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One for the Road

Hong Kong boasts a great deal of wine-collecting experience and a state-of-the-art supply chain over 

The scrapping of wine duty allowed many Hong Kong-owned fine wine stored overseas to
come home

 

The abolition in 2008 of duty on wine imported into Hong Kong was the catalyst for the city to become Asia’s wine storage and trading hub. Since then, wine has been flowing in by the container load. Government figures show wine imports into Hong Kong rose by 40 per cent last year, reaching a value of US$1.2 billion, while Asia’s wine consumption is forecast to double to US$27 billion in the next five years. Hong Kong also accounted for more than half of the world’s wine-auction market in 2011. 

But there’s more to Hong Kong’s rapid success as a wine logistics centre than simply the absence of taxes. Aside from its usual advantages of geography, level playing field and business expertise, Hong Kong boasts a great deal of wine-collecting experience and a state-of-the-art supply chain overseen by an impartial accreditation body. 

 Dr Paul Tsui, Managing Director of The Janel Group of Hong Kong Ltd
 

Dr Paul Tsui, Managing Director of The Janel Group of Hong Kong Ltd

“We don’t have any special rules and regulations for wine any more because we’re tax free for any alcohol content less than 30 per cent,” says Dr Paul Tsui, Managing Director of The Janel Group of Hong Kong Ltd, an integrated third-party logistics provider, and Chairman of the Hong Kong Association of Freight Forwarding and Logistics Ltd. “It’s just like moving general cargo. All you need is a packing list and invoice.” 

Dr Tsui also notes that wines imported to the Chinese mainland from Hong Kong now get preferential treatment during the mainland customs process, which is complicated and time-consuming. “A lot of companies like to use a Hong Kong company to do all these customs and quarantine procedures because you can shorten the clearance time.” While they’re waiting, customers can store their wines properly in Hong Kong rather than in a bonded warehouse on the mainland that lacks a temperature-controlled environment. “In particular, during summer, the temperature in the bonded warehouse may be 30 to 40 degrees and you might be facing a lot of problems.” 

Historical Advantage

Hong Kong also has history on its side. “Hong Kong’s activity in fine wine trade goes back 40 or 50 years,” explains Gregory De'eb, Principal of Crown Wine Cellars Ltd. “We were under the British, and the UK was the centre of the rare and fine wine world for a number of centuries.” 

Hong Kong collectors had accumulated wine for decades, leaving them in storage in the United Kingdom, France and the United States. In 2003, while setting up the company, Mr De'eb discovered that “as much as 15 per cent of all the rare and fine wines that were kept in storage around the world were owned by Hong Kong people. That made us, per capita 10 years ago, perhaps the greatest wine-collecting nation in the world.” 

Without those four or five decades of wine collecting, he asserts, “we could never be a wine centre. The reason we’ve become so powerful so quickly is because we had this absolute depth of knowledge in Hong Kong just waiting. When the government reduced the wine duty to zero, all of this expertise suddenly came to the top. And the more wines that flowed in, the more experts emerged. Then, of course, in our case we had this great bonus, which is we had this massive amount of Hong Kong-owned wine just waiting to come home.” 

Supply Chain Visibility

 Gregory De ’Eb set up fine wine storage Crown Wine Cellars ahead of the government abolition of alco 
 

Gregory De'eb set up fine wine storage Crown Wine Cellars ahead of the government abolition of alcohol duty

When it comes to wine logistics – particularly the transport and storage of fine and rare wine – supply chain visibility is critical. Janel’s wine-storage facility at the ATL Logistics Centre in Kwai Chung, for example, is equipped with temperature and humidity controls, CCTV and motion-detection sensors. “We need a secure environment because we have some very expensive wine in our warehouse,” says Dr Tsui. LED lights are used “because regular lights might harm the wine when you open the box. Some of the customers like us to take out samples and repack the boxes.” The aim is to disturb the wine as little as possible. 

In addition to customs-clearance services, Janel offers purchase-order tracking and warehouse management services for real-time inventory control, as well as radio-frequency identification tags so clients can monitor their wine’s location, temperature and humidity. The software produces a record that can be passed on to the next owners of the wine. 

Hong Kong logistics providers can also offer value-added services. Janel, for example, helps overseas winemakers with their marketing by setting up wine tastings at the storage facility as well as wine-pairing dinners in restaurants. 

Mr De'eb rates Hong Kong’s cold supply chain as second to none. “I would say, if anything, the weak spots are abroad, not in Hong Kong,” he says. “London, for example, has not really evolved in the last 20 or 30 years, so their storage and transport practices haven’t advanced sufficiently to keep pace with the world’s best. In contrast, ours have leapfrogged past the UK and Europe to being the acknowledged leaders in the industry.” He reckons that Europe’s weather, with its wide temperature variation from 10 to more than 40 degrees Celsius, poses a far greater problem than Hong Kong’s climate, which is consistently warm but has a smaller variation between hot and cold. This smaller temperature variation is easier to work with from a temperature-controlled storage point of view. 

“Certainly in the rare and fine wine category, I don’t know of anybody in Hong Kong who is not using refrigerated containers,” he says. “You really have to view wine as a living, breathing product like a tomato, or more like an egg. Just because it’s got a shell or glass bottle around it does not mean that it’s impossible to damage the contents. One afternoon in the boot of your car in a mid-summer’s day in London or Hong Kong will destroy the contents of that bottle of wine.” 

The HKQAA Seal of Approval

The scrapping of wine duty allowed many Hong Kong-owned fine wine stored overseas to come home  

Hong Kong boasts a great deal of wine-collecting experience and a state-of-the-art supply chain overseen by an impartial accreditation body

 
Hong Kong has another unique edge over its competitors. Mr De'eb calls it “our little well-known secret that guarantees that we are better than anybody else in the world.” He’s referring to the Hong Kong Quality Assurance Agency, a non-profit body set up by the Hong Kong Government to provide conformity assessment and certification services. Its wine certification rules, implemented in 2010, cover not only storage facilities, but wine retailers and the transportation industry as well, giving investors and collectors peace of mind that their wine is being well-cared for by certified logistics providers all along the Hong Kong supply chain. 

What does Mr De'eb see for the future? “I think the world will balance out to a slightly more equitable situation,” he says. “Like any good table, you need four solid legs: London, France, New York and Hong Kong. And it’s actually for the benefit of the overall wine industry that those four legs are equally strong and solid. The percentage of what Hong Kong controls may stabilise and become more equitable between those four places. But ultimately, it’s going to always be those four places in the world that’ll be the leaders.” 

While the mainland will be the strongest driver of the Hong Kong logistics market, he says Korea, Japan, Southeast Asia and Taiwan are also important markets. “If all of those markets continue to grow and evolve, then Hong Kong’s role will always be very, very significant in Asia and worldwide.”

Related Links
Asian Logistics & Maritime Conference 
Crown Wine Cellars Ltd 
Hong Kong International Wine & Spirits Fair 
Hong Kong Quality Assurance Agency 
The Janel Group of Hong Kong Ltd

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