Interesting times

posted on 22nd October 2019
Interesting times

Despite some challenges this year, the prospects for Hong Kong International Airport, its cargo handlers, and their attractiveness to freight customers, remain compelling, says Hactl CEO Wilson Kwong

Hong Kong International Airport has faced its fair share of challenges this year, with the general downturn in cargo demand most international airports have faced this year – especially those in east Asia – compounded by some short-term disruptions to operations this summer caused by the high-profile public assemblies at the airport.

After last year once again retaining its position as the world’s busiest cargo airport with a little over 5.1 million tonnes, over the first eight months of the year, HKIA’s cargo throughput totalled 3.08 million, down 7.4% compared to the same period last year – worsened by a drop in August of more than 11%. On a 12-month rolling basis, cargo throughput had slipped to 4.9 million tonnes, a decrease of 5.3%, year on year.

Wilson Kwong, CEO of Hong Kong air cargo terminal operator Hactl, notes that it is not just Hong Kong that is seeing a decline in tonnage compared to last year. He attributes the drop to various factors, including a previous phase of re-stocking coming to an end; the trade dispute – not least with China and the US, but with many trading economies worldwide; and the weakening of the underlying general economy.

One thing that has helped maintain a sense of optimism this time, compared with previous downturns, has been the continuing growth from a couple of sectors – notably e-commerce “and niche cargo, things like pharma and fresh”.

Indeed, in March, Hactl underlined its credentials in the cool-chain handling business by receiving the first IATA CEIV Fresh certification. Hong Kong as an airport community has subsequently received that as well.

“So, we are seeing some focused growth, but the overall situation is one which is unfavorable so far,” says Kwong.

Although it’s too soon to identify whether the CEIV fresh certification shows signs of translating into any new business, Kwong says Hactl “was already recognized to have this capability of handling fresh products or perishables anyway. So, basically, we assured ourselves that what we have been doing over the past 43 years has been correct. But I have confidence we have the capability and capacity to handle an increase going forward and we will capitalize on any opportunities that may become available in the future.”

E-commerce hinterland

On the e-commerce side, the handler’s logistics and road freight subsidiary Hacis has developed a number of initiatives to expand the airport’s hinterland – for example, working with the postal authorities or private parcels companies or other agencies – to grow that business. “I think e-commerce is something which is not going to go away; it will continuously grow. And with our surrounding market, which is the Greater Bay area – what people use to call the Pearl River Delta – becoming more and more prosperous, the opportunity will just become more and more apparent,” highlights Kwong.

“I think if we are focused in it, if we do a good job with it, the opportunity is plentiful. And we have every intention to capitalize more on that.”

A further, related opportunity the company has been exploring follows the opening of the Hong Kong-Macau-Zhuhai bridge, which was officially opened last October. “That drastically cuts the time required to go from the west of Hong Kong to the western part of the Pearl River Delta,” notes Kwong. “In the past, to go from Hong Kong to Macau or Zuhai – in the western part of the Pearl River Delta – it would take around three hours by road. The opening of the bridge cuts it to 45 minutes.

“It means there will be a much better cargo flow to and from both sides of the Pearl River Delta, and this is something which we are actively looking at. We opened one depot and we will be setting up more; and we will continuously look into opportunities towards the western part of the Greater Bay Area to see how we can capitalize there.”

These HACIS depots act as consolidation points for traffic from the surrounding area, attracting cargo from various sectors.

“What is important is that we have the capability to handle the different types of shipment, as and when they come along. So, we will work with the community to see what these demands are and then we will address them.”

Growing e-commerce

With the continuing rapid growth of e-commerce traffic, Hactl has been looking at what is going to be required to handle this traffic most efficiently, Kwong says. “For example, is there a need to create more areas for loose or smaller shipments, or postal shipments, or a different process to handle that traffic?”

Kwong acknowledges that some of the requirements for handling postal traffic – which is often how e-commerce shipments enter the air freight system – are very different from general cargo.

“We’ve got a lot more bulk shipments in mailbags, for example,” he notes. “We’re quite blessed in Hactl: we have a dedicated team of colleagues, grouped under what we call PE – Productivity Enhancement – where their sole purpose is to look at our existing processes, and to make recommendations, either on modifying the current processes or our infrastructure.” That’s something Hactl has been doing for several years.

Last year, it developed what it calls the ‘Floor Goods Locating System’. Kwong explains: “We have two big mechanical systems: the box storage system and the containerised storage system. But there will always be goods that cannot go in either. So, we use a lot of fork lifts to move them around the terminal.

“But inefficiency arises when you have to locate them, so that you can take them from A to B. By implementing this ‘floor goods locating system’ – including the use of RFID tags and installing certain equipment on the forklifts themselves – we are able to enhance the efficiency of that process.”

Surprising, instead of putting the RFID tag on the cargo, the PE team opted put it on the ceiling to create a ‘cell’, which using GPS and other technology gives an accurate location in the racking. And when the goods are first shipped into the warehouse, the system automatically takes a photograph from five different angles to identify the cargo.

“That’s then automatically uploaded to Cosac-Plus, which is the operating system behind everything Hactl does,” explains Kwong. “The forklift truck has a unit mounted on top of its mast, which looks at the temporary barcode label which is stuck on the top of the cargo, and relates all this information together.

“So, the cargo piece has been identified uniquely with the reference. We have a photographic image which is captured in the system. And then the forklift truck is told by Cosac-Plus where to put the cargo in the racking. And then when it comes time for the driver to go and relocate the goods, to bring them out to build on a pallet, the system has all this information. It shows him a picture of what the cargo looks like, which makes it even easier for him so to identify on the racking, and so on.

“It sounds pretty obvious, but when you look at the size of the facility we’re talking about there, it’s very, very easy to misplace something – particularly when you’re moving at a fast pace all the time. So, this system really draws all the information together, records it properly, makes it that much easier for someone to then pull it out.

“That, in turn, has a really direct, quite dramatic, impact on the time taken to build a particular unit, the ability to make the time for the flight, and so on. So, no more goods lost, no more goods that get left off a pallet, left off a flight, or so on; it’s all taken care of. ‘Smart cargo locating’ is the title we eventually gave it.”

The PE Team

Kwong describes the PE team as “like an innovation lab – a team of seven people, with a senior manager, whose job is, basically, to look for problems – to go out and talk to the people in the facility, talk to the customers, walk around the facility, look for bottlenecks, look for problems, look for ways of doing things smarter. They’ve come up with a whole host of different projects which go through a proof of concept and then eventually go through design and then implementation.

“One very good example of this, three or four years back, was the switch to mobile computing throughout the whole of the facility. So, instead of people going to what were then fixed computer units with displays for information, all the information and instructions were issued on their mobile devices.

“So, you then have the tug driver logging what they just collected from the aircraft’s side, which goes into the system and then he would get information back; he’d get instructions about where to take that cargo. So, computing on the move now, rather than static computing, which is what it used to be.”

He continues: “It doesn’t sound dramatic, but it has absolutely revolutionised the whole process. It means that Hactl is much better able in dealing with the nighttime peaks of freighter operations – because occasionally we end up with 15 freighters, side by side, all being handled at the same time.

“So, it enables you to, for example, prioritize the mail in the equipment, to deal with things in the order they need to be loaded and unloaded for flight times, and so on. It’s just a smarter way of working. And it’s even cut down emissions; it’s cut down maintenance costs on the tractors to tow the dollies; it’s cut down the towing distances involved – it has absolutely revolutionized everything.”

That’s just one of the team’s many projects.

The PE team is still evaluating a lot of things, where we can optimize our resources, utilization,” Kwong enthuses. “Ultimately, as a cargo terminal operator, it is about getting goods in and out of the terminal as quickly, as effectively, and as safely, securely, as possible.”

Rationalised truck flows

Another thing the PE team worked on a couple of years ago was to completely rationalize truck flows around the facility. Hactl receives hundreds of trucks every day, which could sometimes lead to truck jams back out on to the airport roads. “So, they came up with a complete set of new measures and equipment, which meant that for example, trucks could be pre-booked,” Kwong notes.

These are solutions that some European airports have only just started working on, but Hactl began doing so three or four years ago. “So, pre-booking of the arrival of the truck, allocating a door or a dock where it can be handled. If they give enough of the right kind of information, they are allowed to proceed into the truck park through a priority lane and bypass the truck queue.” That gives them better facilities for the drivers to go and log in, and then input details of the cargo they will carry – which then marries up with what’s already pre-booked in the system.

“Again, it’s just a smarter way of working,” Kwong says. It has stopped ‘fly parking’ at the car parks, because it is now all barrier parking and arranged, admission to the car park and truck park. “There are no more queues out on to the airport roads; everything runs smoothly.”

Areas for improvement

Kwong says one of the next areas for improvement the PE team is considering is further optimising the handling of e-commerce requirements, “because that’s a growing trend. In the case of Pharma or Fresh, we have the capability of handling them. But it’s e-commerce and the expected growth which we have to prepare ourselves for.”

Highlighting the current pinch points, Kwong notes: “E-commerce basically involves a lot more bulk parcels, bulk shipments. It’s about how you get the shipments within the terminal moving quicker. There are technologies to do that – whether it is automated vehicles or other means of transporting goods within the terminal itself – but ultimately how to handle things better and quicker.”

Another thing Hactl has been looking to optimise is the building up and the breaking down of cargo, which involves a lot of people and time. “The challenge is, will there be a pragmatic, automated, robotic solution which will help us do that. That’s something we’ve been looking at for quite some time.”

Oher airlines have tried this out and couldn’t make it work. It’s an exciting challenge,” acknowledges Kwong.

Integrator model

The automation models used by the integrators is of interest, but air freight is “a bit different. You don’t get the same uniformity of shipments within air freight.”

Nevertheless, a lot of the traffic that goes through Hong Kong is delivered as pre-built units, which are already handled mechanically at Hactl. “They go into the system straight up into the racking. Then they’re pulled out for the flight,” Kwong notes.

However, a lot of the e-commerce traffic leaves China as individual mail packets.

“Because it contains electronics goods, that introduces challenges in terms of scanning and so on,” Kwong notes. “And this is one of the reasons why Hacis has got proactively involved in that part of market, and worked with postal authorities to come up with a viable solution. The Hacis facility is handling around 3,000 mailbags in a day, putting them in containers.

“They arrive as mailbags already with all the little packages in, so there’s no requirements to actually sort the packages or anything like that. They’re already sorted by the mail system. It’s a matter of containerizing that traffic and getting it out. But that’s a fantastic boost for the Hactl customer carriers because, off the back of this Hacis business, they’re getting a traffic bonus that wasn’t there before.”

Cainiao development

The growth potential of e-commerce traffic at Hong Kong and other airports is underlined by new planned development at Hong Kong led by Cainiao, the logistics subsidiary of China’s Alibaba.

“We are very positive about that development,” says Kwong. “It’s not just a Cainiao development on its own; they’re partnering with CNAC – China National Aviation Corporation; our Hactl shareholder – and YTO Express, which is a Hactl customer. That development, which is two blocks away from Hactl, will be built in 2023, and once up and running it’s expected to bring in an additional 1.7 million tonnes of cargo throughput.”

At the moment, Hong Kong handles about 5.1 million tonnes of cargo.

“It is not a cargo terminal (with ramp-side access), so these 1.7 million tonnes of cargo will have to go via one of the cargo terminals,” Kwong explains. “So, it’s an opportunity for us, as Hactl or as Hacis, to see how we can facilitate those goods, provided that they are going on to our customer airlines; how the built-up units, which we anticipate will be done at the facility, can be processed through our terminal as quickly as possible. The Cainiao development will comprise a lot of e-commerce products, as well as other high-value cargo, which could include, pharmaceuticals. So, we are in regular dialogue with the Cainiao development team to look at opportunities available – even though there’s still some time away.”

He is confident that the airport and its handling agents have the capacity for this extra traffic – especially with the airport’s three-runway system expected to be fully operational by 2024.

“The third runway will be complete in 2022, but the airport authority has plans to then shut down the existing two runways, consecutively, for repairs. So, the three runways will be fully operational together in 2024,” Kwong explains.

“So, if you look at the timing, Cainiao opens in 2023, the three runways system opens in 2024. So, we’re quite excited about the development opportunities going forward in Hong Kong.

Kwong says it is “a massive endorsement of the airport and everything the airport represents” that Cainiao has decided to put this operation – one of only a handful worldwide – in Hong Kong, adding: “As usual, it’s the Hong Kong package: the location, the number of carriers that serve it, the frequencies, the choice, the handling facilities, the modern customs facilities; everything stacks up for Hong Kong, and that’s why they’ve chosen it.”

And the third runway is thought to have been a factor in Cainiao choosing Hong Kong, where there is pent up demand from freighter operators who have wanted to serve Hong, because of the current constraints on extra flights.

“At the moment, Hong Kong is pretty congested, as an airport, with 68 movements per hour,” acknowledges Kwong. “Once the third runway fully operates, it can take the system to 102 flight movements per hour. With that, it can handle additional freighters and other flights, which at the moment the two-runway system cannot handle.”

He says the airport authority has done everything it can within the constraints at the moment to use the air space and to use the slot availability to the optimum.

“But I think it’s fair to say that it’s got to the point now where there is no more elasticity left. That’s why we’re really supportive of the three-runway system.”

Plans for that third runway are now fully agreed. Construction is happening. The area is being reclaimed now as we speak,” says Kwong.

Political disruption

On the effects of the recent high-profile political demonstrations in Hong Kong, including some targeting the airport itself, Kwong is optimistic that there will be no long-term impact on Hong Kong’s reputation as a place to conduct and locate air freight business.

To date, the impact on Hactl has thankfully been minimal,” Kwong notes. “A few of our staff have had problems travelling to or from work, but we have maintained a full labour complement throughout, so we have been able to maintain service for all flights and customers we handle. Freighter flights have operated as normal but, of course, some passenger flights were cancelled in the early stages. This meant we had to hold over some cargo for the next available flights, but the backlogs were quickly cleared.

“Most major air cargo hubs suffer disruption at one time or another due to a variety of reasons; on this occasion, it was Hong Kong’s turn. But the impact on cargo operations was minimal and short term, and measures are now in place to ensure the airport should be safe from further problems.

Longer term, Hong Kong has a very strong case to be a major air cargo hub, based mainly on its strategic location, its infrastructure, the scale of its global connections, the choice of carriers and frequencies, main-deck options, and modern customs procedures. Hong Kong’s success in recent years is a clear indication of how we are regarded on a local, regional and global basis by the logistics community.”

He concludes: “With ever-improving road connections to the Greater Bay area and the whole of mainland China, plus the extra slot capacity that will be released when our third runway opens, Hong Kong’s offering will become even stronger in the future. I feel all of those factors more than outweigh any short-term problems or concerns.”

SuperTerminal 1

Despite now being 20 years old, Hactl’s Superterminal 1 is still one of the largest and most technically sophisticated air cargo handling terminals in the world. But it with an initial investment of US$1 billion,

its capacity of 3.5 million tonnes per annum is supported by two main mechanical systems: the 3,500-bay, multi-level container storage system is served by 40 fully automated driverless ATVs (automated transfer vehicles or container cranes), which receive commands from the CCS Logistics Control System – which determines which station they should park ULDs in, and then remembers this for retrieval. This is complemented by a 10,000-bay automated box (stillage) storage and retrieval system for loose cargo.

 

The terminal features 395,000 sqm of floor, 466 pallet workstations, and 313 truck docks, with specialist facilities for livestock, perishables, valuables – including a dedicated zone for handling nine armoured vehicles simultaneously – hazardous and radioactive cargo.

Staffed by around 2,400 employees, security features include over 1,000 CCTV cameras, card-controlled access, and various personnel-free cargo storage zones.