UPS to spend USD100m on Hong Kong hub

Global express operator United Parcel Service (UPS) is set to splash out US$100 million to make Hong Kong its hub for trade with Europe, pending regulatory approval of its second tranche of aviation rights under last year's Air Services Agreement with the United States, according to industry sources.

The sources said the Louisville-based firm would spend the money buying a dedicated aircraft, expanding its capacity allocation at Hongkong Air Cargo Terminals (Hactl) and purchasing additional ground-handling equipment should it gain additional fifth-freedom rights through Hong Kong in October.

The news comes after the carrier's announcement last month that it had moved responsibility for its burgeoning Greater China business to Shanghai, prompting speculation that the importance of Hong Kong in its Asia network was waning.

Senior vice-president (Greater China) Perry Chao last night declined to confirm details of the potential initiative but told journalists at an earlier briefing yesterday that UPS would underline its commitment to Hong Kong "in the next few months". "You will see a significant investment in and expansion of our facilities in Hong Kong," Mr Chao said.

UPS has applied for 18 weekly flights, including six between Hong Kong and Cologne, Germany, its European hub. The carrier hopes to connect Cologne to Hong Kong, where it has 625 employees, in October.

"The industry tends to focus on the business we do across the Pacific because we are a US operator," Mr Chao said. "But Europe represents a significant part of our business matrix as well."

The industry source said the carrier was deciding whether to use B747 or MD11 aircraft once the expansion of its fifth-freedom rights was granted. Fifth-freedom rights allow a carrier to pick up cargo destined for a destination other than where the flight originated from.

The source said US$60 million of UPS' outlay would be used to purchase the new aircraft.

UPS received its first tranche of fifth-freedom rights in October's landmark air-services agreement between the US and Hong Kong. It used the rights largely to increase connections between Chek Lap Kok and its hub in the Philippines, from where it serves Europe at present.

Hactl, the airport's dominant air-freight handling company, will lose its biggest courier operator next year when DHL Worldwide Express moves into its new express centre at the airport.

Hactl would not confirm yesterday that it was in negotiations with UPS about taking extra space at its express facilities.

"We have contacted all the express companies to see if there is interest in the space DHL will be vacating," a spokeswoman said, adding the company had not ruled out the possibility it would use the space to launch other services.

Mr Chao said yesterday that the transfer did not reflect fading interest in Hong Kong, which he said would remain one of UPS' top three markets in the Asia-Pacific.

"We needed to bring our China management up to speed faster, much faster, because of the opportunities that market will represent in the next few years," he said, adding that the company's China joint ventures presented different challenges from its wholly owned subsidiaries elsewhere.

Asked if UPS would pursue a wholly owned China business in 2006 as allowed by the country's World Trade Organisation accession agreement, Mr Chao said: "We are happy with Shanghai joint-venture partner Sinotrans. There may be some opportunities to wholly own businesses in a few key locations, but China is more than a few key locations. It takes an established network to serve China, and those kind of networks are not cheap to build."

UPS saw its China business grow more than 40 per cent year on year in the first quarter.

While the mainland's export growth had stolen the spotlight in the past year, Mr Chao said its potential for import growth was where UPS was concentrating.

"Our major market focus is on the inbound to China right now," he said.

"The export volumes are sustainable but the value is in inbound because the WTO signing was all about opening China's consumers to the world."

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