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Logistics Upgrade: A New Frontier for Guangdong-Hong Kong-Macau Bay Area Co-operation

Under the Bay Area initiative, Guangdong, Hong Kong and Macau are making great efforts to enhance co-operation. These include the construction of a modern integrated transport system in the Bay Area aimed at strengthening transport links between the three regions. This, coupled with the implementation of effective customs clearance facilitation measures, should enable smoother cargo flows between the different customs territories and make logistics, transportation and supply chain management more efficient. Logistics companies in the three regions can work more closely together, using their respective advantages to turn the Bay Area into a vigorous and competitive economic region.

Hong Kong’s logistics companies not only have an extensive trade and business network worldwide, but also possess a wealth of experience in logistics management. They can co-operate with upstream and downstream enterprises in the Bay Area, applying advanced IT management systems to efficiently utilise regional logistics facilities, while alleviating the problem of higher logistics costs in Guangdong and raising logistics efficiency. As the Bay Area initiative continues to unfold, businesses should take note of the latest developments regarding facilitation measures likely to be introduced by the governments for customs clearance, inspection and quarantine of goods, etc. They could also consider co-operation with other industry players to tap the cold chain logistics and cross-border e-commerce opportunities stemming from growing demand among mainland consumers for imported chilled and frozen food products and various kinds of quality consumer goods.

Photo: The Hong Kong-Zhuhai-Macau Bridge allows an easier flow of people and cargo in the Bay Area (1).
The Hong Kong-Zhuhai-Macau Bridge allows an easier flow of people and cargo in the Bay Area (1).
Photo: The Hong Kong-Zhuhai-Macau Bridge allows an easier flow of people and cargo in the Bay Area (1).
The Hong Kong-Zhuhai-Macau Bridge allows an easier flow of people and cargo in the Bay Area (1).
Photo: The Hong Kong-Zhuhai-Macau Bridge allows an easier flow of people and cargo in the Bay Area (2).
The Hong Kong-Zhuhai-Macau Bridge allows an easier flow of people and cargo in the Bay Area (2).
Photo: The Hong Kong-Zhuhai-Macau Bridge allows an easier flow of people and cargo in the Bay Area (2).
The Hong Kong-Zhuhai-Macau Bridge allows an easier flow of people and cargo in the Bay Area (2).

Guangdong’s Growing Freight Business

China is the largest trading economy in the world[1] with a flourishing import-export freight forwarding sector, and Guangdong province is the most important area in China for foreign trade. In 2017, the value of Guangdong’s imports and exports rose 8% from the year before to RMB6.8 trillion, accounting for 24.5% of the nation’s total. The Pearl River Delta (PRD) region in the province has developed into a leading global production base for a wide range of consumer goods and industrial products. It boasts mature supply chain systems and a full range of producer services which are far superior to those in most other similar manufacturing centres across the world.

Growth in imports and exports has driven a rapid expansion in the freight transport sector in Guangdong. In 2017, the volume of Guangdong’s freight transport exceeded 4 billion tons. The nine Bay Area cities in the province accounted for about two-thirds of that amount. Other major cargo sources, including Zhenjiang, Maoming and Yangjiang on the west side of the PRD region, were responsible for about 9%, and Shaoguan, Heyuan and Meizhou in the mountainous region accounted for about 14%. However, the freight volume of cities like Chaozhou and Shantou in the east is relatively small.

Freight Traffic Volume of Guangdong Province

Chart: Freight Traffic Volume of Guangdong Province
Chart: Freight Traffic Volume of Guangdong Province
Chart: Freight Volume 2016
Chart: Freight Volume 2016

Source: Statistics Bureau of Guangdong Province, Guangdong Statistical Yearbook

 

There has also been a significant increase in sea freight. In 2017, Guangdong’s total container throughput grew by about 9% from the year before to over 62 million TEUs, a level more than six times higher than that in 2000. In particular, the container throughput of Shenzhen port (including the Shekou, Chiwan and Yantian port areas) neighbouring Hong Kong soared 5% to 25.21 million TEUs[2], making it one of the busiest container ports in the world. The steady growth of production activities in the rest of the PRD region and the eastern and western parts of Guangdong province has also boosted the freight transport business of other ports in the province.

Although the scale of Hong Kong’s container business has been overtaken by Shenzhen in recent years, the city still retains its position as an important goods transshipment port for Guangdong’s foreign trade. In 2017, Hong Kong’s container throughput grew 5% year-on-year to 20.77 million TEUs (including sea transport and river transport)[3]. Many of these goods were shipped to Hong Kong directly from or via Guangdong for re-export or transshipment to overseas markets using Hong Kong’s transport network. Consumer goods and industrial raw materials were also shipped to Hong Kong from foreign suppliers for re-export or transshipment to Guangdong and other mainland provinces and cities.

Chart: Distribution of Freight Traffic Volume of Guangdong Province 2017
Chart: Distribution of Freight Traffic Volume of Guangdong Province 2017
Chart: Container Throughput of Guangdong Ports
Chart: Container Throughput of Guangdong Ports

Source: Statistics Bureau of Guangdong Province, Guangdong Statistical Yearbook

 

Boost in Logistics Efficiency Urgently Needed

While Guangdong’s freight transport continues to expand, the level of its logistics efficiency has yet to be raised to match it. Freight transport via seaports and other modes of water transport currently accounts for a quarter of Guangdong’s total transport volume, with the remaining 70% or more being transported by highway. Highways are not only the main transportation mode for the delivery and distribution of various kinds of consumer goods and industrial products within the province, they are also important passages connecting Guangdong with other mainland provinces. They are also used to transport cargoes to and from various entry and exit ports in the province.

With foreign trade being Guangdong’s major economic pillar, it is important to find a way to co-ordinate highway, water and air transport so that freight transport and logistics for import and export between Guangdong and its global trading partners is made easier. This would help businesses connect with the international market and integrate closely with industry supply chains in foreign countries.

According to the figures released jointly by the National Development and Reform Commission (NDRC) and China Federation of Logistics & Purchasing, the value of China’s logistics market has been rising steadily in recent years from RMB198 trillion in 2013 to RMB253 trillion in 2017. That’s an average annual nominal growth of 6.3% over a span of five years. Meanwhile, the growth of logistics cost has been declining, with the growth rate of the cost of transportation, storage and management slowing down, leading to a drop in logistics cost as a percentage of GDP from 18% to 14.6% between 2013 and 2017[4].

Chart: Total Logistics Value and Logistics Cost
Chart: Total Logistics Value and Logistics Cost
Chart: Total Logistics Cost in 2017
Chart: Total Logistics Cost in 2017

Source: National Development and Reform Commission, China Federation of Logistics & Purchasing (national logistics report 2013-2017)

 

However, in terms of efficiency, China’s logistics industry still lags behind those in developed countries such as the US and Japan, where logistics cost as a percentage of GDP is only 8% to 9%. While China’s logistics efficiency is on the rise thanks to more developed transportation networks and more advanced technological applications, there is still much room for improvement in the fields of operation, management, modern logistics technology and the application of information technology systems. Against this backdrop, mainland industry players are faced with the problem of high logistics cost, which directly affects the efficiency of their supply chain management. This has in turn dampened the competitiveness of businesses as well as the industry as a whole.

Photo: Efficiency of China’s logistics industry still lags behind those in developed countries (1).。
Efficiency of China’s logistics industry still lags behind those in developed countries (1).
Photo: Efficiency of China’s logistics industry still lags behind those in developed countries (1).
Efficiency of China’s logistics industry still lags behind those in developed countries (1).
Photo: Efficiency of China’s logistics industry still lags behind those in developed countries (2).
Efficiency of China’s logistics industry still lags behind those in developed countries (2).
Photo: Efficiency of China’s logistics industry still lags behind those in developed countries (2).
Efficiency of China’s logistics industry still lags behind those in developed countries (2).

Guangdong’s logistics efficiency (calculated in terms of logistics cost as a percentage of the province’s GDP) is slightly better than the national average level. According to the Guangdong Logistics Development Plan (2016-2020) issued by the Guangdong provincial government, the capacity of Guangdong’s logistics services has increased markedly in recent years, especially in terms of transport infrastructure in the province, where the development of highway, port and airfreight facilities has taken shape gradually and the logistics and transportation networks in the province are becoming more and more mature. Currently, there are about 200,000 logistics enterprises of different kinds in Guangdong, over 75% of which are private enterprises. Most of them are proactively applying the latest information technology to upgrade logistics management and upgrade logistics services.

In 2015, Guangdong’s logistics market was valued at RMB18.5 trillion. The value-added of the logistics sector reached RMB517.6 billion, accounting for about 7.1% of Guangdong’s GDP and 14% of the province’s service industry value-added. The total logistics cost of the province reached RMB1.1 trillion, with logistics cost as a percentage of GDP at 15%, lower than the national average of 16% in the same year.

The logistics efficiency of Guangdong, like other provinces in the country, is still on the low side compared to that of developed countries, and there are still many rooms for logistics costs to come down. The Guangdong Logistics Development Plan points out that Guangdong has yet to build a well-developed integrated transport system. Currently, freight transport mainly relies on highways while effective intermodal transportation linking land, sea and air has yet to be developed. This means goods have to be stored in warehouses and transportation time is long, pushing up the logistics cost. Furthermore, packaging standards and product specifications of some businesses are not compatible with the logistics facilities, and few companies use information technology logistics systems with standard interfaces. This is a barrier to improving logistics efficiency for freight transport.

To improve this, Guangdong is trying to persuade the traditional logistics industry to pursue innovative development. Businesses are encouraged to apply the latest technology, such as “Internet +”, as well as advanced information technologies like big data analytics, cloud computing and IoT (Internet of Things), to their logistics services. It is hoped that by the year 2020 a highly efficient modern logistics service system will have taken shape, which can effectively support the economic development of Guangdong. Objectives include raising the GDP share of logistics value-added from 7.1% to 8%, and lowering total logistics cost as a percentage of GDP from 15% in 2015 to 14.5% by 2020.

Close Collaboration to Enhance Logistics Services

Photo: Guangdong, Hong Kong and Macau are joining forces to upgrade cross-regional transportation facilities.
Guangdong, Hong Kong and Macau are joining forces to upgrade cross-regional transportation facilities.
Photo: Guangdong, Hong Kong and Macau are joining forces to upgrade cross-regional transportation facilities.
Guangdong, Hong Kong and Macau are joining forces to upgrade cross-regional transportation facilities.

To enhance the efficiency of logistics services, Guangdong is not only trying to improve transportation networks in the province, but also to promote the development of international logistics. The plan is to turn the Guangdong-Hong Kong-Macau Bay Area into a logistics hub, by strengthening connections in seaport, airport, road transport and logistics services between Guangdong, Hong Kong and Macau, and promoting logistics integration in the Bay Area.

In July 2017, NDRC and the governments of Guangdong, Hong Kong and Macau signed the Framework Agreement on Deepening Guangdong-Hong Kong-Macau Co-operation in the Development of the Bay Area. One of the key areas for co-operation is to improve connections between facilities in the three regions in a bid to build a highly efficient and effective modern integrated transport system in the Bay Area. Hong Kong plans to use its advantages as an international shipping centre to lead other cities in the Bay Area in the construction of a world-class port cluster and airport cluster. It will also optimise the positioning of highway and railway networks in the Bay Area to advance the integration and connection between various modes of transportation. Collaboration between the governments of the three regions in constructing different transportation facilities should play a positive role in promoting freight transport and logistics in the Bay Area and drive the growth of the logistics industry.

However, because Guangdong, Hong Kong and Macau belong to three different customs territories (each with its own import-export customs clearance, product standards and inspection and quarantine system), goods flowing between these three places are subject to different trade regulations and control measures. This in turn has an impact on logistics efficiency and cost. Rationalising the different barriers in different customs territories as well as minimising unnecessary administrative formalities in a move to bring about seamless connection of logistics and transportation of the three regions is one of the major objectives for future co-operation in the Bay Area.

Logistics Development in Bay Area: Industry Views

 

With the support of the Department of Commerce of Guangdong Province, HKTDC Research interviewed a number of logistics industry players operating in the Bay Area in May 2018, to canvass their opinions about how cities in the area can further strengthen co-operation with Hong Kong. These were some of their opinions:

 

  • Make greater use of Hong Kong’s position as an aviation hub

    The cities in the Bay Area are proactively seeking transformation and upgrade as well as shifting to high value-added business, including the development of higher quality and high precision products such as high-tech electronics, medical devices and different types of precision parts and components, in the hope of increasing their competitiveness on the international market. These higher-value products are mostly delivered by air to reach fast-changing overseas markets quickly. Many high-value production materials are also delivered from abroad to the mainland in support of just-in-time production. With the joint efforts made by Guangdong, Hong Kong and Macau to strengthen links between the transportation and logistics networks within the Bay Area and facilitate customs clearance, Guangdong enterprises can effectively shorten logistics and transportation time and lower cross-boundary transportation costs in their import-export business by using Hong Kong’s international airport. They can also make better use of Hong Kong’s extensive flight connections to expand their international business

 

  • Improve regional business distribution

    Many Guangdong enterprises are making greater efforts to link up with the growing supply chains in Asia, in a bid to support their high-end production activities in the PRD region. These efforts include relocating part of their production and purchasing activities to lower-cost regions. To make this work, they urgently need highly efficient transportation and logistics services to deliver a wide range of industrial materials between the PRD and other production bases in Asia. Hong Kong’s extensive international logistics and transportation networks can effectively link up Guangdong with South-east Asia and other production bases in Asia. Guangdong, Hong Kong and Macau are collaborating to enhance the efficiency of freight transport and logistics in the Bay Area. Further enhancements in facilitation measures such as customs clearance, inspection and quarantine of import and export goods are bound to help enterprises in the Bay Area integrate their resources in the PRD and foreign countries to improve the distribution of their production and sourcing activities in the region.

 

  • Utilise Hong Kong’s financial services to upgrade supply chain management

    Some logistics industry players interviewed pointed out that enterprises in the Bay Area could, as well as using Hong Kong to raise logistics efficiency for their mainland and international business, also consider strengthening co-operation with Hong Kong’s third-party logistics service suppliers to enhance their supply chain operations ranging from product design and manufacturing, to marketing and after-sales service. They could also use Hong Kong’s financial services, such as trade financing, to upgrade capital flow management in their supply chain, in order to lower capital cost and increase overall operation efficiency.

 

  • Upgrade cold chain logistics service

    With rising demand for chilled, frozen, fresh and live food products from consumers in Guangdong, the logistics service sector is proactively expanding the cold chain logistics business. Some industry players in Guangdong are even taking advantage of the relevant facilities in Hong Kong and Macau to bolster their chilled and frozen food products import business. However, apart from building hardware facilities such as cold storages, these companies are eager to solicit advanced cold chain logistics solutions in order to upgrade their overall operation efficiency and quality. Many businesses hope to draw on the management experience of their Hong Kong partners and apply new generation information technology management systems to enhance the monitoring and inspection parts of their cold chain transportation, and improve the processes of goods storage, transshipment, loading and unloading in urban distribution. They also hope to upgrade the quality of cold chain service across the board in a bid to meet market demand.

 

  • Develop cross-border e-commerce

    As consumers’ demand for various kinds of imported consumer products increases, cross-border e-commerce business in Guangdong also expands rapidly. Hong Kong not only has robust e-commerce facilities, but also serves as an ideal platform for mainland online shoppers looking for foreign brands and fashionable products. Products imported through Hong Kong and brands handled by Hong Kong enjoy a good reputation on the mainland. In light of the joint efforts being made under the Bay Area initiative to raise logistics efficiency and make customs clearance easier, cross-border e-commerce operators are likely to make further use of Hong Kong’s services in delivery, sourcing, international transhipment and customs clearance to serve cross-border online shoppers on the mainland.


Conclusion

As Guangdong, Hong Kong and Macau continue to strengthen their co-operation over connecting transportation networks in the Bay Area, implement customs clearance facilitation measures, and develop transport infrastructure in the three regions, it is likely that logistics efficiency in the Bay Area will improve further. This should in turn help to shorten transportation time and lower logistics cost for businesses in the area. Hong Kong’s logistics operators, relying on the city’s sound international logistics network, link up with their counterparts within the Bay Area to capture business opportunities arising from the collaboration to provide more efficient logistics services. Apart from boosting the import-export business of the relevant industries, they can also help enterprises connect with emerging production bases in Asia in a bid to strengthen their supply chain management. As mainland consumers’ demand for imported chilled and frozen food products and quality consumer goods continues to rise, this will provide additional opportunities to logistics operators. Industry players are therefore advised to pay close attention to this development.

 


[1] According to WTO figures, in 2017, the total value of China’s import-export trade ranked first in the world, followed by the US, Germany and Japan.

[2] Source: Transport Commission of Shenzhen

[3] Source: Census and Statistics Department, Hong Kong

[4] Source: National Development and Reform Commission, China Federation of Logistics & Purchasing

Content provided by Picture: Wing Chu
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