Shanghai free-trade zone

Challenges load up for Hong Kong as logistics hub

While the city has a long track record, Shanghai is throwing down the gauntlet with its free port eager to muscle in

PUBLISHED : Monday, 21 October, 2013, 3:56am
UPDATED : Wednesday, 22 October, 2014, 12:29pm

It is well before dawn and box after box of Louis Vuitton bags are being moved out of a gigantic warehouse in Tai Po, a regional distribution centre for the luxury brand. Their destination includes retail outlets as far away as Ulan Bator.

Meanwhile, staff at a factory in a shoddy-looking industrial building, in Kwai Chung, are defrosting tonnes of chocolate shipped daily from Brussels and repackaging them for duty free shops across the Asia-Pacific.

Hong Kong has long been a popular regional distribution centre for many multinational brands due to its proximity to the mainland market, free port status and efficiency. These centres provide lifelines for trucking companies, freight forwarders, airlines and shipping companies.

But Hong Kong's hub status is facing challenges from Shanghai, which has vowed to simplify restrictions on trading, shipping and logistics in order to promote the city as a free-trade zone. Shanghai aims to make its trading, finance and logistics services meet international standard in three years.

"Shanghai's free-trade zone initiative will increase its overall competitiveness and threaten Hong Kong's role as a financial, trading and logistics hub," said Samuel Lau, director of Kerry Logistics. "But it won't be a serious threat to Hong Kong in the next five years."

DHL expects that the establishment of the free trade zone will facilitate links between existing ports and airports in Shanghai and increase the efficiency of cargo flow. Bond-to-bond transfer of goods without the need to pay import tax among the existing custom-bond areas in Waigaoqiao port, Yangshan port and Pudong airport could reduce declaration times by about a day, said Victor Mok, chief executive of DHL's supply chain in North Asia. The "fast clearance" channel of goods from Pudong airport to the free-trade also will save half a day.

The zone allows value-added services that have been mainly carried out in Hong Kong to be performed in Shanghai. This could involve combining and assembling multiple products to create a single product.

"Shanghai wants to be a global trade and logistics hub and the free-trade zone policy will enable them to achieve this goal," said Mok.

DHL has already managed global distribution centres for multinational brands in Pudong. Mok said the convenience of the free-trade zone will allow it to attract more clients to Shanghai. Hong Kong could still edge out Shanghai in flexibility and productivity, Lau said. "The front-line workers in Hong Kong are still more productive than those in Shanghai," he added.

But in terms of logistics hardware, Hong Kong is at a disadvantage. The logistics centres in Shanghai are low-rise building spanning huge areas so that all the products from one company can be consolidated and processed more effectively in the same floor.

Most of the logistics centres in Hong Kong are often in industrial buildings of more than 20 storeys. The time required for the products to be trucked in and out of these buildings is longer. Hong Kong still has the advantage as a stepping stone to the mainland for foreign brands, especially for those that are new to the market. Getting through mainland customs remains a challenge for foreign companies as they are not familiar with the procedures.

"For food produced in Europe, translation of the sources and content of the food is needed to be done in Hong Kong to meet the requirement of mainland customs," Lau said. "

As demand for luxury products grew in Greater China, the need for regional distribution centres - whether in Hong Kong or Shanghai - will rise.

Kerry has managed such a centre for the French luxury brand in Hong Kong for more than 10 years. The total floor area for storing the leather products for the brand has increased five-fold to 80,000 square metres over that time.