The Pearl River Delta is the world’s largest cargo transit point. Mi Hua looks at competition between the main airports in the region for the China Business News and looks at the case for cooperation between the top three

Government officials, airport management and logistic exports called for greater collaboration in the Pearl River Delta between Guangzhou Baiyun Airport, Shenzhen Airport and Hong Kong International Airport at a recent conference on aviation and economic development in Guangzhou.

The Pearl River Delta is the world’s largest processing base for exports, accounting for 30% to 40% of China’s total trade volume. However, competition between the three airports is fierce.

Guangzhou Baiyun Airport has been aggressively developing its business since the beginning of this year, inking strategic partnerships with nine companies, of which five are prominent cargo agents. Market rumors have also linked the airport with EI, one of Hong Kong’s largest cargo agencies. In addition to the establishment of a new cargo station at Dongguan, it is also planning to open offices in Zhuhai and Shenzhen, with the aim of extending its cargo network to the whole of the delta and beyond.

Shenzhen Airport is not taking the competition lying down. “Our cargo objective this year is 650,000 tons,” Shenzhen Airport Chief Financial Officer and Secretary of the Board Zhi Guangwei said, adding that the target volume was very close to the 653,000 tons handled by Guangzhou Baiyun last year.

With a link with the newly launched Jade Air Cargo and the continuous development of local logistic parks, Shenzhen Airport has significantly strengthened its competitiveness. Stimulated by a US$10 million financial incentive offered by the Shenzhen city government this January, Shenzhen Airport has posted 83% growth in its international cargo and post volumes.

Across the border, the Hong Kong International Airport, which handles 80% of the cargo generated from the Pearl River Delta, is constructing ten new gates for cargo aircraft, promoting freight incentives and discounts on airport charges, and promoting multidimensional collaboration between Shenzhen and Hong Kong. DHL is also building a new Central Asia Hub in the airport.

Guangzhou Baiyun Airport has been overhauled in recent years, reopening on August 5, 2004. However, while it was being rebuilt the competitive landscape changed. “Before we used the new airport, freight was constrained on the ground,” Chen Xiaoning, the vice president of Guangzhou Airport Management Corp, explained. “By the time we constructed the new airport, the freight market in Pearl River Delta had opened up.”

Over the period Chen alludes to, Shenzhen Airport completed a transformation from an air freight agent into all-rounded logistic service provide, successfully doubling its cargo throughput volume from 203,000 tons to 423,300 tons.

At the same time, the new Hong Kong International Airport became profitable. With help from DHL, which placed its Central Asia Hub in Hong Kong, Hong Kong International Airport’s freight volume had grown to 3.6 million tons by 2006, up 1.53 million tons from five years earlier. The airport had cemented its spot as the second largest carrier of freight in the world.

Cooperation
As governments in Shenzhen and Hong Kong have begun cooperating over a wider spectrum, the three airports have also shown a certain level of collaboration. Shenzhen has opened a terminal in Hong Kong and started a Shenzhen-Hong Kong express service, while Hong Kong has opened several cross-border express shipping services and joint logistic networks in Shenzhen and other parts of Guangdong province.

After several years of rapid development, Hong Kong International also became aware of its limited capacity and its over-reliance on the hinterland’s economy. It is now trying to expand its market and network in the hinterland, using its extensive international network and the domestic networks of Shenzhen and Guangzhou Baiyun airports.

However, Zhi said that the cooperation between Shenzhen and Hong Kong was limited to passenger traffic and customs convenience, although the two parties were in talks to discuss possible collaboration over freight. “Shenzhen Airport is squeezed in the middle of Guangzhou and Hong Kong so there is a need for us to position Shenzhen as the freight gateway to South China,” Zhi added.

Hong Kong began managing Zhuhai Airport in 2006, positioning it to focus on air cargo, throughout the Pearl River Delta. In addition, FedEx plans to open an Asia-Pacific transport hub in Guangzhou Baiyun Airport by the end of 2008, and the hub is expected to handle a cargo volume above the current annual average for the entire airport.

Chinese statistics have forecast that the air cargo volume in the Pearl River Delta is likely to sum between eight and 10 million tons by 2010, and 20 million tons by 2020. In 2006, the three airports’ total cargo volume was just 4.81 million tons.

The three airports have ambitious plans. Guangzhou Baiyun plans to move 4 million tons through its Asia-Pacific transport hub by 2020, Shenzhen plans to reach 1.5 million tons of cargo throughput by 2015, and the Hong Kong Airport Authority estimated that its airport would handle 8 million tons a year by 2025, making it China’s most important gateway.

Going global
Charles Wang, the chief representative in Beijing for the Council of Supply Chain Management Professionals, said that the three airports should not focus too much on competing with one another, but rather develop a division of labor that takes advantage of each airport’s strengths so as to compete with metropolitan airports in the US and UK. Since the freight market in the Pearl River Delta is too large to be dominated or handled by only one airport, the three airports should develop clearer positioning in the market.

“Sea transport in Pearl River Delta, for example, saw similar concerns when Yantian Harbor was constructed,” Wang said. “Development in the past few years has shown that not only has Yantian Harbor not taken cargo from Hong Kong or Guangzhou, but that the three harbors have formed the world’s largest harbor belt. This pattern can apply to airports as well.

“Judging from the current circumstances, competition in the delta between cities, airports and harbors should not be the focus; instead they should concentrate on how the delta can raise its competitiveness as a whole. The competitive landscape of airports is closely associated with market demand, and growth of logistics in the delta should satisfy demand from all three airports.

“However, the whole region is facing problems arising from human resources and industry structure,” Wang warned. “In addition, the low added value of products is also affecting the development of air cargo.”

Tokyo Narita International Airport, Korea Incheon Airport, Singapore Changi Airport and Hong Kong International Airport are all competing to be the prime air transport hub for the Asia-Pacific region. Collaboration between the airports of the Pearl River Delta should therefore help them all.

Wang said it was possible to maintain competition between the airports but while developing fruitful cooperation and a professional division of labor, and airlines and airport management generally agree. Most agree that Hong Kong’s advantages lie with its free trade, international management, experience and convenience, while high labor costs are a major disadvantage. Shenzhen has advantages in its close proximity to cargo production base, including Binhai, but it suffers from limited capacity. Guangzhou Baiyun’s advantages lie in its status as China’s first airport to be designed as a transport hub, and its current status as the third largest air transport hubs in the nation.

As Guangzhou’s vice secretary-general Tang Hanghao said, industrial chains in Guangxi and Hunan are merging with those in Guangdong, deepening economic cooperation in the delta. But, he warned, Guangzhou Baiyun still needs more management support and development before it reaches the standards of an international airport.

Logistic industry experts said airlines in the Pearl River Delta were expected to cooperate more following the completion of a number of large infrastructure projects, including the Guangzhou-Shenzhen-Hong Kong Express and Hong Kong-Macau-Zhuhai Bridge. Hong Kong’s airport was expected to become more involved with high-added value products, and products that were time but not price sensitive, while it was also expected to strengthen its position as the main cargo transfer airport. Guangzhou Baiyun and Shenzhen airports were expected to take further advantage of their close proximity to production centers and transport large quantities of cargo.

This article was originally published in Chinese in China Business News on November 26, 2007. The China Perspective takes no responsibility for the accuracy of the original article.