Hong Kong’s phenomenal success over the past three decades as one of the world’s busiest container ports can be attributed primarily to the emergence of the Pearl River Delta as the economic dynamo of South China. But until recently, trucking containers across the border to the terminals at Kwai Chung was a major headache. Now the situation has been helped by many improvements such as extra border crossing points, new highways, faster Customs procedures on both sides and constantly upgraded IT systems for monitoring the traffic and the containers themselves. Sunny Ho, executive director of the Hong Kong Shippers Council, gave us this review of cross-border problems and progress.

Doing business in China can be complicated because it involves many different regulatory bodies including the Bank of China, Customs and health authorities. Hong Kong entrepreneurs are the biggest investors in the PRD, most of them ODM or OEM manufacturers.

Most shippers will arrange trucks to pick up the containers. Larger factories often have in-house Customs clearance units, but if not authorised Customs brokers can be used.

An hour after the data is sent electronically to the local Customs office, the shipper can send the original documents to the local Customs office which is designated for that factory. Being able to initially submit the documents via computer has improved the work of Customs substantially, Sunny Ho explains, because they can pre-approve it, and then need only check the original documents to verify the data.

The loaded truck then drives to the local customs office, and if the officers decide to check the goods the truck must go to the inspection bay. Otherwise, two seals - a Customs seal and the seal provided by the shipping line - are placed on the door of the container, and it can continue to the border. The local Customs office then sends the data with the clearance signals to the border crossing station.

Ho says that in Dongguan alone, the five Customs offices handle as much cargo as a small country in Europe. “The volume of cargo from Guangdong Province is three times that of Thailand, so you can just imagine the complexities and the massive scale,” he adds.

The running of time

It will take the truck between 45 and 75 minutes to reach the boundary crossing, and another hour before it reaches the head of the queue to get through Customs. “The truckers must go through Chinese Immigration, and the Customs have to check the Customs seal to make sure nothing has been tampered with. If they have received all the data and clearance signals and have not found anything suspect, they almost certainly will allow the truck to pass through, after taking back the seal. Altogether 30,000 vehicles cross the boundary daily, or 3,000 vehicles per hour for a 10-hour day, or 50 vehicles a minute.” There are five mainland border crossing points but only three for cargo: Lok Ma Chau (which handles about 70% of daily vehicle throughput), Man Kam To and Sha Tau Kok.

Once a truck crosses into Hong Kong the trucker must again clear Immigration and then Customs, which can take just 13 seconds after getting to the head of the queue - or half-an-hour if the officers decide to inspect the goods.

Within 45 minutes to an hour the container is whisked to Kwai Chung container terminal where operators have a service commitment of less than 30 minutes to take delivery.

The mainland part of the whole exercise has improved substantially in the last 3-4 years, says Ho. China has virtually eliminated double inspection (which not so long ago meant all goods were checked once at the local Customs office and again at the boundary). Electronic submission of data has also helped.

Another new benefit is the Digital Trade and Transport Network (DTTN). This is a Hong Kong Government industry initiative to provide a community-wide IT interface for all parties involved in the supply chain, and to facilitate speedy and reliable exchange of information and data among logistics players.

The DTTN advantage

“DTTN is a real breakthrough,” says Ho. “Those using the system need not change their current IT systems or IT solutions, and the documents can be transmitted to their partners via the Internet. The same applies to their own in-house applications software.”

The industry and the authorities on both sides are continuing to explore new technologies, electronic seals and GPS. “They already have the GPS system in place and are close to conducting a pilot test,” says Ho.

Meanwhile, at the end of this year the Hong Kong-Shenzhen Western Corridor highway will go into operation, handling more than 30,000 vehicles a day and so doubling the present capacity. “A major improvement,” says Ho.

But even before that happens a near-virtual border might be attainable by mid-2006: a green lane is to be introduced along with a designated depot at or near the boundary, monitored by Customs. “The green lane would permit free movement of traffic subject to monitoring devices like GPS or radio frequency identification (RFID). These checks would guard against trucks deviating from their routes and ensure that the container doors are not manipulated,” says Ho.

However, he admits that RFID is a technology that probably will not be widely available for another 12-15 years, but points out: “The bar code needed 20 years to reach maturity. And RFID is much more advanced and much more expensive. It is the applications, not the technology, that is expensive because they will cover a much wider scale than before.”

A “tag” is needed on the container giving all the information on the container’s contents, which can be read electronically to enable direct transit. However, all parties involved in the supply-chain/demand-chain would need to adopt the same or compatible technologies including readers, software and docking systems, Mr Ho explains.

The Shenzhen factor

One of the hottest topics in the local logistics industry is the rise of Shenzhen. In the last financial year, throughput at Hong Kong container port rose a niggardly 2% while that of Shenzhen’s ports jumped 14%. Seen in the light of continued burgeoning industrial productivity from the PRD factory belt, is this a danger sign for Hong Kong?

Ho reasons that we need Shenzhen, otherwise our roads would be flooded with container trucks and our port charges - already the highest in the world - would be even higher. “Hong Kong last year handled 22.4 million TEUs, while Shenzhen handled 15 million. How could Hong Kong manage the combined throughput of 37 million TEUs? So as shippers we are glad that there is Shenzhen.

Economic lifeblood

“If Hong Kong had to handle the combined throughput, and its charges rocketed even higher, it would jeopardize our export trade, which is really our economic lifeblood. Without trade there would be no ports, no logistics, no seaborne shipments. International trade always comes first and we must always sustain the competitiveness of international trade.”

Ho believes that for Hong Kong to regain its competitiveness two issues must be tackled - trucking costs and terminal handling charges (THC). “The carriers (container ships) claim that the THC is a cost recovery exercise, but it’s different from the charge of the container terminal operators to the carriers; it’s actually a charge by the carriers to the shippers. In the past it was part of the freight rate but now they’ve singled it out and called it a terminating charge, saying it’s a cost recovery exercise. However, the carriers have taken advantage of this and keep increasing the THC. Since being introduced in 1990 the THC has gone up 3.5 times and now Hong Kong shippers are paying the highest THC in the world. One of the reasons why shippers divert to Shenzhen is that there’s a US$100 add-on here. Another is the trucking costs: taking a container from Dongguan to Hong Kong is another US$200 costlier than from Dongguan to Shenzhen.”

An interesting element of the inter-port competition is the fact that Hong Kong interests own most of the Shenzhen ports. “Yantian, the largest single terminal operator in the world, is bigger than Hongkong International Terminals (HIT), its mother company, and is owned and managed by HIT. The majority shareholder is Hutchison Whampoa.

”In the western part of the PRD, China Merchants control operations and it’s the second largest shareholder in Modern Terminals Ltd (MTL), the second largest terminal operator in Hong Kong. At the new terminal, Dachan Bay, again MTL is the biggest shareholder. Many Hong Kong people work in those terminals and more are being recruited.”

Yet Ho is pragmatic about the situation: “Down the road, Hong Kong is still the second largest container port in the world. We still have much greater throughput than any other port could dream of. The fifth, or the sixth is nowhere near. Kaoshiung is going down and Pusan is handling 80% transhipment cargo. So what’s the problem? We still have a big China hinterland to draw on, and it’s going to expand further in the future.”