A logistics tale of two cities: Hong Kong and Calgary

By: | at 11:29 AM | Channel(s): Intermodal News  Ports & Terminals  

At first blush, Hong Kong, a teeming metropolis where land is at a premium, located at the tip of South China, and Calgary in the vast plains of Alberta in Canada, would not seem to have much in common.

Hong Kong’s forest like skyscrapers are each home to a small town’s worth of people, traffic is congested at nearly all hours, every inch of land is acutely valuable. Over seven million people live in 426 sq/mi, much of which is water. In contrast, Calgary has a population of around one million living in just under 320 sq/mi. The density of Hong Kong is an astonishing 18,000 per sq/mi (a great deal of the region is water and islands) while Calgary is just a little over 4,000 per sq/mi. Calgary does have some traffic issues (a near circle route around the city is nearly complete,) but they are minor in comparison, and land is abundant. Both cities are growing fast, and their respective airports are being expanded.

Another similar attribute is both cities are home to a large population of US citizens. In Hong Kong’s case, the city is often a regional headquarters and foothold for the China market. In the post-1997 environment (year of Hong Kong’s turnover from Britain to China) there was a rush into China, especially places like Shanghai. Now there is a rush back to Hong Kong, as the city’s open commercial environment has once again proved attractive to US individuals and corporations.

Currently there are 60,000-US citizens in Hong Kong. According to Andrew Davis, Associate Director General, “Invest Hong Kong” the establishment of US headquarters in Hong Kong is part of the overall resurgence. “No where is there the same geographical advantages as here…and it’s continuing to grow,” he said. Davis explained Hong Kong has attracted a wide variety of US companies even beyond the traditional multinationals, including Chicago’s premier popcorn maker “Garrett Popcorn,” which has been highly successful.

Calgary too has a large population of US citizens, maybe the largest concentration of any foreign city in the world at over 100,000 people – a very large total considering the population. Much of the draw is the oil patch. Like Houston, its cousin to the South, oil and all the associated oil patch businesses are a key feature to the economic and social fabric of the Albertan hub. Calgary, like Hong Kong, has also become home for companies needing regional headquarters in Canada’s West.

Logistic Challenges

Although it is easy to see the differences, there is a common thread tying the economic fabric of both cities to the abutting regions. On closer examination, both are city logistics centers facing similar challenges (albeit on different scales) to upgrading their airports and infrastructure connections to a much larger region. In the case of Hong Kong, the connection is to China itself and by extension Southeast Asia, while Calgary is improving connections to the US market and beyond, as well as being a conduit for cargo for the Provinces adjacent to Alberta. Ironically both cities are facing a labor shortage in their logistics sector and looking at a variety of ways to recruit and keep employees.

Finally, both cities are trying to move up the value chain - to be significantly better logistically than their immediate geographic competitors. Two distinctly different cities united by the common task of improving their logistic service sector.

The New Calgary Stampede Flying into Calgary International Airport, two important attributes are readily apparent. The first is the sense of vastness that surrounds the city. The prairies seem like a vast inland sea, surrounding Calgary on three sides before bumping up against the foothills of the towering Canadian Rockies to the West. On closer inspection, it is clear that there is building moving outward ...construction is everywhere, and there is little doubt that Calgary is now, and has been for various periods in its history, a classic boomtown.

In Western Canada it seems like all roads lead to Calgary. The city is really an inland “port” for Canada’s Western provinces with Saskatchewan to the East, British Columbia to the West, The Northwest Territories to the North and the United States to the South. The city was founded as a stop on the Canadian Pacific Railway (CPR), which is still a vital link for Calgary, not only to the rest of Canada, but to the US and global markets.

Canada is unusual in its economic and population demographics. As Tom Dixon, Business Development Manager at Calgary Economic Development explained, “90% of the population [of Canada] lives within 100-miles of the US border while 90% of the economic activity (resource derived wealth –extraction industries and forest products) lies in remote areas.” Another unique aspect of the Canadian economy is the East-West flow, creating a transportation imbalance. Most of the consumer goods tend to flow from East to West, although connections to the Asian markets through ports of Vancouver and Prince Rupert and the US West Coast are increasing. Most of the region’s exports are either agricultural or mineral, both of which tend to weigh out or demand specialized cars or trucks, creating an equipment imbalance. Also the individual Provinces tend to exercise more regional regulatory authority than “States” do in the US, which has an impact on the distribution of goods.

Jason Copping, General Manager, government relations and gateways for CPR, said, “Calgary is a great place for a transportation hub: We have the shortest mileage to Vancouver and the West Coast, shortest mileage to Chicago and through our partner Kansas City Southern Rail (KCSR,) we can service Mexico.” CPR’s intermodal yard in Calgary (incidentally Canadian Pacific’s headquarters is located in Calgary) is on the main trunk line that connects Calgary to Port Metro in Vancouver.

Right next door to the CPR’s intermodal rail yard is Sears Distribution Center. Besides Sears, Calgary is home to a number of large DCs handling consumer goods for the region.

Dave Cooper, General Manager/Director for the National Logistics Center for Sears Canada’s Calgary, explained the logistic importance of Calgary in the overall transportation scheme, “After GTA – Greater Toronto Area, it’s Winnipeg, Regina, Calgary and Vancouver – so Calgary is a logical stepping stone.” Adding, “As where we are in the province, as the Trans Canada Highway runs east to west, the highway from Calgary runs north and south connecting us with the industrialized Central area (Edmonton and surrounding region as well as Yellowknife in the Northwest Territories).”

Besides Sears, Calgary is home to a number of large DCs handling consumer goods for the region. What they all have in common is a remarkably flexible “trading post” style that is adapted for the unusual logistics demands of the region.

In the case of Sears, while the inbound side of the DC may look like counterparts in the US, the outbound side is fine tuned with signs on loading docks for very small towns or stores – essentially the modern version of the “trading posts” – that lie in the remote areas.

Besides the geographic challenges, this often means providing some very special client services. Hopewell Logistics, which has a DC in Calgary, handles shoes exported from Hong Kong and imported through the San Pedro ports in the US and shipped north by truck. The shoes are discharged to the DC, the packing carefully undone and each shoe removed and the pricing, which is in US dollars, is peeled off and replaced by new labels with Canadian dollar pricing. Everything is carefully repacked and sent to the docks for onward distribution in retail stores. Remarkably, the entire packing, labeling and repacking process is done by hand.

As with any booming market, one of the major concerns is how to find and retain labor. One noticeable solution is employing more women, which is visibly noticeable in Calgary’s DCs.

With the booming oil fields to the North paying higher wages, retaining logistic sector employees requires some ingenuity. Ralph Wettstein, President of Canadian Freightways (CF,) a large less-than-truck load transportation company in Calgary came up with a novel solution both that helps retain employees and improves safety and efficiency. CF offers airway miles for employees hitting certain measurable metrics, many of which are safety related. The air miles bonus makes expensive holiday travel an obtainable and tangible goal for families, thus rewarding loyalty.

HK’s New Territories: Value Added in the Supply Chain From the beginning, Hong Kong has been about being a trading hub for China – an entrepot or perhaps a logistics hub before the expression served. The numbers tell the story: the Port handled 23.1 million teus in 2012 (third in the world – remarkably about 5.6 million teus were handled in stream by lighters) while Hong Kong International Airport (HKIA) tallied 55.6 million passengers, 4.03 million tonnes of airfreight (largest in the world) and 352,000 flights.

Despite these impressive numbers, Hong Kong is undergoing a sea-change in its logistics services sector. The Hong Kong Special Administrative Region (HKSAR) is developing a new niche in its historic role as the gateway to China. Roughly 20% of China’s total trade is routed through Hong Kong.

While Hong Kong was once itself a major manufacturing center, its role has become more of a “facilitator,” a two-way door providing niche services for companies engaging in the China market (selling or manufacturing.) and Chinese companies seeking to send their goods to foreign markets.

Of course, it is a complex affair, as Hong Kong itself is part of China under the “one country, two systems” doctrine. And much of the investment in China comes from or is funneled through Hong Kong.

From a logistics standpoint, Hong Kong is moving up the supply chain with “value added” services. It is a logical approach for Hong Kong, as land is at a premium, and labor is short. Like Calgary, the logistics sector is competing with other sectors to retain employees, but is also competing with Mainland logistics providers on price and services.

Analdo Li, the General Manager of Crown Logistics, (a division of the Crown Worldwide Group), has a particular insight into Hong Kong as a hub and the process of how to move up the “value added chain”. Crown Worldwide, which has been in Hong Kong since 1970, started as a relocations business (Japan in 1965) and through both organic growth and acquisition of industry specific companies (buying Fine Art and Wine logistic specialists – both sectors have been hugely successful) has expanded into one of Asia’s largest 3PL’s.

Li, in an interview with the AJOT emphasized, “Hong Kong as a hub is very efficient, very transparent.” Transparency in Asia is important, as only Hong Kong and Singapore are “open” with recourse to a truly independent judiciary and arbitration services. Hong Kong also is an important staging hub, as CEPA (Hong Kong-China Closer Economic Partnership Agreement) is “country neutral” – the free trade privileges under CEPA extend to any Hong Kong registered company, regardless of the nationality of the company’s home.

Further as Li explained, Hong Kong has no duty and is effectively a giant Free Trade Zone. “Hong Kong has no duty, and 80% of Asia’s consumers are within no more than four-hours [by air]...we [Hong Kong] have 10-15 flights to Tokyo every hour or six to seven ships a day to Taiwan; it’s like a shuttle service.”

Crown, like other Hong Kong-based 3PL’s has moved up the value chain and specializes in handling luxury consumer goods. With warehouse space at a premium, moving up the value chain requires some imagination and entrepreneurialism. In one case, a European cosmetic house sends the products in bulk, and the packaging and labels are manufactured in China and sent to Hong Kong where the assembly is completed and shipped. As Li says, such a complex business model demands that Crown know its customers, “We [Crown Logistics] have to know our customers’ needs better than the customer itself.”

Willy Lin, Chairman of the Hong Kong Shippers’ Council (HKSC) since 1999 and a member of the HKSAR Logistic Development Council, as well as the second-generation head (1981) of Milo’s Knitwear International, has a very unique perspective on Hong Kong’s position. The Babson College graduate (Wellesley, MA-USA) over the last couple of years has moved his textile business out of Hong Kong, across the border into China. He did so even with the labor costs rising on the Mainland, balancing the logistics’ outlays against production costs.

Lin’s focus with the HKSC was in his words, “to keep a level playing field” for Hong Kong shippers and their logistics providers. However, one of the complications is that “Hong Kong is not a country” and getting their [the shippers and logistics providers] message up through the system to the LEGCO (Legislative Council) to the Chief Executive office (Chief Executive CY Leung is an acknowledged proponent of the Maritime and Logistics sectors) to Beijing (in most cases Ministry of Communications) is not always simple. In the case of the IMO’s provision on mandatory verification on overweight containers, while acknowledging the safety concerns, Lin asked, “Where is the gray area? – If a container is slightly over, is it in violation of IMO [provisions]?” Hong Kong is principally a trans shipment hub so liability for overweight containers is a vexing issue.

Hong Kong is working (planning stages) on building a new third runway, dredging the port to accommodate the next generation of containerships, adding landside gates between Hong Kong and the Mainland and finishing the $11 billion, Hong Kong-Zhuhai-Macau Bridge, which will span the Pearl River and connect Hong Kong (near the HKIA) with the West side of the Guangdong Province.

The bridge is an important project for Hong Kong’s logistic sector as it opens up another gateway to the Mainland and more importantly to the Western part of the Guangdong, which is just now beginning to industrialize.

Value Added Logistics

Both Calgary and Hong Kong logistic sectors are adding “value added” services to remain competitive. Whether a global hub like Hong Kong or a regional center like Calgary, the onus is not only on single logistics companies but on the entire region from the top down to enable the sector to do what it does best – facilitate the movement of freight and in doing so improve the economic environment for the entire area.

George Lauriat's avatar

American Journal of Transportation