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HK logistics firms eye South China FTZ

HK logistics firms eye South China FTZ

Logistics firms operating in Hong Kong are eyeing the possibility of investing in warehouses and related facilities in a free trade zone in Zhuhai in southern China after the opening of a $19 billion bridge-and-tunnel connection with Hong Kong late last year.

Shipper interest is being driven by a shortage of logistics space and rocketing rental prices in Hong Kong and the quick transit time between Zhuhai and Hong Kong’s airport and port facilities. The 34-mile link is the world’s longest sea crossing, spanning the Pearl River estuary in southern China to connect Hong Kong in the east with Macau and Zhuhai in the west.

Paul Tsui Hon-yan, managing director of Lynbrook, New York-based logistics provider the Janel Group, told JOC.com, “Several logistics companies are investigating the possibility of establishing facilities close to the Zhuhai end of the Hong Kong-Zhuhai-Macau crossing.”

“There is interest from logistics and distribution firms, ranging from medium-sized logistics companies to large multinationals, who are looking at the possibility of opening facilities in Zhuhai that would obviously overcome the shortage of facilities and the relative high labor and land costs of operating facilities in Hong Kong,” he said.

Logical logistics investment

Stephen Chan, managing director of Hong Kong-based Power Hub, said developing warehousing assets in Zhuhai would make sense, but noted that the success of such a move “will largely rely on how convenient it will be for the customs clearance, as well as the trucking cost. Currently, the trucking cost from the western part of Pearl River delta is around HK$6,000 per container (USD$770). By using the bridge, we believe the cost will be cut by half or at least by one third.”

By comparison, transporting container from the western side of the Pearl River by barge costs about $100-150 and takes around 8-12 hours.

Jana Schebera, managing director for Hong Kong and South China at Germany’s Rhenus Logistics, said the company is promoting the idea of using free trade zones across the border in Shenzhen to its customers amid surging rental prices and tightening space in Hong Kong.

“In Hong Kong there’s definitely a shortage of warehousing and logistics facilities while rental prices are sky high. We’re actively recommending Shenzhen free trade zone solutions to our customers since handling times are getting faster,” Schebera told JOC.com.

Rents for logistics facilities in Hong Kong are around $18 per square meter, compared with about $4.5 per square meter in the area around Zhuhai, according to a recent report by real estate and consultancy firm CBRE.

“Zhuhai is a good option from the cost and space availability perspectives, although Hong Kong logistics operators and other occupiers are not aggressive in committing to space at this stage,” said Tom Gaffney, CBRE regional managing director for the Greater Bay Area and Hong Kong.

“This situation may change as the mega-bridge has only been launched for a few months,” he told JOC.com.

Shorter trucking transits

The Hong Kong-Zhuhai-Macau (HKZM) crossing is seen as a key element in the development of the “Greater Bay Area,” a Chinese central government initiative to more closely integrate Hong Kong, Macau, and nine regional cities including Guangzhou and Shenzhen.

With a population of 69.6 million, the area had a total GDP of $1.6 trillion in 2017, compared with around $1.7 billion for the New York Bay area.

“The Greater Bay Area represents the growth of a connected economic powerhouse and offers vast business opportunities,” Gaffney said. “The launch of new infrastructure will energize the logistics sector, triggering stronger demand for warehouses, while the Greater Bay Area serves as an important logistics hub for e-commerce.”

Thanks to the HKZM crossing, DHL Global Forwarding said transit times for its new trucking service between Hong Kong and the western Pearl River delta, including Zhuhai, has been slashed by up to 75 percent. Trucking freight between Zhuhai and Hong Kong takes two hours using the crossing compared with the previous eight-hour transit via the Humen Bridge further up the Pearl River.

“The previous 200-kilometer (125-mile) route is now reduced to 80 kilometers (50 miles), allowing for greater flexibility in pick-ups and more stable transit times to support just-in-time manufacturing in the Delta,” said Steve Huang, chief executive of Greater China at DHL Global Forwarding.

The new trucking route also connects Hong Kong International Airport and Kwai Chung container port to allow for more frequent flights and sailings, supporting exports of technological equipment, garments, and electronics components from China.

Air cargo appeal

New facilities in Zhuhai are more likely to appeal to shippers and logistics operators moving cargo through the Hong Kong airport, according to Janel’s Tsui. “The warehouses would also be beneficial for distribution firms using Zhuhai as a base for local distribution in Hong Kong wanting to overcome the current high costs and lack of space issues,” he said. Tsui said there would be less appeal for those involved in ocean freight because of higher costs compared with the extensive existing barge network.

Jonathan Beard, partner in Infrastructure Advisory at Ernst & Young, said barging to and from the west side of the Pearl River delta will likely remain the most competitive transport mode for sea freight.

“The main attraction of the crossing will be for airfreight connecting with Hong Kong International Airport (HKIA). The HKZM bridge provides an enhanced link to the western Pearl River delta and a number of high value cargo centers, especially for electronics. The relatively high costs of cross-boundary trucking are less of a competitive impediment for HKIA and air freight as compared with sea freight and Hong Kong port,” he said.

Added Beard, “HKIA still remains a highly competitive airport versus Guangzhou and Shenzhen, and unlike sea cargo, much air cargo consolidation still takes place in Hong Kong, where the dense cluster of freight forwarders, third-party logistics providers and Hong Kong’s highly streamlined customs regime provides an advantage versus Chinese airports.”

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