kong-macau bay area co-operation · in 2015, guangdong’s logistics market was valued at rmb18.5...

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

Under the Bay Area initiative, Guangdong, Hong Kong and Macau are making greatefforts to enhance co-operation. These include the construction of a modern integratedtransport system in the Bay Area aimed at strengthening transport links between thethree regions. This, coupled with the implementation of effective customs clearancefacilitation measures, should enable smoother cargo flows between the different customsterritories and make logistics, transportation and supply chain management moreefficient. Logistics companies in the three regions can work more closely together, usingtheir respective advantages to turn the Bay Area into a vigorous and competitiveeconomic region.

Hong Kong’s logistics companies not only have an extensive trade and business networkworldwide, but also possess a wealth of experience in logistics management. They canco-operate with upstream and downstream enterprises in the Bay Area, applyingadvanced IT management systems to efficiently utilise regional logistics facilities, whilealleviating the problem of higher logistics costs in Guangdong and raising logisticsefficiency. As the Bay Area initiative continues to unfold, businesses should take note ofthe latest developments regarding facilitation measures likely to be introduced by thegovernments for customs clearance, inspection and quarantine of goods, etc. They couldalso consider co-operation with other industry players to tap the cold chain logistics andcross-border e-commerce opportunities stemming from growing demand amongmainland consumers for imported chilled and frozen food products and various kinds ofquality consumer goods.

The Hong Kong-Zhuhai-Macau Bridge allows aneasier flow of people and cargo in the Bay Area (1).

The Hong Kong-Zhuhai-Macau Bridge allows an easierflow 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-exportfreight forwarding sector, and Guangdong province is the most important area in Chinafor foreign trade. In 2017, the value of Guangdong’s imports and exports rose 8% from

18 July 2018

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the year before to RMB6.8 trillion, accounting for 24.5% of the nation’s total. The PearlRiver Delta (PRD) region in the province has developed into a leading global productionbase for a wide range of consumer goods and industrial products. It boasts maturesupply chain systems and a full range of producer services which are far superior to thosein most other similar manufacturing centres across the world.

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

Freight Traffic Volume of Guangdong Province

Source: Statistics Bureau of Guangdong Province, Guangdong Statistical Yearbook

There has also been a significant increase in sea freight. In 2017, Guangdong’s totalcontainer throughput grew by about 9% from the year before to over 62 million TEUs, alevel more than six times higher than that in 2000. In particular, the containerthroughput 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 thebusiest container ports in the world. The steady growth of production activities in the restof the PRD region and the eastern and western parts of Guangdong province has alsoboosted the freight transport business of other ports in the province.

Although the scale of Hong Kong’s container business has been overtaken by Shenzhen inrecent years, the city still retains its position as an important goods transshipment portfor 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]. Manyof these goods were shipped to Hong Kong directly from or via Guangdong for re-exportor transshipment to overseas markets using Hong Kong’s transport network. Consumergoods and industrial raw materials were also shipped to Hong Kong from foreign suppliersfor re-export or transshipment to Guangdong and other mainland provinces and cities.

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

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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 logisticsefficiency has yet to be raised to match it. Freight transport via seaports and othermodes of water transport currently accounts for a quarter of Guangdong’s total transportvolume, with the remaining 70% or more being transported by highway. Highways arenot only the main transportation mode for the delivery and distribution of various kinds ofconsumer goods and industrial products within the province, they are also importantpassages connecting Guangdong with other mainland provinces. They are also used totransport 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 wayto co-ordinate highway, water and air transport so that freight transport and logistics forimport and export between Guangdong and its global trading partners is made easier.This would help businesses connect with the international market and integrate closelywith industry supply chains in foreign countries.

According to the figures released jointly by the National Development and ReformCommission (NDRC) and China Federation of Logistics & Purchasing, the value of China’slogistics market has been rising steadily in recent years from RMB198 trillion in 2013 toRMB253 trillion in 2017. That’s an average annual nominal growth of 6.3% over a span offive years. Meanwhile, the growth of logistics cost has been declining, with the growthrate of the cost of transportation, storage and management slowing down, leading to adrop in logistics cost as a percentage of GDP from 18% to 14.6% between 2013 and2017[4].


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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 indeveloped countries such as the US and Japan, where logistics cost as a percentage ofGDP is only 8% to 9%. While China’s logistics efficiency is on the rise thanks to moredeveloped transportation networks and more advanced technological applications, thereis still much room for improvement in the fields of operation, management, modernlogistics technology and the application of information technology systems. Against thisbackdrop, 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 turndampened the competitiveness of businesses as well as the industry as a whole.

Efficiency of China’s logistics industry still lagsbehind those in developed countries (1).

Efficiency of China’s logistics industry still lags behindthose in developed countries (2).

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

In 2015, Guangdong’s logistics market was valued at RMB18.5 trillion. The value-addedof the logistics sector reached RMB517.6 billion, accounting for about 7.1% ofGuangdong’s GDP and 14% of the province’s service industry value-added. The totallogistics cost of the province reached RMB1.1 trillion, with logistics cost as a percentageof 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 thelow side compared to that of developed countries, and there are still many rooms forlogistics costs to come down. The Guangdong Logistics Development Plan points out thatGuangdong has yet to build a well-developed integrated transport system. Currently,freight transport mainly relies on highways while effective intermodal transportationlinking land, sea and air has yet to be developed. This means goods have to be stored in


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warehouses and transportation time is long, pushing up the logistics cost. Furthermore,packaging standards and product specifications of some businesses are not compatiblewith the logistics facilities, and few companies use information technology logisticssystems with standard interfaces. This is a barrier to improving logistics efficiency forfreight transport.

To improve this, Guangdong is trying to persuade the traditional logistics industry topursue innovative development. Businesses are encouraged to apply the latesttechnology, such as “Internet +”, as well as advanced information technologies like bigdata analytics, cloud computing and IoT (Internet of Things), to their logistics services. Itis hoped that by the year 2020 a highly efficient modern logistics service system will havetaken 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%, andlowering total logistics cost as a percentage of GDP from 15% in 2015 to 14.5% by 2020.

Close Collaboration to Enhance Logistics Services

Guangdong, Hong Kong and Macau are joiningforces to upgrade cross-regional transportationfacilities.

To enhance the efficiency of logistics services,Guangdong is not only trying to improvetransportation networks in the province, but alsoto promote the development of internationallogistics. The plan is to turn the Guangdong-HongKong-Macau Bay Area into a logistics hub, bystrengthening connections in seaport, airport,road transport and logistics services betweenGuangdong, Hong Kong and Macau, andpromoting logistics integration in the Bay Area.

In July 2017, NDRC and the governments ofGuangdong, Hong Kong and Macau signed the Framework Agreement on DeepeningGuangdong-Hong Kong-Macau Co-operation inthe Development of the Bay Area. One of the keyareas for co-operation is to improve connectionsbetween facilities in the three regions in a bid tobuild a highly efficient and effective modernintegrated transport system in the Bay Area.Hong Kong plans to use its advantages as an international shipping centre to lead othercities 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 toadvance the integration and connection between various modes of transportation.Collaboration between the governments of the three regions in constructing differenttransportation facilities should play a positive role in promoting freight transport andlogistics in the Bay Area and drive the growth of the logistics industry.

However, because Guangdong, Hong Kong and Macau belong to three different customsterritories (each with its own import-export customs clearance, product standards andinspection and quarantine system), goods flowing between these three places are subjectto different trade regulations and control measures. This in turn has an impact onlogistics efficiency and cost. Rationalising the different barriers in different customsterritories as well as minimising unnecessary administrative formalities in a move to bringabout seamless connection of logistics and transportation of the three regions is one of


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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 inthe Bay Area in May 2018, to canvass their opinions about how cities in the areacan further strengthen co-operation with Hong Kong. These were some of theiropinions:

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


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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 overconnecting transportation networks in the Bay Area, implement customs clearancefacilitation measures, and develop transport infrastructure in the three regions, it is likelythat logistics efficiency in the Bay Area will improve further. This should in turn help toshorten transportation time and lower logistics cost for businesses in the area. HongKong’s logistics operators, relying on the city’s sound international logistics network, linkup with their counterparts within the Bay Area to capture business opportunities arisingfrom the collaboration to provide more efficient logistics services. Apart from boosting theimport-export business of the relevant industries, they can also help enterprises connectwith emerging production bases in Asia in a bid to strengthen their supply chainmanagement. As mainland consumers’ demand for imported chilled and frozen foodproducts and quality consumer goods continues to rise, this will provide additionalopportunities to logistics operators. Industry players are therefore advised to pay closeattention to this development.


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[1] According to WTO figures, in 2017, the total value of China’s import-export traderanked 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

Copyright©2018 Hong Kong Trade Development Council. Reproduction in whole or in part without priorpermission is prohibited. While every effort has been made to ensure accuracy, the Hong Kong TradeDevelopment Council is not responsible for any errors. Views expressed in this report are not necessarilythose of the Hong Kong Trade Development Council.


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