News Snippets, Strategy

Seizing opportunities in the Greater Bay Area for logistics success

Lauren Zhao, Managing Director of UPS Hong Kong and Macao

Hong Kong is one of the regional logistics hubs in Asia due to its strategic geographical location and world-class infrastructure. The city’s well-developed multi-modal transport network has enabled it to interconnect with the Greater Bay Area (GBA) and the rest of the world smoothly. Logistics is one of the backbone services that has made this interconnectivity go rapidly and flexible.

Logistics, being the sector that underpins trading, has grown robustly in Hong Kong over the years. As one of the four main pillar industries of the city, logistics and trading sector has been the largest in terms of GDP contribution and total employment. According to Hong Kong Monthly Digest of Statistics released by Census and Statistics Department in May 2019, logistics and trading industry accounted for 22% of the city’s GDP and 19% of total employment, outpacing financial services, tourism and professional services industries.

GBA brings immense prospects to logistics industry

The booming development of the GBA in recent years has brought immense prospects to Hong Kong and logistics industry. The promulgation of the Outline Development Plan for the Guangdong-Hong Kong-Macao Greater Bay Area in February 2019 will deepen the cooperation of Hong Kong, Macau and nine Guangdong cities. The Hong Kong-Zhuhai-Macao Bridge, which was opened to traffic in October 2018, cuts journey time between Hong Kong International Airport and Zhuhai or Macau from four hours to less than an hour. The Airport Authority Hong Kong is building the third runway at the Hong Kong International Airport. All these developments will greatly facilitate air and sea transport as well as freight forwarding services, presenting new business opportunities for the logistics industry.

With the robust development of the GBA, more large enterprises, entrepreneurs and startups from Asia Pacific and the rest of the world have set their presence in the GBA. They provide a broad talent pool, creativity, cutting-edge technologies and products to the region.

Shenzhen is a good example. The city has gradually transformed from a manufacturing base into an innovation hotbed in China, which in turn has created a hungry digital consumer base. An increasing number of digital-native entrepreneurs and affluent people has emerged. They tend to buy high-end products and services that are aligned to their lifestyle via e-commerce platforms, boosting the demand on imports and hence a surge of cross-border logistics and delivery services.

Expanding network to meet cross-border needs

As a global leader in logistics, UPS has built a well-established global logistics network over the years. Its international network covers more than 220 countries and territories. In Asia Pacific, UPS’ network spans over 40 countries and territories. Its Asia Pacific air hubs are located in Hong Kong, Shenzhen and Shanghai. 202 intra-Asia Pacific flights and 142 international flights are provided every week.

Addressing ever-changing market needs such as cross-border logistics needs is the top priority of UPS when designing and expanding its entire logistics network. Deploying new aircraft is one of UPS’s strategic investments to expand its global air cargo capacity.

UPS has invested in new aircraft to cater to the surging demand from the intra-Asia  economic growth and e-commerce development in the region. In February 2019, UPS announced the deployment of larger aircraft Boeing 747-8s to service major trade routes connecting Hong Kong and Europe, via UPS’s European air hub in Cologne, Germany.

This deployment of three Boeing 747-8s through August 2019 replaces existing Boeing 747-400s, and increases aircraft capacity by 19%, on four weekly direct flights. UPS is adding a total of 40 additional aircraft to its fleet, including 28 Boeing 747-8 aircraft, to increase its intercontinental air express capacity.

Challenges of growth

Despite new business opportunities in the GBA, there are a few key challenges in the region. Taking Hong Kong as an example, talent shortage, airport capacity shortage and inefficient payment system are some issues encountered by most logistics companies.

An acute shortage of labor is prominent in many industries including logistics sector. Currently over 180,000 people are employed in Hong Kong’s transportation and logistics sector. In 2018, the number of vacancies in this sector was increased by nearly 40% from 2016, yet the number of employed persons was up 7.5% only. The shortage of talent, ranging from frontline staff, highly skilled logistics specialists to solutions developers, is a chronic concern in the industry.

The second issue is airport capacity. Hong Kong International Airport is one of the busiest airports in the world for both passenger and air freight traffic. According to the Airports Council International World Report 2018, Hong Kong International Airport has become the world’s busiest airport by cargo traffic since 2010. However, with only two runways at present, the airport is already running at near capacity. The capacity problem may only be solved when the third runway is completed by around 2024.

The third issue is about payment system. An advanced digital payment system is critical in upgrading logistics’ efficiency. In most cities in China such as Shenzhen, by leveraging new payment technologies, both C2C and B2C transactions can be completed in real time through online platforms. This has resulted in greater convenience and speed to customers while achieving efficiency in logistics. This is in stark contrast to Hong Kong whose digital payment systems are still lagging behind.

Cooperation is key to success

GBA is expected to unlock significant growth potential to various industries in the region. It could greatly foster closer cooperation among China, Hong Kong and Macau. Hong Kong is well poised for playing the super connector role in the GBA, connecting the participating cities to unleash their full potentials to achieve a win-win. The A5 airports in Hong Kong, Shenzhen, Guangzhou, Zhuhai and Macao could further collaborate to play a more effective role as the GBA’s gateway for high-value shipments going in and out the region.

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