Hong Kong firms face profit squeeze as US importers cut orders amid oil crisis

US importers have cut orders and shifted to short-term contracts amid a global oil crisis triggered by war in the Middle East, according to Hong Kong business leaders, who warn that profit margins are eroding and liquidity is becoming strained. Executive Council member and businessman Jeffrey Lam Kin-fung said on Sunday that the US-Israel war on Iran had driven up fuel costs, raising operating expenses for local firms. He urged the Hong Kong government to bolster ties with Central Asian and Asean nations, framing the move as a vital strategy to diversify market risks. “Orders are greatly affected, shifting from long-term to short-term, but costs have risen with no room to pass them on through price increases,” Lam said. “The situation is unclear and will definitely impact the cash flow of Hong Kong’s small and medium-sized enterprises, so we cannot sit idly by.” The Middle East war, now in its fourth week, has triggered a global oil crisis, with Iran sealing the Strait of Hormuz, a critical energy chokepoint. Danny Lau Tat-pong, honorary chairman of the Hong Kong Small and Medium Enterprises Association, told the South China Morning Post that geopolitical tensions had caused global energy prices to spike and affected pricing on international contracts. He cited his family business Kam Pin Industrial, which produces architectural aluminium walls for US and Japanese markets at its Dongguan plant in mainland China. “While existing contracts remain at fixed rates, new business is becoming more expensive due to the volatility in energy markets. We have seen fewer orders from the United States,” Lau said. As aluminium curtain wall projects were tied to lengthy construction cycles, orders typically consist of medium-to-large contracts rather than small-scale purchases, he added. “For potential orders still in the quotation stage, we have had to raise prices by around 5 per cent to offset rising oil prices,” Lau said. He warned of possible price increases if the oil crisis worsened. In addition to fuel prices, Lau said more expensive logistics services and tightened airfreight capacity had left many firms in the sector feeling “distressed”. He said re-routings had doubled or even quadrupled local-US airfreight costs and shipping delays were creating “significant lags in the payment cycle, placing an additional burden on the company’s liquidity”. “Contract terms usually dictate payment upon delivery. If goods are delayed, it puts immense pressure on our cash flow,” he said. Lau said his firm was coordinating with financial institutions to adjust loan facilities to cover the widening gap in capital recovery. Aaron Shum Wan-lung, founding president of the Hong Kong-Middle East Business Chamber, warned that the war was dampening new business for the jewellery sector, with buyers adopting a wait-and-see approach. Shum, whose jewellery firm operates over 30 stores across the Middle East, noted that while the typical two-to-three-month order cycle remained stable, a slowdown in new contracts was imminent. “We haven’t seen cancellations for the major jewellery show in Hong Kong this September, but very few Middle Eastern buyers are expected to attend,” Shum said, adding that his firm had suspended visits to the region. “Trade activities have been adjusted and the impact will last at least three months. I am monitoring the situation but we may not see a new wave of orders until after Christmas.” To mitigate risks, Shum plans to recalibrate his retail operations in the Middle East. He also indicated that rising shipping costs, driven by higher oil prices, might lead to slight price increases in future orders. Exco’s Lam cancelled a planned business trip to the Middle East following Cathay Pacific Airways’ suspension of all flights to the region until the end of April. He urged the government to forge links with alternative markets, particularly in Central Asia and the 10-member Asean economic bloc. “Hong Kong currently has no direct flights to Central Asia, but the region is worth considering. With support from the government, more direct connections will help our development,” he said. Lam also called for more bilateral trade agreements and overseas offices to assist companies in “going global” and diversifying risks. Despite these headwinds, Lam observed that global instability had boosted capital inflows to Hong Kong given its safe haven status. He said more than HK$300 billion (US$38.3 billion) has entered the city since March from places such as Dubai, Singapore and Europe, drawn by Hong Kong’s political and livelihood stability.

Hong Kong firms face profit squeeze as US importers cut orders amid oil crisis

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}City’s business leaders also say government should bolster ties with Central Asia and Asean nations to diversify market risks

City’s business leaders also say government should bolster ties with Central Asia and Asean nations to diversify market risks