Hong Kong air cargo hurt by Beijing’s hub subsidies

Hong Kong air cargo hurt by Beijing’s hub subsidies

Hong Kong is the world's busiest cargo airport.

Hong Kong is losing out to air cargo hubs in China that benefit from government subsidies and initiatives, inhibiting free-market competition and allowing airports and terminals in the mainland to operate at lower cost structures that are difficult to match.

Todd Mawhinney, Swiss WorldCargo director and head of cargo for Asia, told the Payload Asia conference in Hong Kong that it was China policy to build up new hubs at second-tier cities and the incentives from Beijing gave them a competitive advantage.

“China is putting processes in place that are inhibiting free-market practice. They are abusing policies to subsidize certain businesses to bring cargo to their airports and terminals where it is not a free market,” he said.

Mawhinney said if Hong Kong wanted to compete on cost, the airport and terminals would have to look at the structures in place, but it would be difficult to match those costs being achieved in China.

“My customers complain that since the airport moved from Kai Tak (1998) to the new airport, the airport fees have gone up by 27 percent. If the government really wants to have a competitive business here, they need to step in and make policies that work,” he said.

Ironically, there are some policies imposed by Beijing that are actually beneficial to Hong Kong airport. Mawhinney said one of the things that was an advantage was China’s customs procedures, which remained difficult, and made it easier for shippers to route cargo through Hong Kong instead.

Although he warned that this could change quickly if China relaxed those customs policies, which would erase some of the cargo volume coming via Hong Kong terminals.

John Cheng, manager of cargo sales and distribution for Cathay Pacific, said the second-tier cities were becoming more important in China. For example, six years ago Shanghai constituted 80 percent of Chinese export loads by air, but it has now dropped to about 30 percent to 40 percent, he said.

“We can’t rely on feeders from Shanghai only, so we need to operate lots of feeders to other cities, many of which actually operate as a loss,” Cheng said. He said the problem was that air cargo at centers such as Chongqing, Chengdu, and Zhengzhou was dependent on large shippers and the volume they provided fluctuated in tonnage and in destination.

“Sometimes there is a lot of cargo to the US East Coast, sometimes to Europe, and sometimes there is not much, so it is very hard to manage direct services to the destinations where the cargo is needed,” he said, adding that Cathay had the frequencies to handle the fluctuating demand.

The conference heard that like ocean freight, the shift of manufacturing out of China was also impacting air cargo. Rather than viewing this as a negative, the airlines and cargo terminals see Southeast Asian countries capturing a greater market share of exports as a way to expand their business.

However, attracting this regional cargo was made more difficult by the high cost of shipping cargo by air over the relatively short distances. Vivien Lau, executive director of Hong Kong Air Cargo Terminals Ltd., said to be competitive in intra-Asia, the air cargo industry needed to drive down its costs.

“We are chasing the cargo source that used to be in China, but while we are chasing those production bases we should also look carefully at air transport,” she said. “Air transport is quite expensive, but we need to think as an industry how to reduce the costs and keep ourselves more competitive.”

While airlines would gleefully accept greater volumes, as far as Hong Kong airport was concerned, it would not automatically be a good thing. The constraints at the airport include a shortage of available slots and the third runway that will come too late, according to Mawhinney.

“We are lucky that business is quite flat, because if it were growing, Hong Kong would lose quite quickly. We are in an economic slowdown that may last for several years, but if the business was growing right now, Hong Kong would not be the world’s No. 1 cargo airport,” he said.

Contact Greg Knowler at greg.knowler@ihsmarkit.com and follow him on Twitter: @greg_knowler.