, a result that exceeded even the expectations of Mark Whitehead, Hactl’s chief executive.

“The first three quarters of 2016 were quite weak and the strong fourth quarter of 2016 flooded over to 2017,” says Whitehead. “The main reason was e-commerce, which is stable and continues to grow. I think it’s fantastic for air cargo because e-commerce and shipping have got nothing to do with each other. The other one is more difficult to put numbers on and that’s the alliance restructuring of the shipping lines.”

He adds that, due to a combination of continued slow-steaming and the inefficiencies brought about by mega container vessels, a small amount of cargo has actually moved from sea freight into air freight. Overall, Whitehead is anticipating 2017 to be a very good year for the industry.

“I don’t expect the fourth quarter to be much better than the fourth quarter of 2016, but it doesn’t matter,” he says. “We were doing 100 freighters in a 24-hour period throughout November – if it’s the same as that, I’ll be happy.”

In preparation for the upcoming peak season, the terminal has already been hiring additional workers over the past three to four months.

“Everybody got burned last year because nobody saw it coming,” says Whitehead. “We’re the only terminal in Hong Kong which employs our labour directly as opposed to using contract labour. Our workforce was really put under pressure last year because we didn’t have time to recruit and train. The airlines got caught because they’d already pre-booked all their space. This year, we do have time and so we’re ready for the fourth quarter.”

Labour is an issue which concerns Whitehead. Hactl currently employs approximately 2,500 members of frontline staff and had a turnover last year of 10.8%, but Whitehead says that the company started recruiting as many as possible, knowing that anywhere between 20 to 25% will leave in the first year.

“Whoever has got the labour will win the battle; it’s as simple as that,” he says. “I’m very worried about where we go with labour in Hong Kong. With important infrastructure projects like the third runway, the labour situation will get tighter. I’m hoping that intelligent people within government are looking at ways of importing labour in certain industries. The conditions are tough and our workforce is ageing.”

According to Whitehead, of the 120 people Hactl employs in IT, roughly 50 spend their time maintaining and enhancing the company’s existing systems, while the others work on enhancements.

“I personally place enormous value on innovation,” he says. “We spend time coming up with we believe is next. We’re now working on driverless vehicles. We’ve got the technology already but the regulations will take some time.”

Hactl also has a small performance-enhancement team whose only responsibility is to come up with ideas. Robotics is something which interests Whitehead, but he says he’s not sure whether and how it will apply to the cargo-handling industry yet.

“We’re basically an operation which is driven by huge amounts of computer technology, but also huge amounts of people who just lift boxes,” he says. “I don’t believe that one will overtake the other, at least in my lifetime. It may do in the fullness of time.”

Meanwhile, Hacis, Hactl’s logistics arm which operates cross-border road feeder services between Hong Kong and mainland China, has been experimenting with different models of addressing e-commerce demand. The company set up a depot in Nansha specifically for e-commerce shipments about two years ago, taking advantage of a tax incentive the government was offering at the time.

“What we’ve learned there is that policies can change quite quickly and so we also have to adapt our models,” says Vivien Lau, executive director of Hactl and managing director of Hacis. “While the Nansha depot is still operational, we’re also exploring other means of customs clearance if that channel is not as smooth as expected. We might go through the express channel, for example.”

The Nansha site was just a trial and won’t be enough. According to Lau, e-commerce distribution centres were set up in 2016 by many different players in various locations in southern China, such as Jiangmen and Jinjiang.

“We saw some demand for shipments into those centres and so we quickly mobilized ourselves to develop some e-commerce express lanes,” Lau says. “Our cross-border road feeder services used to only focus on eight depots in mainland China, but we’ve now developed five additional routes to serve these locations with high e-commerce demand.”

Another thing that Hacis has been looking at is how Hactl can partner directly with an airline or an e-commerce platform, without any third party in between. This would improve efficiency and certainty, both of which are essential for the world of e-commerce.

“Different parties have approached Hacis to discuss what more we can do for them in Hong Kong,” says Lau. “We’re thinking about solutions where we would be the ‘super middle man’ and help them connect shipments to the last-mile service provider. At this point we haven’t reached out to that last-mile part yet, but we’re already making different connections so that once we define the total solution, we can help and we’ll be able to pass the shipments to either the post office or a local express company.”

While Hacis’ predominant target for its services is southeastern China, there is growing competition even within the region, with Chinese carriers having significantly expanded their international networks from Guangzhou and Shenzhen over the past three to five years.

“That does pose a number of threats and can take away some business from Hong Kong, but in some ways that also opens up new opportunities for us,” Lau says. “When we look at the new destinations being opened up, the main focus is on passengers and tourism, but the airlines will market and sell the belly space for cargo for additional revenue. What we’ve experienced is that sometimes some of the cargo arriving in Guangzhou or Shenzhen might actually have to come back to Hong Kong. Personally, I believe that even though the destination on the air waybill may show Hong Kong, some of the local forwarders may take it, provide some value-added services and eventually send it back to mainland China. That proves that Hong Kong is still a huge consolidation base, with its large forwarder networks.”

Hacis is also considering the possibility of setting up a depot near the western end of the new Hong Kong-Zhuhai-Macau Bridge to exploit the additional opportunities created when it opens in 2018.

“Currently, a lot of cargo to and from that area is going through Guangzhou Airport,” says Lau. “With the new bridge, it will only take about 40 minutes to get to Hong Kong Airport, so we see the potential to divert some cargo to Hong Kong. I think a lot of forwarders would welcome the idea that that cargo will be handled in Hong Kong, provided that the bridge toll is not too expensive.”

She adds that, even though Shenzhen and Guangzhou airports are constantly improving their infrastructure and service standards, the overall service in Hong Kong is still seen as more predictable, based on some of the feedback that Hactl has received.

“Timeliness, stability and customs efficiency are all critical for air cargo,” she says. “So I think Hong Kong still has an advantage and that’s why I think many shippers would prefer to get full clearance in Hong Kong first. The industry as a whole is fighting strongly to defend our position as the top air cargo hub in the world. Looking at ocean freight, we’re losing out already and I think this is a lesson that all of us should take into account.”

According to Whitehead, Hong Kong has occupied such an extraordinary space in the air cargo business for the last 30 years because of its geographical location, but that is unlikely to last forever.  The most important factor to remaining competitive is the on-time completion of Hong Kong International Airport’s third runway, which is currently estimated to be operational by 2024.

“Our unique position is driven by the fact that we can handle the logistics demand, and everybody else around the region will be trying to eat our lunch, so it’s very important for us that the runway comes along, because then we stay in the game,” he says. “We can’t necessarily win everything, but at least we stay in the game.”

By Jeffrey Lee

Asia Cargo News | Hong Kong