Hong Kong Freight Transport Report Q4 2009

Passenger throughput at Hong Kong International Airport fell by 18.9% year-on-year (yoy) to 3.3mn in June, with cargo traffic down by 13.4% to 270,000 tonnes it was reported in July. Apart from the global recession the contraction was in part attributed to fears over the spread of H1N1 (also known as swine flu). Airport Authority chief executive Stanley Hui also warned of a negative factor further ahead, as the number of direct flights between Taiwan and the Chinese Mainland ramp up. 'The huge increase in crossstraits direct flights, operating on a scheduled basis with air cargo carried in the belly of the passenger flights, expected to be seen later this year, will bring about further impact on passenger and cargo volumes at Hong Kong International Airport,' he said. However, Hui added that there was also cause for optimism because of the strength of the China Mainland economy and particularly the dynamism of the Pearl River Delta region.

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 only 0.9% 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 3.3% in 2008 - 0.9 pps faster than overall GDP, which we estimate to have increased by 2.4%. For the 2009-2013 forecast period, we expect the T&C sector to narrowly outpace the economy as a whole in value terms. It will achieve average annual growth of 2.4%, versus 2.2% for overall GDP. The total value of T&C GDP will rise to US$28.1bn 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, while 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 1.8%, 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 0.8%, a decline from the 3.9% figure over the preceding five years. Rail freight, always relatively marginal in Hong Kong, will grow at 1.7% - an increase on the average rate over the preceding five years.