Enhancing the competitiveness of Hong Kong’s logistics industry The logistics and trade industry, one of the 4 pillars of Hong Kong’s economy, with employment of over 700,000 people 1 and contribution of about 24.6% to its GDP 2 , is currently hamstrung by the lack of warehousing space and front end labour in its endeavours to move up the value chain. There is an estimated shortage of 300,000 to 400,000 square meters of warehouse space 3 , and about 4,000 front-end labour in the industry 4 . In the meantime, neighboring cities like Shenzhen to the north and Singapore to the south are progressively gearing up their capabilities to capitalise on the increasing demand for valueadded logistics deliverables in the region. Although the HKSAR Government has put aside an area of about 10 hectares for the development of a logistics park, and embarked on reviewing the population policy, the benefits therefrom will be for the long term. In the interim, Hong Kong stands to continually lose out to its neighboring competitors in its logistics development. The aim of this paper is to propose a considered suggestion to address the problems besetting Hong Kong’s logistics industry, with benefits for the short and medium term, and potential for the longer run as well. Our idea is to create a “logistics city” in Hong Kong via re-vitalising the industrial buildings in various areas in the districts under the leadership of the HKSAR Government. We propose to focus our study initially on the non-Metro area in Hong Kong which has higher potentials for industrial development. The districts we have selected are Tuen Mun, North District, and Shatin in the New Territories, with the respective potential site areas of Tuen Mun Areas 9 & 12, Sheung Shui, and Fotan (Appendix I).

Re-vitalisation of industrial buildings According to the information in the Report on Area Assessment 2009 of Industrial Land in Hong Kong5 the total site area within the classified Industrial “I” zones was 297.4 hectares, with 503 industrial buildings, but the vacant floor area was only 6.5%. The situation has not improved since then. And anecdotal evidence confirms continually tight warehouse space supply, to the frustration of many logistics practitioners. It is obvious that relying solely on vacant industrial buildings to meet the pressing demand for warehousing space in Hong Kong is not practicable. We need to seriously consider the option of converting existing industrial buildings for logistics use. Following is our analysis of the potentiality of our selected site areas. 1

2

3

4 5

Table 2, Employment in respect of the Four Key Industries, 2012, Census and Statistics Department, www.censtad.gov.hk/hkstat/sub/sp80.jsp Census and Statistics Department, The Four Key Industries and Other Selected Industries (https://www.censtatd.gov.hk/hkstat/sub/sp80.jsp?tableID=189&ID=0&productType=8) Table 2.5, Industry Section H: Transportation, storage, postal and courier service, Hong Kong Monthly Digest of Statistics, January 2014, Census and Statistics Department, www.censtad.gov.hk/hkstat/sub/sp130.jsp Mr. Frankie Yick’s speech, pp. 2-3, Hong Kong Logistics Forum 2013 Appendix 2, Report on Area Assessments 2009 of Industrial Land In The Territory, Studies Completed, Planning Studies, Planning Department

The Chartered Institute of Logistics and Transport in Hong Kong Registered Office: 7/F Yue Hing Building | 103 Hennessy Road | Wanchai| Hong Kong T +852 2866 6336 | F +852 2866 6118 | E [email protected] | W www.cilt.org.hk

1.

Industrial buildings in selected areas a) Tuen Mun Areas 9 & 12 – 72 industrial buildings, with 5.3% vacancy b) Sheung Shui – 9 industrial buildings, with 5.4% vacancy c) Fo Tan – 44 industrial buildings, with 3.6% vacancy

1.1

Based on Planning Department’s survey conducted from November 2008-April 2009 of all the industrial buildings in the “I” zones, 237 buildings or about 47% of them were under single ownership, and 408 or about 81% were in fair condition6. Buildings of single ownership will pose less complication than multiple ownership in the administration of change of tenancy. And buildings in fair condition will mean less renovation cost. Priority attention will be given to such buildings in the selection process.

2. 2.1

Design and usage of the re-vitalised industrial buildings The re-vitalised industrial buildings will each need to have loading bays sufficiently large in terms of number and floor area for cargo consolidation and handling of bulk cargo. There should be purpose-built lifts for carrying cargo up and down the industrial building, apart from the availability of the standard warehouse safety, security and ventilation facilities.

2.2

Priority tenancy will be offered to small-to-medium size logistics practitioners engaged in value-added service deliverables. This is because, firstly, value-added logistics services have been recognised as most conducive to enhancing the competitiveness of Hong Kong’s logistics industry. And secondly, small-to-medium size logistics practitioners are facing great difficulties in finding suitable warehousing space.

2.3

Favorable lease terms will be offered to operations with complementary or collaborative potentials for cost efficiency. For example, providers of value-added services, suppliers of packaging materials, operators of trucking and distribution can complement each other to offer integrated logistics services. Common transport vehicles can be utilised to serve the dispatch or delivery requirements of the tenants in the selected site areas, with resultant operational cost savings. Environmentally, the reduction in vehicle movements will bring down the air and noise pollution levels.

2.4

From the point of view of synergetic utilisation of the proposed site areas, it is worth considering planning for the inter-district optimisation. For example, developing the Tuen Mun Areas 9 & 12 for import/export value-added services, Sheung Shui for fresh foods and poultry supply, Fotan for local distribution for convenience stores, newspapers etc. The selected sites will each operate independently in its focused service deliverables. The transportation connectivity available will enable convenient linkage between the sites. Consequently, a network of logistics service provision can be formed to complementarily serve the overall logistics needs of the community.

3.

Transportation connectivity

6

Section 2.15-2.17, Final Report, Report on Area Assessments 2009 of Industrial Land In The Territory, Studies Completed, Planning Studies, Planning Department

The Chartered Institute of Logistics and Transport in Hong Kong Registered Office: 7/F Yue Hing Building | 103 Hennessy Road | Wanchai| Hong Kong T +852 2866 6336 | F +852 2866 6118 | E [email protected] | W www.cilt.org.hk

Easy access to public transportation systems is crucial to the success of the industrial building re-vitalisation idea. Tuen Mun, North District and Shatin are all supported by extensive road and rail networks. 3.1

Currently, there is the circular Route 9 which links up with Route 8 to Kwai Chung Container Terminals and the Airport, with Route 3 to Hong Kong Island, and Route 10 to the Shenzhen Port Area. There are good linkages with Shenzhen at Lok Ma Chau, Man Kam To, and Sha Tau Kok (Appendix II).

3.2

The circular connectivity is complemented by the East and West railway lines. Future developments in this respect will include the Hong Kong – Shenzhen Western Corridor which will provide linkage with Shenzhen Port Area and the northern extension of the West Railway (the Northern Link) to connect with Lok Ma Chau (Appendix III).

4. 4.1

Labour supply The 2011 Hong Kong Population Census7 informs that the population of Tuen Mun District was 487,546, North District was 304,134, and Shatin was 630,273. In the 3 selected districts, about 28% to 30% of the population of aged 15 and over had upper secondary/Form Six education attainment. In terms of economic activities, the average rate of labour force participation was 60.1%. And 9% to 13% of the working population was engaged in transportation, and the storage, parcel and courier industry respectively (Appendix IV). All these suggest upward potentials of labour supply for logistics, given sufficient incentives for the labour force to cross over from their current employment.

4.2

The same Census also informs that less than 20% of the male working population of our selected Districts had their “place of work” in the same district. Specifically, it was 19.2% in Tuen Mun, 12.6% in North District, and 12% in Shatin. As such, the implication of their commuting time and cost is significant. We envisage that with the re-vitalisation of industrial buildings steered towards value-added logistics deliverables, the industry will be able to offer career prospects and higher wages than the basic, run-of-the-mill forwarding operation, thereby attracting more people to take up the job opportunities available in the local district. This will help to reduce the travel demand and contribute towards achieving the objective of integrated land use planning and transport policies in Hong Kong.

4.3

Also relevant is the finding on the female labour force participation rate compared to that of male in the selected districts. The former was 52.5% in Tuen Mun, 50.9% in North District, and 54.8% in Shatin, compared to the latter’s 69.9%, 68% and 68.6%, respectively. This reflects the tendency for females to stay at home for domestic duties in the districts where the average domestic household size was only 2.9. It is our considered opinion that availability of more child-care centres and willingness on the part of the employers to allow flexible working hours will be powerful motivators for more females to join or re-join the labour force, and thereby improve their household income.

4.4

In the context of the re-vitalisation of industrial buildings, the logistics job opportunities that can be created will range from cargo sorting, pick-and-pack, replacing, labeling,

7

District Profiles, Census Results, 2011 Hong Kong Population Census

The Chartered Institute of Logistics and Transport in Hong Kong Registered Office: 7/F Yue Hing Building | 103 Hennessy Road | Wanchai| Hong Kong T +852 2866 6336 | F +852 2866 6118 | E [email protected] | W www.cilt.org.hk

sorting and screening, data inputting for front-end workers with secondary school education attainment, to operational planning, execution, quality inspection, monitoring and control for middle-level staff with upper secondary and above education qualifications, irrespective of gender. To illustrate, a current warehouse operation in the East Asia Industrial building at 2 Hoi Tin Road, Tuen Mun with a floor area of about 4,230 square meters for value-added logistics has created employment of approximately 20-30 workers in the normal season, which is increased to 30 to 40 workers during the peak season, including about 10 part-time helpers. 5. 5.1

Economic-social dimension of the re-vitalisation of industrial buildings The proposed conversion of the existing industrial buildings in the 3 selected districts in Hong Kong for warehousing and logistics purposes will result in the centralisation of suppliers, service providers and facilities, making possible gains from economies of scale. The additional labour supply from the local community and the proposed incentives for the small-to-medium size practitioners to engage in value-added service deliverables will collectively enhance the competitiveness of Hong Kong’s logistics industry.

5.2

The increased sharing of the economic activities in the same district, resulting from having more local people working in the local community will contribute towards the engendering of a sense of belonging to the local community and fostering of social harmony.

5.3

As the re-vitalisation of industrial buildings will basically be confined to internal reconfiguring and re-furbishing of the existing facilities, and not demolishing them to make way for new industrial buildings, there should be minimal aggravation of noise and air pollution, and disfiguring of the general landscape of the community as a whole. In fact, the reduced traffic flows resulting from the shared resource practices outlined in 2.3) above can effectively lessen the noise and air-polluting emission from the transport vehicles operating in the selected site areas.

6. 6.1

Leadership support from the HKSAR Government The re-vitalisation of industrial buildings is a complex process, involving the acquisition of the existing premises for logistics use, the re-location of the current tenants to new sites and the related compensation arrangements, the co-ordination of the new tenants for logistics complementarity effect, which demands massive resources. There is also the issue of future management of the re-vitalised industrial buildings to address. Similar to the usual practice in Hong Kong, the prudent commercial principle should apply in the process. However, all this will still require the commitment of the HKSAR Government not only to the provision of financial but also leadership support.

6.2

In this regard, we propose the establishment of a statutory body (an Authority) with dedicated responsibilities of dealing with matters concerning logistics industry including but not limited to the initiation and future operation of the re-vitalisation project. The Authority will have a management team comprising experts from different sectors, government and civil society, with the mission of ensuring that the project deliverables will benefit the bona fide small and medium size logistics practitioners in

The Chartered Institute of Logistics and Transport in Hong Kong Registered Office: 7/F Yue Hing Building | 103 Hennessy Road | Wanchai| Hong Kong T +852 2866 6336 | F +852 2866 6118 | E [email protected] | W www.cilt.org.hk

Hong Kong and that the economic, social, and environmental balance will be maintained. 6.3

We propose a phased approach for the re-vitalisation project, trial running with, for example, the Tuen Mun Areas 9 & 12. Further studies will be required for the prioritisation of the industrial buildings to be re-vitalised. When proven successful, the re-vitalisation will be extended to Sheung Shui, and later on to Fotan and other site areas. We anticipate a time frame of 10 to 15 years for the project to complete.

27th May 2014

The Chartered Institute of Logistics and Transport in Hong Kong Registered Office: 7/F Yue Hing Building | 103 Hennessy Road | Wanchai| Hong Kong T +852 2866 6336 | F +852 2866 6118 | E [email protected] | W www.cilt.org.hk

Appendix 1

Appendix II

Appendix III

Appendix IV

District Population >Total - Male - Female >Working population # - Male - Female >Female age group 35-39 40-44 45-49 Education attainment > Upper secondary - Aged 15 and over - Aged 15 and under > Lower secondary - Aged 15 and over - Aged 15 and under Economic activities > Labour force participation rate (%) - Male - Female >Transportation, storage, postal & courier industry - Male - Female - Both sexes Household characteristics >Average domestic household size >Median monthly domestic household income Place of work >Proportion of working population with place of work in same district -Male -Female # Excluding foreign domestic helpers

Tuen Mun

North District

Shatin

487,546 231,196 256,350 249,027 134,638 114,389

304,134 143,433 160,701 141,100 78,993 62,107

630,273 295,051 335,222 306,522 168,780 137,742

8.50% 7.80% 9.60%

7.70% 8.70% 9.80%

8.20% 8.20% 9.40%

144,513 147

88,687 97

177,757 187

88,774 11,214

56,244 7,777

93,132 14,789

60.6 69.9 52.5

58.9 68 50.9

61.2 68.6 54.8

25,883 5,924 31,807

12,717 3,424 16,141

21,998 6,576 28,574

2.8 $21,000

3 $21,500

3 $26,800

22.2

15.8

13.9

19.2 25.7

12.6 19.4

12 16