Hong Kong Freight Transport Report Q3 2009

Throughput at Hong Kong Air Cargo Terminals (HACTL) fell by 30.9% year-on-year (y-o-y) in January 2009, with the company's imports slumping by 34.7% and its exports by 32.6%. Imports from Europe were down 41.7% y-o-y in the month, while exports to Europe declined by 28.2% y-o-y. Industry observers believe that the economic downturn in Western markets has resulted in waning demand for Asian goods globally, and that it is the main reason behind HACTL's cargo decline. Moreover, the International Air Transport Association (IATA) notes that the airfreight industry is in its worst decline since the technology bubble burst in 2001. One of the worst affected regions is Asia Pacific.

In BMI's view, the global economic slowdown is having a more negative impact on Hong Kong than was originally expected. Hong Kong's transport businesses - which are mainly organised around shipping and airfreight - face short term contraction and medium term low growth. Maritime freight volumes will continue to be affected by competition from other regional ports such as Shenzhen, Singapore and Shanghai. In terms of total freight (across all subsectors) measured in million tonnes, our forecast is for Hong Kong to experience average annual growth of 1.3% in the 2009-2013 period. This is a significant decline from the 2004-2008 period, when the average growth was 3.3%.

According to our latest estimates, transport and communications (T&C) GDP rose by 3.4% in 2008 - 0.9 pps faster than overall GDP, which we estimate to have increased by 2.5%. For the 2009-2013 forecast period, we expect the T&C sector to outpace the economy as a whole in value terms (although by a smaller margin than in 2008). It will achieve average annual growth of 2.7%, versus 2.5% again for the overall GDP. The total value of T&C GDP will rise to US$29.8bn in nominal terms by 2013, representing 11% of Hong Kong's GDP. The T&C sector employed 374,100 people, or 11.3% of the labour force, in 2008. We see that figure rising to 386,600 by 2013, whilst not changing as a proportion of the total labour force.

The powerful economic boom in mainland China - notwithstanding what will be a one to two year 'pause' - will continue to create a complex mix of opportunities and threats for Hong Kong. In a slower growth scenario, the balance will tip a little more towards the threats. In general, as the Special Administrative Region (SAR) repositions itself, we believe it will be the higher-value/lower-bulk transport freight modes that are most resilient. So, despite the current downturn, we remain relatively confident about longer-term prospects for airfreight, particularly in terms of regional trade in electronics, IT products, and express/parcel delivery. BMI forecasts that airfreight volume (measured in million tonnes/km) will grow by an annual average of 2.8%, slower than the growth rate of the preceding five years.

We continue to trim sea-borne freight forecasts to take account of the growing competitive threat from rival ports, particularly those in mainland China with lower labour costs, such as Shanghai and Shenzhen.

We expect throughput to grow by an annual average of 1.4%, a decline from the 3.9% figure over the preceding five years. Rail freight, always relatively marginal in Hong Kong, will grow at 2% - an increase on the average rate over the preceding five years.