Hong Kong handling competition intensifies

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Ground handling of air cargo is a competitive sector of the business. Perhaps the clearest example of how keen competition can be is at Hong Kong International Airport (HKIA), where three major cargo terminals with a collective 7.6 million tonnes of capacity are scrambling to maintain or grow their share of a 4.1-million-tonne cargo pie.

“It [competition] is pretty fierce, and it’s going to get worse,” says Mark Whitehead, chief executive of Hong Kong Air Cargo Terminals Limited (HACTL). “We are not going to come up with 3.5 million tonnes of cargo in the next few years. Ultimately, we can probably get there, but in the meantime, everyone’s priority will be to retain existing customers and attract new ones. My problem is I have most of them [customers] already, so therefore, I will be a natural target.”

The competition became keener last year when Cathay Pacific, a former HACTL shareholder and user of its facility, opened its own terminal with an initial capacity of 2.6 million tonnes. Asia Airfreight Terminal is the smallest cargo operator of the three with a capacity of 1.5 million tonnes. HACTL’s annual capacity is 3.5 million tonnes.

James Woodrow, Cathay’s head of cargo, said the competition is driving all three terminals to be better.

“All three terminals have space, and all three are competing for business,” Woodrow says.

HACTL, which began operations 36 years ago, is the largest and oldest cargo terminal operator at HKIA. Asia Airfreight Terminal is the second air cargo terminal at HKIA introduced by the Airport Authority Hong Kong and has been operating since 1998. It employs more than 450. Khaw Hock Eng, AAT’s general manager since last July, acknowledges that being the smallest terminal operator, AAT has to be more nimble than its two competitors and focus on new ideas and innovation.

 “We have to differentiate ourselves from the other two terminals,” Khaw says. “I think it is quite well-known that the services offered by all three terminals are by the highest standards. Being the smallest player, we pride ourselves on being more flexible and having a lean structure. We are fast to act on changes required by our customers.”

AAT works with about 35 airlines. Its major customers include Singapore Airlines, FedEx, All Nippon Airways, Asiana Airlines and Lufthansa. Khaw says business has been slow for the first quarter of 2014, but he remains optimistic the second half of the year will be better.

HACTL is at the other end of the spectrum with first quarter figures exceeding expectations, Whitehead says. If the Cathay Pacific numbers from last year are excluded, HACTL handled 11.7 percent more cargo during the first three months of 2014.

“For us, it’s been quite a buoyant market,” Whitehead says. “We have acquired some new airlines, which have helped, effective Jan. 1, and that’s brought in a natural volume. Some of our existing customers, Hong Kong Airlines being the most notable, but also some of the Gulf carries, have put a lot of extra tonnage or capacity into the Hong Kong market.”

All of the cargo terminal operators say they are competing on service at the world’s busiest cargo airport.  

“HACTL probably runs the best cargo terminal in the world, and we want to be better,” Woodrow says. “HACTL is a common user terminal and they have one set of standards. It’s a high standard, but that is the standard. We now have our own cargo terminal, so if we want to tailor-make solutions for customers, then we can.”

Terminal operators also face a common challenge: the acute shortage of labor in the Hong Kong market. Through the first two months of the year, unemployment rate was 3.1 percent, a rate generally considered to be full employment.

Asked about HACTL’s biggest challenge, Whitehead, without hesitation, cites labor. He says it will be a major focus of HACTL in 2014. HACTL employs more than 2,700.

“Many industries in Hong Kong have a shortage of labor,” Whitehead says. “In certain job skills such as ramp operators, there is an acute shortage, so retaining current labor is the big challenge.”

Unlike AAT and Cathay, which both use labor provided by outside contractors, HACTL employs all of its personnel directly.

“We do it from a point of being able to build up our staff and to demonstrate that if they join us, they will have a long-term career,” Whitehead says. “They will be trained properly and looked after for long-term employment. So, for example when Cathay sold their shares in HACTL and moved to set up their own facility, we made a statement, which we stood by, to the workforce that we wouldn’t make anyone redundant, and we haven’t.”

Khaw agrees that the biggest ongoing issue for cargo operations in Hong Kong is the ongoing labor shortage, which he says is more severe in the airport area.

“Trying to attract workers is a challenge,” Khaw says. “We do experience higher costs. The contractors we are working with also face similar challenges. Training is also important by providing our staff more opportunities to develop and to grow with the company together.”

Cathay, which employs about 1,800 at its cargo terminal, is outsourcing its labor to two subcontractors. In a traditionally male-dominated field, Cathay’s highly automated facility is allowing it to employ a more diverse work force.

“We have a lot of females, and that has not been the case in the past,” says Kelvin Ko, chief operating officer at Cathay Pacific Services Ltd., which operates Cathay’s cargo terminal. “We are creating another source of labor.”

Ko says about 40 percent of the terminal’s workforce is female, and he cites the Cathay brand as a reason for attracting a relatively large number of women.

While he anticipates the usual ups and downs in terms of cargo volume for the remainder of the year, Whitehead is optimistic about 2014 overall.

“We always look relatively short-term. I feel more confident than I did on the first of January that 2014 will be a solid year for air cargo in Hong Kong,” he says. “It will certainly be stronger than 2013. So, we are pretty upbeat unless one of those things happens that we can’t predict.”

 

More pockets of growth

Increased pharmaceutical traffic is helping drive business for two notable airfreight ground handling firms.

Luxembourg-based LuxairCARGO had a stellar 2013, a strong start to 2014 and is looking for more of the same.

Laurent Jossart, executive vice president, describes LuxairCARGO’s business as “amazing” with growth of 8 percent. That rate continued at 8 percent for the first quarter, and Jossart says the company forecasts a similar pace through the end of 2014.

“Business in 2013 was quite, I would say, amazing for us,” Jossart says. “We had terrific growth of 8 percent in Luxembourg.”

Jossart gives some of the credit to LuxairCARGO’s new health care and pharmaceutical center, which opened in 2013. He says special cargo, including perishables, has been driving growth.

Jossart, formerly CFO of the LuxairGroup before coming over to the cargo side on Jan. 1, believes the airfreight industry needs to invest more in technology to keep a competitive edge over seafreight and integrators. He says the air cargo handling sector in general needs to invest much more in IT.

Richard van Bruygom, CEO Americas for Worldwide Flight Services, reports that business has been steady of late, with growth in some regions of the world.

“In many cases, we are actually seeing some growth, out of the Middle East with the Middle Eastern carriers, and the Chinese carriers seem to be growing at the moment. There isn’t much growth in Europe, but it remains steady,” he says.

Van Bruygom worked 18 years at FedEx and says most of the air cargo industry is not on par with his former employer in terms of technology.

“The rest of the cargo industry is not at the level of scanning that we had back in the 1990s. I know that’s something that [the International Air Transport Association] is working on,” he says. “The technology is there, but there is a cost to everything. I don’t think shippers necessarily see value in that.”

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