Growing demand sees bright future for logistics firms

Hong Kong logistics companies are proving their resilience to tough competition, surging fuel prices and economic woes afflicting the North American market.

'I am pretty optimistic about logistics services in Hong Kong and South China,' said Walther Nahr, vice-chairman of the Hong Kong Association of Freight Forwarding and Logistics (Haffa). 'From what we see demand from customers is still growing on the export side.'

He attributed this in part to buyers in the United States and elsewhere changing shipment terms from free on board (FOB) to delivered duty paid (DDP). The net result was that, rather than running their own shipping departments, these companies were leaving suppliers to arrange everything related to transport and delivery. And they were appointing third-party service providers with an international network and the scope of operations to handle everything from bar coding and shrink wrapping to online tracking, customs clearance and a choice of sea and air freight connections.

'Fashion houses, for example, are saying to their suppliers 'you get this from the factory to the store or DC [distribution centre] overseas',' Mr Nahr said.

He said it was encouraging to see the government's plans to establish a dedicated facility in the Kwai Chung area for small and medium-sized logistics companies. This would make it easier to co-ordinate different services at one location and was definitely 'a move in the right direction'.

Despite the somewhat gloomy forecasts emanating from other quarters, Mr Nahr, who is also corporate vice-president of AGI Logistics (HK), said there was no reason to be downbeat about prospects for this year. Overall export volumes, which largely determined the health of the local logistics sector, were still growing, and even if the annual rate of expansion for air and ocean traffic was no longer in double digits, anything close to a 5 per cent yearly increase was impressive.

He noted too that, even though there were signs of a slight slowdown in the United States economy, if you judged things by the recent cargo statistics, there was no indication of recession, and business to Europe was well on track.

'Forwarders serving both directions should be able to maintain sufficient revenue, so any slowdown in one market wouldn't hurt them too much,' he said.

'There has been some mention that factories in South China are not fully utilised but that means more orders are completed on time.'

If that trend continued, one likely consequence was that exporters would have the leeway to ship more cargo by sea rather than air. The key, though, for logistics companies was to be flexible enough to respond to demand, whether that meant using alternative modes of transport, different ports and airports in South China, or offering a range of transit times.

Mr Nahr said a concern for Haffa this year was that it was difficult to predict how changes related to anti-trust legislation - largely instigated in Europe and the US - would play out in the industry.

With the removal of the various standard tariffs covering freight rates, surcharges and local fees, it would be necessary for customers, at least in theory, to negotiate each item separately with different service providers.

'Tariffs would breach anti-trust laws, but the negative side is that the small and medium shippers will no longer have a point of reference,' Mr Nahr said. 'Everyone was very keen to bring in the anti-trust laws, but there will be an extremely complex scenario, which will not work in favour of anyone who is shipping.

'In my view, it will create more work for shippers and freight forwarders so, in the end, it will make things more expensive.'