Date: 24 April 2017

Freight Forwarding Industry in Hong Kong

Overview

• By arranging cargo transport, the freight forwarding industry has helped contribute to Hong Kong’s success as one of the world’s most trade-oriented economies, with the city ranking globally as the 8th largest merchandise trading entity in 2015.

• The industry has benefited from Hong Kong’s excellent freight infrastructure. Hong Kong International Airport (HKIA) ranks first in the world in terms of international air cargo throughput, while Hong Kong Port is the world’s fifth busiest in handling containerised cargo.

• Total freight handled in 2016, comprising air, seaborne, river and road freights, dropped by 0.2% from 2015 to some 283 million tonnes, largely as a result of the unconstructive external environment.

• Larger freight forwarders in Hong Kong generally have a wide network of overseas branches, and act as agents for international air and ocean liners.

• The industry is responding to customers’ needs by providing more value-added services such as warehousing, packing, sorting, distribution, total logistics and supply chain management solutions.

Industry Data

Range of Services

The core business of a freight forwarder is to move a shipper’s consignment to the consignee within the stipulated time, in perfect order and at the most competitive price. Responding to changing customer demands, many freight forwarders also provide more value-added services such as warehousing, distribution, total logistics and supply chain management solutions.

Services offered by the industry vary according to the sophistication of the concerned freight forwarder. The larger and more comprehensive freight forwarders offer a wide range of transportation and logistics services including warehousing, consolidation, air express, trucking, distribution and customs clearance, tracking and monitoring of freight being transported, and application of electronic data interchange (EDI) technology to facilitate just-in-time based supply chain management. Their customers, particularly those in the time-sensitive manufacturing, trading and retail sectors, can thus concentrate on their core competency and reduce their business cycle time.

In general, smaller freight forwarders in Hong Kong tend to provide more basic and economical services. Services related to import/export trade, including the preparation of shipping documents, customs clearance and logistics, may be undertaken by the import and export companies or their agents. Smaller operators generally provide more flexibility and more personalised services. In addition, they have lower overheads as they “piggyback” on the fixed capacities of the larger companies, and therefore can often provide lower rates.

Total freights handled in Hong Kong dropped by 0.2% to 283.1 million tonnes in 2016, with the decline easing from 13% in 2015 as the overall external environment remained unconstructive. Nonetheless, the US economy was gaining momentum despite the slow EU recovery and sluggish sputtering growth of China due to economic rebalancing.

Service Providers

The Hong Kong Association of Freight Forwarding Agents (HAFFA) was formed in 1966 to represent the interests of the freight forwarding industry. It has been renamed as Hong Kong Association of Freight Forwarding and Logistics Ltd to reflect the sophisticated nature of the business. HAFFA, with some 300 members, aims to promote standardisation and professional conduct among industry players. It coordinates with the Hong Kong government and related associations, including Hong Kong Air Cargo Terminals Ltd. (HACTL) and the Hong Kong Shippers’ Council (HKSC), in enhancing the business environment for its members. Similarly, the Chartered Institute of Logistics and Transport in Hong Kong (CILTHK), set up in 1968, is a professional body for people engaged in the sectors of shipping, logistics, airline, railway, road, public transport, government, educational institutes and consultancy, with around 1,900 members. A directory of freight forwarders and logistics companies in Hong Kong can be found at this government website.

In Hong Kong, larger sea freight forwarders tend to target big companies for exclusive deals. They provide value-added services and invest in information technology to ensure that they meet the changing needs of their customers. Some of them set up logistics subsidiaries to provide tailor-made and specialised services to become the service partners for their customers. Generally, larger companies’ well-established brands and far-reaching logistics networks have enhanced their significant market shares in the global export market. The smaller regional players, however, have better understanding of the business culture, better knowledge of their markets and have established networks in the region.

As reliable and speedy delivery is the key to successful freight forwarding services, Hong Kong’s forwarders offer competitive services and secure the confidence of international customers through their understanding of international practices, reliability and networks that are time-proven effective.

In 2016, Kerry Logistics was crowned the “Global Logistics Provider of the Year” at the Payload Asia Awards, after being awarded the “Global Logistics Provider of the Year” and the “X Factor Award” in 2015. The judging panel of the Payload Asia Awards comprised Asia’s leading supply chain academics, business leaders and over 20,000 customers.

Exports

More than 70% of Hong Kong’s merchandise exports are sent to other Asian markets, with Western Europe and North America each accounting for about 10%. With Asia becoming an increasingly integrated production base, lots of parts and components are included in exports within Asia. In contrast, Western Europe and North America tend to account for a bigger proportion of the total services exports. Based on the latest services trade report (released in February 2017), Hong Kong’s exports of cargo forwarding services contracted by 10.5% to US$1.9 billion in 2015.

The larger freight forwarders often follow their big international customers to new markets. In some instances, transport service providers set up business in the new markets before recommending their smaller customers to follow suit. They expand overseas usually by setting up subsidiaries, joint ventures or appointing agents to render global services.

Industry Development and Market Outlook

Outsourcing Logistics Services

A number of global trends are affecting the freight forwarding industry, including globalisation of the supply chain, mass customisation, shortening of product cycles, endeavour for achieving low to zero inventory, and quick response requirements. In the face of these trends, an increasing number of businesses are compelled to optimise their supply chains via external experts, i.e. third-party logistics (3PL) and fourth-party logistics (4PL), which are more sophisticated in their service offers and able to provide supply chain management services.

3PL refers to an outsourced provider that manages all or a significant part of a business’ logistics requirements and performs transportation, locating and sometimes product consolidation activities. In contrast, 4PL refers to an outsourced provider which completely integrates its client’s supply chain – managing the resources, capability and technology of all parties, including the 3PLs, to deliver a comprehensive supply chain solution.

Technology Trends

New technologies play an increasingly important role for the freight forwarding industry to improve operation efficiency. The adoption of automatic identification and data capture (AIDC) technology, which enables users to gain automatic access to information, as well as identify, collect and store data directly to a computer system, is expected to become more prevalent as radio frequency identification (RFID) sensors and Bluetooth technology are implemented throughout the logistics industry. Besides streamlining the process of manually transferring data between systems, the adoption of AIDC technology also enable freight forwarders to develop real time systems to give customers up-to-date information about their shipment delivery.

The Closer Economic Partnership Arrangement between Hong Kong and the Mainland (CEPA)

Hong Kong and the Chinese mainland entered into a subsidiary agreement under CEPA in 2014 to achieve basic liberalisation of trade in services in Guangdong (Guangdong Agreement), followed by the Agreement on Trade in Services (ATIS) which consolidated prior commitments under the Guangdong Agreement as well as the 10 Supplements introduced between 2004 and 2013. ATIS extends the trade liberalisation coverage from Guangdong to the rest of the mainland, effective from June 2016.

Unlike the previous Supplements which adopted a positive-list approach to introducing liberalisation measures, ATISadopts a hybrid approach to granting preferential access to Hong Kong using both positive and negative lists. With basic liberalisation of trade in service between the mainland and Hong Kong achieved, the city’s status as a logistics hub as well as gateway to the mainland is set to strengthen. The following sections cover the major liberalisation measures under ATIS:

Freight Forwarding Agency Services

Under CEPA, Hong Kong service suppliers (HKSS) are allowed to set up wholly owned freight forwarding agencies on the mainland to provide services such as shipping undertaking, issuance of bills of lading, settlement of freight rates, signing of service contracts, customs declaration and inspection, and use of common commercial bills for lading or multimodal transport documents for conducting multimodal transport services, etc. Please click to view the details of the preferential access concerning the freight forwarding agency services sector.

Maritime Transport Services

Under CEPA, HKSS can form wholly owned units in providing maritime services such as international transport (freight and passengers excluding cabotage transport), container station and depot services, non-vessel operating common carrying services, port cargo loading and unloading services, tug services between Hong Kong and mainland ports, ship maintenance and repair services, international ocean container leasing, buying and selling as well as trading of container parts, and ship survey services for ships registered in Hong Kong. Please click to view the details of the preferential access concerning the maritime transport services sector.

Road transport Services

CEPA allows HKSS to establish wholly owned enterprises in the provision of road freight transport and related services including road passenger transportation, freight transportation by road in trucks or cars, rental of commercial vehicles with operators, maintenance and repair of road transport equipment and supporting services for road transport services. Please click to view the details of the preferential access concerning the road freight transport services sector.