CLosed skies cloud booming sector

The lucrative logistics industry is being driven by multinational retailers' need to reduce the cost of their supply chains.

Gone are the days when huge inventories of high-technology goods helped them benefit from economies of scale. Technology is developing with such speed that most stockpiles are obsolete before they hit the shelves.

With inventory costs responsible for 30 per cent to 40 per cent of the cost of today's finished products, warehousing has become a dirty word.

Multinationals no longer want to have profits held ransom by errant long- or medium-term forecasting in volatile markets, so they have turned to just-in-time delivery strategies.

Logistics service providers know the responsiveness, flexibility and speed to market the new business model can only be delivered by air transport.

So while it is fine to commission exhaustive studies recommending huge infrastructure projects and strategies for the integration of the supply chain, unless air carriers are allowed to deliver, the chain breaks down at the airport. This is why several express operators have called once again for the Government to open Hong Kong's skies.

David Cunningham, Federal Express president Asia-Pacific, said having an expansive plan to leverage Chek Lap Kok's potential during the next 20 years was essential.

"It's critical to jobs, to the service industry, and it's critical to maximising the use of that strategic asset," he said.

"There's this fear that a more liberal aviation regime will threaten local carriers in some way. All it will do is increase the size of the [market] and the opportunity for express and local airlines because it will facilitate the flow of goods through Hong Kong."

He said the trend in Asia was towards open skies. For example, FedEx now has 48 flights a week from Malaysia, compared with 10 five years ago; it now flies 36 times a week from Singapore, compared with 14 in 1996. From Hong Kong it flies 45 times a week, an increase of three flights in the past three years. Other foreign carriers are in the same boat.

"Hong Kong is ideally situated because it is the geographical centre of Asia. But open skies are vital. If you can't serve your customers in the best location, you will go the second best," said Charles Adams, United Parcel Service (UPS) president Asia-Pacific.

An executive from TNT International Express, which stopped operating its air-fleet in Asia in 1999 and admits TNT is not constrained by the present Air Services Agreement (ASA), agrees the writing is on the wall.

"It is obvious. If Hong Kong wants to become the logistics hub in Asia they have to do something with [the present ASA]," business development manager Hans Olijve said.

"Why did we chose Manila [as a hub] when we ran our own fleet? Why is FedEx in Subic, and why is UPS looking at Clark Airforce Base? That is where you have the landing rights and a more flexible ASA."

Operational flexibility has contributed to the birth of a logistics industry in Singapore unparalleled in Asia. Its dedicated logistics complex at Changi South, where UPS has opened its S$38-million (about HK$166 million) regional headquarters, is home to almost every major logistics company and the multinationals needing their services.

At the facility's unveiling in August the Minister for Communication and Information Technology, Yeo Cheow Tong, said: "Logistics is a key industry in our overall economy. A vibrant logistics industry enhances Singapore as an international business hub. Efficient logistics services also help boost the competitiveness of other industries in the economy. We are therefore committed to providing a total logistics environment for logistics companies."

Space constraints at Changi South have already prompted Singapore to start reclaiming a further 22 hectares of land for the new Airport Logistics Park.

Carriers are attracted to the high-value, hi-tech products because they generate a much greater profit yield per kilogram than the relatively low-value products that move by sea or rail. In weight terms, roughly 2 per cent of the world's goods move by air – and about 40 per cent of the value of international trade.

However, none of the operators said they would pull out of Hong Kong if the ASA is not revised because the SAR is the gateway to the key south China market. "We're not going to pull out of Hong Kong, we just won't expand there," Mr Adams said. Copyright 2001 South China Morning Post Publishers Ltd. Source: World Reporter (Trade Mark) – Asia Intelligence Wire.