A two-day shut down of Hong Kong International Airport forced the cancellation of hundreds of passenger flights — and also caused a fair amount of anxiety in the electronics supply chain. As of August 15th, passenger flights had returned to normal and supply-chain pressure had eased. The negative impact on imports, exports and logistics is fading, but the long-term impact on Hong Kong's entrepot trade still exists.

Cause

Demonstrators gathered at Hong Kong International Airport to protest the Hong Kong SAR Government’s proposal to amend the Fugitive Offenders Ordinance and the Mutual Legal Assistance in Criminal Matters Ordinance to make up for the loopholes in the law. The proposal was opposed by business and legal circles in Hong Kong. Subsequently, a large number of Hong Kong youths expressed their opposition in the form of demonstrations.

Surprisingly, the incident had intensified under the planning and organization of anti-China forces outside the country and evolved from the initial “rational demonstration” of the people to the recent “violent attack.” Global concerns are both social and economic. The timeline was as follows:

* August 6: A strike at the Hong Kong airport duty station resulted in the cancellation of a small number of flights.

* August 12: A large number of demonstrators flooded into the Hong Kong airport and cancelled 238 flights. The demonstration was considered illegal by local authorities.

* August 13: At around 17:20, Hong Kong Airport broadcast that all flights were canceled that day.

* August 14: A Hong Kong court issued a "temporary injunction" and resumed roughly 1,000 flights.

* August 15: Hong Kong airport resumed normal operations.

Short-term impact

Regarding the supply chain, a small amount of emergency materials have been affected. Hong Kong is one of the world's largest free trade port cities and an important gateway for economic and trade exchanges between the Chinese mainland and the world. As an important channel for international air logistics, Hong Kong Airport is strategically irreplaceable.

Statistically, interruption at the Hong Kong International Airport could cause a loss of 206,000 passengers on a day-to-day basis; loss of freight volume of 13,863 tons; a loss of air cargo valued at 10.16 billion yuan (roughly US $1.4 billion), and a loss of 22.85 million yuan from the AA. By these measures, Hong Kong is one of the world's top three free-trade port cities.

Following the cancellation of flights at the Hong Kong airport, semiconductor OEMs and component agents revealed that component logistics were affected. We interviewed the industry's more influential agents and supply chain management companies.

A well-known component agent told us that under normal circumstances, the company will have an early warning notice of an emergency. The Hong Kong airport incident was purely an "accident;" the company did not issue a notice, which affected a few emergency materials. The impact wasn’t significant because the company's goods into the port have two channels, the renminbi business goes mainly through Shanghai, while Hong Kong dollar goods go through the Hong Kong port. Therefore, the impact for this company was limited.

Another large-scale component authorized agent said: "At present, with the recovery of flights, our goods have not been affected. Even on the day of flight suspension, it had little impact on us. This is because we cooperate with our logistics. There are a lot of companies that don't go all the way to Hong Kong."

At the same time, a well-known domestic supply chain management company also stated that on the day of flight outage, in order to cope with a small number of urgent orders, the company transferred flights to Shenzhen and Shanghai on the premise of negotiating costs with customers (agents). “This is an emergency strategy. Component agents have to bear part of the transshipment costs, but they have no impact on the supply chain management company, or they are charged normally.”

More respondents pointed out that the real impact on the supply chain is not "air transport" but "land transport." Recently, land transportation logistics caused by violent incidents have been disrupted, and some Hong Kong agents have been unable to deliver goods on time. Many agents have issued shipping warnings.

The majority of those interviewed said, the short-term impact of the "Hong Kong Airport Incident" on the electronic component supply chain is not significant. Hong Kong International Airport was only out of service for two days, and the current cargo transportation has returned to normal. In the long-run, the impact may be more significant.

Long-term impact

Hong Kong's re-export trade status will be weakened. The mainland chip market represents about $120 billion a year for Hong Kong. According to statistics, components are the largest source of foreign-exchange earnings in Hong Kong. Semiconductors and electronic tubes alone accounted for 40% of Hong Kong's total export value in 2018.

At the same time, mainland China is the largest export market for Hong Kong. Exports in 2018 were US$314.33 billion. Applying the 40% of semiconductors and electronic tubes, the amount will reach US$125.7 billion. According to the mainland's annual import of US$312 billion, almost all of them come through Hong Kong ports. It’s fair to say Hong Kong is the entry point for electronic components destined for the Chinese mainland from all over the world.

After the demonstration, we interviewed some enterprises on whether the incident will have an impact on the status of Hong Kong's trade, and whether it will weaken the choice of Hong Kong's import and export trade as an agent or supply chain management company.

Some agents admit that the incident has greatly affected overseas customers' long-term confidence in Hong Kong's export trade. "Many customers expressed concern about whether their goods can enter and exit normally if such incidents occur,” one agent said. “Some customers also let us issue countermeasure reports, etc."

More interviewees revealed that in the long run, if the violence in Hong Kong becomes the norm, it will force mainland electronic component agents to gradually detach their dependence on Hong Kong and turn import and export trade to Shenzhen, Shanghai and other mainland bonded warehouses. Once this happens, semiconductor OEMs and large agents need to make major adjustments to their business, and small and medium-sized distributors with import customs declarations will also be hit hard.

Other sources provide a counterpoint.

One source at a supply chain management company said that Hong Kong's status will not be affected for the time being, because Hong Kong is a "transfer warehouse" for electronic components. Many large-scale component agents have warehouses in Hong Kong, and most of them take the sea route or flights. The outage has little effect on it.

The source also stressed that Hong Kong's advantages are still obvious compared to the trading port status of the Chinese mainland. Hong Kong provides more flights, lower freight rates, and the verification of import payment to facilitate the entry and exit of funds. In his view, the rapid rise of logistics channels such as ports and airports in China is inevitable, but the logistics industry — one of the four pillars of Hong Kong's economy — may weaken but it will never disappear.

By: DocMemory
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