Shippers and freight forwarders using Hong Kong International Airport (HKIA) could see substantial cost increases and disruption to cargo shipments after the world’s busiest air cargo hub begins to X-ray all air freight shipments from the airport.
Security screening will be rolled out in four phases starting in November, with 25 percent of air freight subject to X-ray by February 2020. This will increase to 40 percent by August 2020, 70 percent by February 2021, and 100 percent by March 2021, according to the deadline set by the International Civil Aviation Organization (ICAO).
Brian Wu, chairman of the Hong Kong Association of Freight Forwarding and Logistics (HAFFA), told JOC.com that costs are expected to surge 10 percent to more than 300 percent, according to respondents to a survey carried out by HAFFA and industry groups.
Hong Kong handled a record 5.1 million tons of cargo last year but only a small percentage, including shipments to the United States and on airlines including Emirates and Qatar Airlines, are currently screened.
“The mandatory 100 percent scanning requirement … will very likely cause disruptions to operations and substantial cost increases,” said Willy Lin Sun-mo, chairman of the Hong Kong Shippers’ Council.
“I understand that this is an ICAO requirement and Hong Kong has to comply,” he added. “However, we need to at least work out the charging scheme related to the scanning costs to ensure users would not be abused. The scanning requirement is going to be implemented in phases, and the issue of how costs will be levied during the transitional period and then after full implementation could be challenging.”
HAFFA's Wu said the review highlighted fears the full cost of implementation would not be recovered from shippers.
This included the “huge investment in X-ray machines and qualified screeners, internal training, secure transportation from off-airport screening centers to the airport, enhanced security measures, and the likely need for bigger warehouses,” he told JOC.com.
“The extra cost is not only about money and investment but also the lead time needed to implement the measures which are an intangible cost for Hong Kong as a whole,” Wu added.
He said the move, mandated by Hong Kong’s Civil Aviation Department (CAD) after the ICAO announced a tougher security regime in September 2016, “is the biggest challenge the industry has faced for years.”
It cost $3.22 per kilogram to ship goods from Hong Kong to North America for the week ended Aug. 26, down 2.1 percent from the prior week and 17.4 percent lower than the year-ago period, according to data from IHS Markit, parent company of JOC.com. Rates from Shanghai to North America were $3.27/kg, up 3.2% from the prior week, but down 13 percent year over year.
Capacity, staffing a concern
There are also fears shortages of screening capacity and trained staff could cause lengthy cargo delays, creating bottlenecks at busy times. HAFFA fears changes to delivery times and delays including long queues for security screening would also affect efficiency and Hong Kong's competitiveness.
No mention was made of the additional costs facing the industry during a CAD cargo briefing involving 190 air cargo industry executives on August 16. Instead, on-airport terminal operators told shippers and freight forwarders the cutoff for delivering cargo would be six to eight hours before scheduled departure time. That compared with a current cutoff of under four hours before departure, a key competitive advantage for Hong Kong as an air cargo hub, especially as China — which already has 100 percent cargo scanning — has a 24-hour pre-flight cutoff for cargo acceptance.
But the cutoff is likely to be longer for shippers and freight forwarders using off-airport screening facilities, especially as Hong Kong handles a high volume of palletized and skid cargo that must be built up after items have been scanned.
On-airport air freight terminals, including Hong Kong Air Cargo Terminals and Cathay Pacific, have capacity to screen less than 20 percent of current cargo volumes.
Seven regulated off-airport air cargo screening facilities have been approved by CAD and at least two more are likely to be approved in the coming months after the delivery of more scanners, although details of all nine have not been made public.
That compared with more than 110 applications that have been received by the CAD from potential regulated air cargo screening facilities, a CAD spokesperson told JOC.com.
"Trials on the overall operations of air cargo handling from cargo screening at the off-airport facilities to acceptance at the airport cargo terminals started in late July 2019 with satisfactory results," the spokesperson added.
While air freight industry executives thought there would be enough capacity to meet the phase-one deadline, this will depend on the distribution of screening capacity and how many of the approved facilities are common-user.
“It’s estimated 8,000 tons per day (equivalent to 2.9 million tons a year) will have to be screened under full implementation,” HAFFA's Wu said.
Under the ICAO plan, consignors will either have to be approved by CAD as a validated known consignor or be an “unknown consignor” and have their cargo subject to 100 percent security screening prior to being loaded aboard aircraft.
“CAD has limited resources to validate known consignors. As a result, very few shippers are able to perform validation, so most shipments will likely have to be screened,” said Paul Tsui Hon-yan, managing director of Hong Kong-based logistics provider The Janel Group. “Therefore, it will be a great challenge for the industry to install the required screening capacity.”
Rather than screen each item, Hong Kong authorities are looking at different screening technologies.
“The CAD and the Hong Kong Airport Authority have been keeping a close watch on the latest international development on air cargo screening technologies, such as the feasibility of using large-scale CT scan equipment or canines for the screening of palletized air cargoes,” the CAD spokesperson said.
While the air freight industry is facing a massive challenge implementing 100 percent screening, Janel's Tsui said the downturn in air freight could provide a silver lining. Air cargo volumes at HKIA fell 6.8 percent to 2.7 million tons in the first seven months of this year.
“The outbound cargo volume is very slow,” Tsui said. “For some Chinese factories, export volumes have fallen by up to 50 percent. I do not see any improvement for the rest of the year — it will be a hard winter for more people due to the US-China trade war. But the drop in volumes might relieve some of the pressure after the implementation of the new scanning regulations.”
Contact Keith Wallis at firstname.lastname@example.org.