Hong Kong: an international hub of air logistics

Acertain Fred Smith received little encouragement at university. His brainchild, which eventually revolutionized the delivery of packages and information, began life as a final year project at YaleUniversity. Mr Smith, FedEx founder and CEO, received a C for that project. His ideas were considered logistically unfeasible. Back in the 1970s, few people in business management could have anticipated the impact the air cargo industry now has on transportation, logistics, e-commerce and supply-chain management services. Whereas the shipping industry began thousands of years ago when sea-faring folk first took to the waters, the air cargo industry is little more than 30 years old. But, according to Dr Zhang Anming, Associate Professor in CityU’s Department of Economics and Finance, the air cargo industry is undergoing a rapid transformation and by 2010, Hong Kong’s airfreight business will be worth more than HK$844 million.

"The air cargo industry is more cost-effective than sea transportation," said Dr Zhang. "Shipping takes time and in today's era of Ojust-in-time economics', time is money." And although air cargo amounts to only 1% of Hong Kong's total freight volume, it accounts for 23% of the total value, he explained. "Goods handled by air are usually more valuable than those transported by sea because planes can carry lighter, more expensive goods." For example, new technology is getting lighter and smaller, so suppliers, manufacturers and customers consider aircraft the most efficient means of transportation.

Widely acknowledged as an international authority on aviation logistics, Dr Zhang began investigating the economic and employment impacts of the air cargo industry on Hong Kong some 12 years ago. One of his most significant findings is that the air cargo industry in Hong Kong remains robust, despite recent economic problems in Asia. This is because Hong Kong acts as a service stop for international airfreight, a kind of springboard to reach other destinations, and it is a major outlet for goods from China's mainland bound for overseas markets.

"Less than 20% of air cargo passing through the international airport at Chek Lap Kok is produced in Hong Kong," Dr Zhang pointed out. "The largest proportion, nearly 65%, originates from the Pearl River Delta (PRD), and 15% is international." This means that even if Hong Kong is experiencing an economic downturn, it still benefits from international markets that are growing, he said.

Air cargo offers a spectrum of jobs

Another important aspect of airfreight growth is the positive impact on local employment. "The air cargo industry offers a spectrum of jobs," explained Dr Zhang. His research suggests that during the 1980s and 1990s there was a positive correlation between growth in Hong Kong's GDP, increases in the value of trade by air and increases in local employment.

On the first level, jobs are created within the airline industry - pilots, ground staff, and technical support, such as warehouse managers, couriers, security and cargo terminal operators. Secondly, industries feeding the air cargo industry profit, for example, from the oil, catering, maintenance, and financial services. A tertiary impact is tourism and the development of local retailing industries - a strong aviation industry should attract more people to Hong Kong.

"For a good air cargo industry we need logistics graduates specializing in economics, management sciences, information systems, and transportation," Dr Zhang said. "This means our universities have to ensure students receive training in all these disciplines so they are aware of the complexity of trade." As a comparison, Dr Zhang noted that Singapore has specific, tailor-made logistics courses within its universities and enjoys its position as the logistics centre for Southeast Asia. These courses offer an interesting model for logistics training, one Hong Kong should consider if it is to strengthen the quality of its own graduates, he suggested.

For the future, China's entry to the World Trade Organization (WTO) offers some complex challenges. WTO membership will result in an increase in trade between China and the rest of the world, but, explained Dr Zhang, graduates have to understand lowered tariffs on trade with China's mainland will result in an increase in competition.

Next year sees the opening of the new airport at Guangzhou to add to the other new airports in the region - Shenzhen, Zhuhai, Macau and Pudong (Shanghai). Hong Kong has to contend with these new airports and make sure it can remain attractive to international carriers.

Research centre improves synergy of air cargo industry

To help fortify Hong Kong's commitment to training in air cargo logistics, Dr Zhang has collaborated with researchers from other Hong Kong universities to establish a Centre of Cyber Logistics (CCL) at the Chinese University of Hong Kong. In addition to Dr Zhang, two other CityU faculty sit on the board of directors - Chair Professor L K Chan, Dean of the Faculty of Business, and Professor Y V Hui, from the Department of Management Sciences. "The aim of the Centre is to improve the synergy of the industry by investigating the macro environment of air cargo, global logistics, and information technology," explained Dr Zhang.

Despite the increase in competition from the mainland and neighbouring countries, Dr Zhang is optimistic about Hong Kong's air cargo industry. He believes it will remain the foremost strategic entrep?t for the foreseeable future for three reasons: its location; it is the financial centre for the region; and it is an information centre, a mediating point between China and the rest of the world. "I have no doubt Hong Kong will continue as the region's major centre for the air cargo industry but we have to ensure our graduates are fully prepared to deal with the challenges ahead," Dr Zhang said.

Building an e-community for the air cargo industry

Professor Y V Hui echoes Dr Zhang's sentiments about the threat to Hong Kong's air cargo industry. But Professor Hui also believes that China's booming air cargo industry and her entry to the WTO offer an opportunity for Hong Kong. "Undoubtedly, China's total trade volume is going to expand by leaps and bounds, but whether Hong Kong will get a bigger slice of this growing market is uncertain. It will depend on whether we are able to successfully develop e-business in air logistics."

Professor Hui is one of the founders and core members of the CCL. The Centre works closely with logistics industry providers such as freight forwarders, warehousing providers, carriers and the Hong Kong government to enhance the competitiveness of Hong Kong's logistics industry in the new Internet era. As an air cargo hub, Hong Kong now enjoys the advantages of a world-class international airport, numerous carriers, frequent flights and ultimately efficient service. These conditions make Hong Kong a favourable gateway for air cargo from the PRD region to the rest of the world. But the launch of a new airport in Guangzhou in 2003 is likely to pose serious threats to Hong Kong's status as a trade entrep?t, warned Professor Hui. "A new and advanced airport will attract new airlines and carriers to Guangzhou. Eventually the PRD's air cargo industry will develop and Hong Kong will have to explore new niches to maintain her position as a gateway. "

Importance of an e-commerce community

For Professor Hui, the future of the Hong Kong air cargo industry lies in the development of an e-commerce community. "We are still far ahead of our regional competitors in the strength of our information technology infrastructure, which should be an ideal platform to counter competition," he said. For years, the CCL has undertaken research projects and held conferences to alert government officials and industry practitioners to the importance of integrating the air cargo industry through the setting up of an e-community platform.

An e-community platform is a Web-based framework that helps logistics providers such as forwarders, warehouse and terminal operators, carriers, and customs departments, to trade and manage their logistics processes. "Obviously, the advantage of setting up such a platform will be a more efficient and streamlined delivery process that will enable Hong Kong to establish itself as a global gateway for air logistics," Professor Hui said.

In an open forum titled "Towards an e-Community for Hong Kong Air Cargo Logistics", organized by the CCL in March this year, the working of such a framework was demonstrated to representatives from government and industry. "They seemed to welcome the idea of such a platform, but there remains a number of barriers to setting it up and its ultimate implementation," he said. The government would be the ideal party to foster collaboration among the individual operators, Professor Hui believes. "We are glad to see that the government has taken the initiative in staging an information exchange platform for practitioners of the industry as the first step towards an e-business community," he said. "But ultimately, a management platform will be necessary to bring about business integration within the e-community."

The issue of a management platform raises problems about control, ownership and execution. Professor Hui explained, "There is a large number of SMEs and a few big players within the industry, each complementing and somehow competing with one another. Who should take the initiative and invest in something that would be of common interest?" The extent of information disclosure and sharing is also debatable, given the context of an extremely competitive market.
"Technically, setting up the framework of the management platform for the air cargo logistics industry is not easy. We at the Centre have already developed the prototype. Once the information exchange platform is built, it is ready to be put into use."