Freight Forwarding

Overview

• By arranging cargo transport, the freight forwarding industry has contributed fundamentally to Hong Kong's success as the 13th largest merchandise trading entity and one of the most trade-oriented economies in the world.

• Most of the larger freight forwarders have a wide network of overseas branches, and act as agents for international air and ocean liners.

• The industry is responding to customers' needs by providing more value-added services such as warehousing, packing, sorting, distribution and total logistics solutions.

• The industry has benefited from Hong Kong's leading freight infrastructure. Hong Kong's international air cargo throughput ranks first in the world, and Hong Kong is the world's third busiest container port.

Industry Data

Total (Inward+Outward) Freight Movement (million tonnes)

Source: Summary Statistics on Port Traffic of Hong Kong, Hong Kong Port Development Council

Source: Quarterly report of Employment, Vacancies and Payroll Statistics, Hong Kong Census and Statistics Department

(US$ million)

Source: Report on Hong Kong Trade in Service Statistics, Report on Annual Survey of Transport and Related Services, Hong Kong Census and Statistics Department


Range of Services

The core business of a freight forwarder is to move a shipper's consignment to the consignee within the stipulated time, in perfect order and at the most competitive price. Responding to changing customer demands, many freight forwarders also provide more value-added services such as warehousing, distribution and total logistics solutions.

The services offered by the industry vary according to the sophistication of the freight forwarder. The larger and more comprehensive freight forwarders offer a full range of transportation and logistics services including warehousing, consolidation, air express, trucking, distribution and customs clearance, tracking and monitoring of freight being transported, and applying electronics data interchange (EDI) technology to facilitate just-in-time based supply chain management. Their customers, particularly those in the time-sensitive manufacturing, trading and retail sectors, can thus concentrate on their core competencies and reduce their business cycle time.

In general, the smaller freight forwarders provide more basic and economical services. Related services involved in the import/export process, such as the preparation of shipping documents, customs clearance and logistics, may be undertaken by the import and export traders or their agents. The smaller firms do provide more flexibility and more personalised service. In addition, they have lower overheads as they "piggyback" on the fixed capacities of the larger companies, and therefore can often provide lower rates.

Under the financial tsunami, total freight movement is slowing, growing by 3.7% YoY in 2008. The pressure on Hong Kong freight forwarding companies is expected to mount as trade continues to slow.


Service Providers

The Hong Kong Association of Freight Forwarding Agents (HAFFA), formed in 1966, is a local association representing the interests of the freight forwarding industry. It has been renamed as Hong Kong Association of Freight Forwarding and Logistics Ltd to reflect the sophisticated nature of the business.

The larger sea freight forwarders tend to target big companies for exclusive deals. They provide value-added services and invest in information technology to ensure that they meet the expanding needs of the customer's changing markets. They can also set up individual logistics subsidiaries to provide tailor-made and specialised services in order to work as a service partner for their customers. Generally speaking, larger companies' well-established brands and far-reaching logistics networks have enhanced their significant market shares in the global export market. The smaller regional players, however, have better understanding of the business culture, better knowledge of their markets and have established networks in the region.

As reliable and speedy delivery is the key to successful freight forwarding services, Hong Kong's forwarders' understanding of the international practices and their networks can help them to secure the confidence of international customers.


Exports

The destinations of freight forwarding services mirror the trade routes. The main markets for international freight forwarders are thus Asia, North America, and Europe. The Chinese mainland is the most important source of cargo for Hong Kong's freight forwarders. In 2008, 62.5% of Hong Kong's re-exports were originated from the Chinese mainland.

The larger freight forwarders often follow their big international customers to new markets. In some instances transport service providers set up business in the new markets before recommending their customers to follow suit. They expand overseas usually by setting up subsidiaries, joint ventures or appointing agents to render global services.


Major Export Markets of Cargo Forwarding Services 2005-2007 (US$ million)

Sources: Report on Hong Kong Trade in Services Statistics, Census and Statistics Department


Industry Development and Market Outlook

Outsourcing Logistics Services

A number of global trends are affecting the freight forwarding industry, including the globalisation of the supply chain, mass customisation, shortening of product lifecycles, low inventory, and quick response requirements. In the face of these trends, an increasing number of businesses feel the need to optimise their supply chains via external experts, i.e. third-party logistics (3PL) and fourth-party logistics (4PL).

3PL refers to an outsourced provider that manages all or a significant part of a business' logistics requirements and performs transportation, locating and sometimes product consolidation activities. In contrast, 4PL refers to an outsourced provider which completely integrates its client's supply chain - managing the resources, capability and technology of all parties, including the 3PLs, to deliver a comprehensive supply chain solution.

Freight Forwarding Market in China

In response to the financial tsunami, the impact of which became increasingly visible in the fourth quarter of 2008, the Chinese government has announced measures to re-invigorate ten industries to sustain economic growth, with the logistics industry being one of the ten. Stimulus policies include:

• To enlarge demand for logistics services, as well as enhancing interaction between logistics companies, manufacturers and commercial enterprises with an aim to raise the professional standard of the industry.
• To speed up mergers and acquisitions (M&A) in order to breed a batch of large logistics companies that have high quality of service and are able to compete internationally.
• To push forward the development of energy, mining, automobile, agriculture, and medicine logistics and to speed up development of international logistics and bonded-area logistics.
• To construct logistics facilities and to promote standardisation and computerisation of logistics service.
• Nine major projects to develop the logistics industry: (1) constructing inter-modal facilities; (2) logistic parks; (3) developing urban distribution; (4) developing large scale merchandise and rural logistics; (5) enhancing interaction between manufacturers and logistics companies; (6) promoting standardisation and use of technology; (7) developing a common platform for shared information; (8) developing logistic technology and (9) developing emergency logistics.

According to the China Federation of Logistics & Purchasing (CFLP), total logistics value reached RMB89.9 trillion in 2008, up 320% compared with 2000, or a compound annual growth rate (CAGR) of 23%.?/font>

In 2008, value-added of the logistics industry was RMB2 trillion, up 190% compared with 2000, or a CAGR of 19%. The industry's share of GDP reached 6.6%, and its share of value-added of all services industries was 16.5%.

Logistics cost as a percentage to GDP has been falling. In 2008, it was 18.3%, down from 19.4% as in 2000. This indicates that the mainland's logistics sector has become more efficient. Nevertheless, it is estimated that logistics cost as a percentage to GDP is still about 100% more than those in developed countries.

Since 11 December 2005, the mainland government has allowed the access of wholly foreign-owned forwarders to the industry as part of China's WTO accession terms. These new opportunities are expected to bring further changes to the freight forwarding market.

Regarding regulations, the mainland government introduced a new register system in April 2005. In contrast with the old examination system which required RMB 5 million as registered capital, the new system imposes no access restriction and fee. Records on forwarders are shifted from hard copies to digital-based.


The Closer Economic Partnership Arrangement between Hong Kong and the Mainland (CEPA)

Freight Forwarding

Since the promulgation of the "Administrative Measures on Foreign-invested International Freight Forwarding Agency" (Decree of the Ministry of Commerce No. 19 - Dec 2005), foreign companies enjoy more or less the same benefits as the Hong?Kong service suppliers (HKSS). Both can set up wholly-owned freight forwarding agencies on the mainland to provide the following services:

(1) Booking (leasing of ships, and chartering of airplanes and shipping space), consignment, warehouse storage and packing
(2) Supervising loading and unloading, container grouping and unpacking, allocating goods, providing transit as well as related short-distance transport services
(3) Arranging customs declarations, customs examination and inspection, and insurance
(4) Filling out of relevant documents, payment of transportation fees, settlement of accounts and miscellaneous freight charges
(5) Agency business of international exhibits, personal items and transportation of transit cargoes
(6) Arranging international multimodal transportation and container transport (including the packing of containers)
(7) International express delivery (excluding personal mail and postal services for official documents of provincial or higher branches of the party, government or military)
(8) Consultancy and other international forwarding agency business.

The minimum registered capital requirements for companies engaged in international freight forwarding companies are as follows:

a) International freight forwarding, sea transportation: RMB 5 million
b) International freight forwarding, air Transportation: RMB 3 million
c) International freight forwarding, land transportation: RMB 2 million

If the forwarder operates more than one type of freight forwarding mode, the highest amount of the minimum registered capital should follow.

But for other services, HKSS has certain WTO-plus privileges over other foreign invested enterprises.

Maritime Transport Services

Compared with the conditions applying to other foreign companies, CEPA allows Hong Kong service providers to have greater flexibility in providing many types of maritime services, as they are allowed to form wholly-owned units.

China's Regulations on the Administration of Foreign Investment in International Marine Transportation stipulate that only minority-owned foreign joint ventures are allowed to provide services that include the following: international shipping agency; international ship management; international shipping; maritime cargo-handling services; customs clearance services for maritime transport; container station and depot services; international marine shipping, freight loading and unloading, and international marine shipping container terminal and yard business.

Under CEPA, Hong Kong service providers can form wholly-owned units in providing maritime services such as international ship management services, container station and depot services, non-vessel operating common carrying services, port cargo loading and unloading services, tug services between Hong Kong and mainland ports, ship maintenance and repair services, international ocean container leasing, buying and selling as well as trading of container parts, and ship survey services for ships registered in Hong Kong.

Because of Supplement V provisions, the business scope is further expanded for Hong Kong service providers, as they will be allowed from January 2009 to set up wholly-owned enterprises and branches in Guangdong on a pilot basis to provide shipping agency services to vessel operators for routes between Guangdong Province and Hong Kong and Macau.

Road transport Services

CEPA currently allows HKSS to establish wholly-owned enterprises in the provision of road freight transport and related services like road freight transportation station and motor vehicle repair services. The approval is currently vested in the Ministry of Transport.

The latest CEPA agreement on road transport services states that Guangdong is delegated the authority to approve the provision of road freight transport services by Hong Kong-invested production enterprises in Guangdong. Applications for providing transport-related services in Guangdong, such as road freight transport stations, repair and driver training enterprises, are handled by the Guangdong authorities. These new arrangements are expected to hasten the approval process and facilitate HKSS in their business expansion into Guangdong.