Speech by Ms Sandra Lee,
Permanent Secretary for Economic Development,
Hong Kong Special Administrative Region Government,
at a Business Luncheon in Riverside, California
17 January 2006

Hong Kong - Your Premier Intermodal Logistics Hub

Ladies and Gentlemen,

Good afternoon. It gives me great pleasure to be in the beautiful city of Riverside and to speak at today's luncheon in the Historic Mission Inn. I can't think of a more pleasant place to be in mid-January - although Hong Kong might come a close second.

2.　Our delegation from Hong Kong is visiting the Los Angeles area, a vital international logistics hub, to study logistics and to talk logistics. So let's get down to it.

3.　Hong Kong is an important logistics hub for China and the region. 28% of China's total international trade was routed through Hong Kong making us a key player in the global supply chain. Considering the fierce competition we both face, one might ask: What sets Los Angeles and Hong Kong apart from other logistics hubs in our respective areas?

4.　Like Los Angeles, Hong Kong is blessed with a strategic location. L.A. is an important gateway to North America, while we play the same role in China. In 2004, about one-quarter of China's trade with America is handled by Hong Kong. We are also at the heart of Asia -- half the world's population is within five hours' flying time of Hong Kong. We are fortunate to have a natural deep harbour. Add in our low and simple tax regime, business-friendly environment, round-the-clock customs services, clean government, and the rule of law, upheld by an independent judiciary, and Hong Kong is the ideal entrepôt for China and the region. But, we are not content with our success as the world's freest trading economy. We have moved up the value ladder with the advent of globalisation, and transformed plain old "trade" into a full-scale supply-chain management service.

5.　In the past, trade meant that production and logistics were only about moving boxes. Competition centred on cost alone. Whoever did it the cheapest got the deal. Globalisation has led to a facelift of trade and logistics services in Hong Kong. Now, we not only make things, we make things happen. To meet the new demand in procurement, transport and distribution of raw materials and finished products, we do not simply move boxes. Just to name a few examples, Hong Kong is the global sourcing centre for Carrefour. We also look for the best ingredients for McDonald Fast Food Chain and the super value products for Woolworths and Target (supermarket chain in the US) from Asia. We co-ordinate, consolidate, distribute and manage inventory for famous brand names [like Addidas, Lafuma sports wear, and Ermeregilda Zegna]. We are also the distribution hub for Louis Vuitton in Asia except for Japan. Major logistics players such as our Kerry Logistics operates in more than 150 cities in 15 countries worldwide. No doubt Hong Kong offers premier global supply chain services.

6.　From the sourcing of materials to just-in-time delivery of the finished product, experienced logistics managers appreciate that predictability is now as important as cost. They know the hassles that delays can cause: missed berthing slots, re-adjusted schedules, production bottlenecks. And how dearly it will cost, especially if high-value, time-critical merchandise is at stake: penalties, extra warehousing costs and, worst of all, missed seasonality and tarnished credibility. Increasingly, speed, efficiency, reliability and transparency in logistics flow have become the drivers of profit margins for businesses all over the world. These depend on professional supply-chain management, which, ladies and gentlemen, plays to the established strengths of Hong Kong such as our round the clock customs services, our can-do spirit which smooth any hiccups along the supply chain. Our strong inter-modal connectivity and super efficiency make Hong Kong the premier logistics hub in Asia.

7.　The multi-modal transportation linkage in Hong Kong offers maximum choice, flexibility and efficiency in supply-chain management. Not only are Hong Kong's air, sea and road transportation modes individually well developed, they are all smoothly interconnected as well.

8.　Our award-winning, state-of-the-art airport is the world's busiest international air cargo hub. Seventy-nine airlines run 5,200 scheduled flights weekly to 140 destinations worldwide, including 40 in the mainland. In 2005, we handled 3.4 million tonnes of air cargo. Our SuperTerminal 1 is the world's largest stand-alone air-cargo handling facility. It offers a full chain of cargo handling services including document processing, ramp handling and pre-arrival clearance of import cargo.

9.　On the maritime side, our seaport handled 22.4 million TEUs in 2005, with 80 shipping lines operating 450 calls per week to over 500 destinations globally. Our terminals boast a record of 40 gate movements per crane per hour. Every minute of our efficient port operation means a cost saving of US$139 for a 6,000-TEU container vessel with a daily chartering rate of US$200,000.

10.　Our port and airport are further underpinned by our very strong cross-boundary land transport infrastructure. The Lok Ma Chau Control Point between Hong Kong and the mainland of China is the world's busiest land crossing, with over 19,000 goods vehicle crossing daily, feeding our port and airport with non-stop cargo through an elaborate but highly efficient and effective multi-modal transportation network. Normal delivery from factory to ship takes one day - and a "hot" box can be shipped out of Hong Kong from a factory in Dongguan, about 75 miles away, in just seven hours.

11.　To fully exploit the advantages of multi-modality, we recognize that information connectivity along the supply chain is as important as physical connectivity. That's why we recently launched the Digital Trade and Transportation Network System. The DTTN System provides an open, neutral and secure e-platform through which players along the supply chain can exchange data and information reliably. This cyber-infrastructure eliminates the need for data re-entry - and the resulting errors - thereby lowering costs and enhancing reliability of information flow. It also strengthens our role as Asia's virtual logistics hub.

12.　Logistics development in Hong Kong not only offers the most reliable and best value-for-money service for US importers. It also opens up business opportunities for professional logistics players in this country. Currently in Mainland China, logistics costs make up 15% to 25% of total production costs, compared with less than 10% in the US and other OECD countries. Increasingly, as the China market continues to expand, professional logistics players in Hong Kong and around the world will have a bigger role to play. DHL, for example, has established its on-line Express Logistics Centre and Central Asia Hub in Hong Kong.

13.　Hong Kong logistics players enjoy a unique advantage in the provision of logistics services in the Mainland. Thanks to Hong Kong's status as a separate customs territory, and as a WTO member in its own right, we were able to implement a free-trade pact between the Mainland and Hong Kong in 2004. Known as CEPA, which stands for Closer Economic Partnership Arrangement, this free-trade pact gives Hong Kong services provides advance access to the Mainland market in over 20 sectors, including logistics, transport, warehousing and freight forwarding. CEPA seals Hong Kong's economic partnership with the Mainland and entrenches our role as the premier gateway for international investors in China. Companies are taking advantage of CEPA to use Hong Kong as a launching pad for business expansion in the Mainland.

14.　"What does this offer to an American business?" you may ask. The answer is: CEPA does not apply a "nationality" test. Any services provider qualifies if it meets the criterion of three to five years of "substantive operation in Hong Kong", irrespective of where its capital comes from. Using CEPA, Hong Kong becomes your natural partner for establishing a stronger business presence in China.

15.　Ladies and gentlemen, expanding markets in China and the Asia-Pacific region create not only business opportunities, but also competition. Hong Kong cannot afford to be complacent. We must continue to invest in both the hardware and the software necessary to boost our logistics capacity.

16.　To that end, and to develop one-stop integrated logistics solutions, we are planning to build a Logistics Park with a full range of services, from conventional to value-added.

17.　We are also making significant investments to enhance our physical connectivity with the Mainland, our logistics hinterland. The Shenzhen Western Corridor, a super-highway linking Hong Kong with Shekou in Shenzhen, will open in mid-2006. This will triple our capacity to 80,000 cross-boundary vehicles per day. Planning of the Hong Kong-Zhuhai-Macao Bridge is being pursued as a matter of priority. When completed, it will expand our cargo catchment area to the entire western part of the Pearl River Delta region. Our airport is charting its medium-term development up to 2020. When fully developed, it will be able to handle 87 million passengers and 9 million tonnes of cargo per year. And we are conducting studies to determine the timing and location of new port facilities.

18.　We have also initiated several measures to enhance the efficiency and capacity of our port. We are streamlining port procedures, reducing port fees and charges, and increasing mid-stream cargo handling capacity through establishing more service anchorages, with a view to attracting more river-trade cargo and ocean-going vessels to Hong Kong. Suitable adjacent port back-up land will also be made available to meet port operational needs.

19.　We recognise that information technology is the key driver to enhance efficiency in supply-chain management. We are working with local universities to promote the research and development of Radio Frequency Identification (RFID) and its application in logistics operations. We aim to shape RFID developments and be the trend-setter in Asia.

20.　In charting our development and initiatives, we have engaged in a constructive partnership with the private sector. For instance, one of the co-organisers of today's luncheon - the Hong Kong Logistics Development Council - is an advisory body set up by our Government to advise on matters relating to the long-term development of the logistics industry and to pursue agreed initiatives through collaboration. Members come mostly from the industry, so we are happy to draw on their expertise and wise counsel.

21.　With Hong Kong's natural advantages, value-for-money services and commitment to further sharpen our competitive edge through collaboration with the industry, I am confident of the future of our port and logistics development. Ladies and gentlemen, as a premier logistics hub and a gateway to the vast China market, Hong Kong promises speedy, reliable and value-for-money services - as well as tremendous business opportunities. We welcome all of you to Asia's world city to unlock the unlimited potential.

22.　Thank you very much.

Economic Development Branch
Economic Development and Labour Bureau
January 2006