Editor's note: Hong Kong's competitiveness has come under the spotlight in various industries, eroded by such factors as regional hubs upping the stakes for business and the scramble for talent. The city's port logistics sector is no exception, with an acute shortage of land for container storage, lack of manpower and perceived lack of government aid for the industry.

As one of the pillars of Hong Kong's economy, the trading-and-logistics industry has been a notable sector, contributing nearly a quarter of the city's GDP in terms of value added.

However, the facts are not as flashy as they seem to be. For the logistics industry alone, the talk is that it's losing its competitiveness, especially in port logistics.

According to the Marine Department, the SAR currently ranks fourth among the world's busiest container ports after Shanghai, Singapore and Shenzhen. It's also the second year Hong Kong has dropped out of the top three spots after having occupied the No 1 position for several years before 2005.

Logistics alone accounted for 3.3 percent of the city's GDP in 2012 - down from 4.4 percent in 2002. The total number of people employed in this sector made up only 5 percent of the city's workforce in 2012, compared with 5.5 percent in 2002.

Hong Kong's port indeed has its unique assets - an ideal geographical location, good connectivity, reliable services, shorter lead time, convenient customs services, higher punctuality and less cabotage rules. But, setbacks have prevented the port from harvesting more of its potential.

"Currently, we see three major obstacles - land shortage, lack of manpower and insufficient government focus being given to the industry," says Cheung Wai-man, director of the Asian Institute of Supply Chains and Logistics at the Chinese University of Hong Kong.

Land has been a major headache for nearly every industry in Hong Kong, while in the city's port, lack of capacity is a crucial issue.

The growing trend of international transshipment requires more ocean berths at facilities where a large number of ocean vessels call, and the ability to move containers between nearby terminals rapidly and efficiently.

"When a ship docks, the cargo needs to be transferred to another ship, and sometimes that can happen at another terminal close to that. This means we have to cut the lead time - inland transport and port staying time," explains Cheung.

Although, on average, Hong Kong port has lower lead time than that of Shenzhen and Guangzhou ports because of fewer and less complicated customs procedures, he says outdated terminal design and congested terminal operation will continue to impede efficient cargo handling.

Last December, the government concluded that the Container Terminal 10 project on southwest Tsing Yi Island was "not viable financially or economically" due to the slower rate of throughput growth at Hong Kong port.

The project was originally intended to help ease acute congestion at the nine terminals at Kwai Tsing Container Terminals (KTCT).

A government report - Study on the Strategic Development Plan for Hong Kong Port 2030- forecasts that Hong Kong port's total container throughput may soar to 31.5 million, 20-foot equivalent units (TEUs) at an annual rate of 1.5 percent, driven mainly by international transshipments.

Hong Kong Port Development Council figures show that Hong Kong's total container throughput reached 22.2 million TEUs last year.

The scarcity of land has also resulted in a shortage of container storage space and limited warehouse options, triggering high rents. Terminal operators may rent land close to major terminals, such as KTCT, for storage purposes, according to the government study, but trucking via public roads and short-term leases have discouraged operators from investing in such solutions.

A 2014 report by CBRE - the world's largest commercial real estate services firm - revealed that Hong Kong's warehouse stock vacancy rate hit a new low of 0.4 percent in June last year - down from 1.1 percent at the end of 2013 - while warehouse stock has risen by only 5 percent in 10 years.

"Clearly, we don't have enough container pile-up areas, so it's very hard to find space for empty containers now," says Stephen Chan, president of the Hong Kong Logistics Association. "Also, the lack of decent warehouses has made it harder for temporary cargo storage."

In this year's budget, the government reemphasized its plan to set aside 10 hectares of land in Tuen Mun for high-value added logistics development. But, experts argue that a solution to the congestion problem remains distant, and that land use should be better specified.

"The whole supply chain needs land - for goods distribution, trading, container storage, and warehouses for small- and medium-sized enterprises," explains Venus Lun, assistant professor and associate head at the Department of Logistics and Maritime Studies, Hong Kong Polytechnic University. "I wish there could be more details."

However, inefficiency and growing congestion at terminals can also be partly attributed to the lack of manpower, especially the shortage of frontline workers, such as packing staff, warehouse assistants and container truck drivers.

"We're facing a situation where less people are willing to join the industry as our manpower ages," says Chan. "At the same time, every industry is competing for talent and workers, pushing up labor costs."

While mainland port cities like Shenzhen have an abundant migrant pool to back up their port labor force, Hong Kong is clearly understaffed in this respect, putting it at a disadvantage in cost competition, according to Chan.

Between 2002 and 2012, the number of workers in the logistics industry grew by only 0.3 percent annually, and was declining at a rate of 2.2 percent per year from 2007 to 2012. A 2012 manpower survey, conducted by the Vocational Training Council, found that job vacancies took up 2.05 percent of existing transport logistics-related posts, with trucking and container haulage, as well as forwarding agents, recording the highest number of vacancies.

"Technologies and talent form the core of our future development. We need high-tech and management people to conduct overall planning," Cheung argues.

Amid a shifting market trend and stiff competition from the mainland and the region, Hong Kong has repositioned itself to develop high value-added freight and relative services, such as inventory management, regional distribution and global supply-chain management.

Unlike traditional logistics operations that include the transportation of components and semi-manufactured and manufactured products, high value-added services normally rely on aircraft to transport expensive or temperature-sensitive commodities like jewelry and medicines. "Hong Kong has its own superiorities in high value-added logistics, such as a decent geographical location, complete traffic facilities and a pro-business climate," says Lun. "But, we're also facing the capacity problem in this area." Air cargo already accounts for more than one-third of the city's total trade in value.

Chan urged the government to explore more compatible solutions, while welcoming collaboration with property developers in constructing modern industrial buildings with high-tech facilities.

Cheung proposed relocating the existing terminals in the long term, while for the near future, there should be a specialized government department to deal with the logistics industry alone, covering air, land and sea freight.

"After all, Hong Kong is a free port with high sailing frequencies and flexible customs procedures. That's something that can't be surpassed by the mainland and other regions for a period of time."

agnes@chinadailyhk.com

(HK Edition 04/16/2015 page7)