HK Legislator Questions HK's Choice of Dongguan Over Shenzhen to Transship E-cigs

On 28 November, the Panel on Economic Development of the Legislative Council of Hong Kong held a meeting to discuss the revised agenda of Enhancing the Control and Regulation for Transhipment of Alternative Smoking Products. The discussion focused on how to maintain the status of Hong Kong as an international cargo center in the context of COVID-19, mitigate the losses caused to Hong Kong's trade and transportation since the implementation of the ban on April 30, and strive for the opening of sea-to-air transshipment of e-cigarettes in early 2023.

The Hong Kong government to open sea-to-air entrepot for e-cigarettes

The Government disclosed the sea-to-air transshipment mode: An upstream "Hong Kong International Airport (HKIA) Logistics Park" in Dongguan and an "air-side cargo pier" at the Hong Kong airport are set up by the Airport Authority Hong Kong (AAHK), allowing exports from the mainland to be first seamlessly transported by sea after security checks in advance, and then directly transferred to the rest of the world by Hong Kong's international aviation network without repeated security procedures.

This sea-to-air transshipment mode has worked well since its implementation by AAHK in early 2022. The Government believes that this new approach can be applied to e-cigarette products, which can also effectively prevent them from flowing into Hong Kong's local market during transshipment.

Schematic Diagram of Dongguan Logistics Port & Sea-to-air Transshipment Source: Screenshot of the live broadcasting by the Legislative Council of Hong Kong's official website

Ms. Cissy Chan, Executive Director, Commercial of AAHK, confirmed the news at the meeting. She said that the (experimental operation of) sea-to-air transshipment from Dongguan Logistics Park to HKIA would be completed in December. The transshipment regulatory measures include the following:

• Conduct X-ray machine and other security inspections in Dongguan Logistics Park;
• Put the goods into the safety net and seal them for shipping to Hong Kong International Airport;
• Upload the goods information and airport number to AAHK's system in advance;
• Track the whole process with the central camera; install deviation alarm in the hull;
• Set up a full central camera monitoring system at Hong Kong West Quay;
• Goods seals checked by Customs;
• Goods security check by Airport insurance company;
• Pack the goods and ship them by air to each destination.

Ms. Chan said that this would effectively regulate the market for e-cigarette shipments and prevent such products from flowing into the Hong Kong community. Ms. Pamela Lam, Deputy Secretary for the Transport and Logistics Bureau of Hong Kong, said that the quick implementation of the sea-to-air transshipment was to alleviate the current economic impact caused by the Government's transshipment ban.

Legislative Council Members express strong doubts and urge the Government to open land-to-air transshipment

According to the data presented by the relevant members of the Legislative Council, before the implementation of the ban, the annual direct air cargo in Hong Kong was about 3 million tons, of which about 330,000 tons were e-cigarettes, accounting for one-tenth of the total air cargo. In the first quarter of 2022, the trade volume of alternative smoking products reached HK$820 million, 90% of which was shipped by air and land.

Several Legislative Council members, including Frankie Yick, Ben Chan, and Jeffrey Lam, expressed their dismay and disappointment that the government representatives just passed the sea-to-air transshipment approach in Dongguan but did not enact the land-to-air transshipment bill, and questioned whether the logistics terminal in Dongguan has really eased the current transshipment predicament facing Hong Kong.

Speech by Council Member Frankie Yick Source: Screenshot of the live broadcasting by the Legislative Council of Hong Kong's official website

Citing survey data, Mr. Yick said that since the ban was implemented on April 30, cargo traffic at the HKIA has dropped by an average of 18% per month. Other members added that the ban on e-cigarette cargo has spilled over to other products because of the need for a light and heavy mix in air cargo. E-cigarettes, as small cargo with heavy weight, can be paired with light and bulky cargo to effectively utilize the cargo space, reduce costs, and improve the efficiency of cargo flights. The ban on e-cigarettes adding to the soaring cost of transporting light goods makes it difficult to counterweight, resulting in a sharp decline in total cargo volume, with the loss estimated at HK$1 trillion.

Speech by Council Member Ben Chan Source: Screenshot of the live broadcasting by the Legislative Council of Hong Kong's official website

Mr. Chan said that the sea-to-air transshipment mode, low in cargo volume, could not really solve the problem of e-cigarette transportation and the serious losses caused in Hong Kong. He added that in the transport of e-cigarettes, sea-to-air transshipment accounts for less than 5%, while land-to-air accounts for more than 90%. It's meaningless if the Legislation Council only opens small windows without wide channels. It is even better to wait and spend more time formulating the most important (land-to-air transshipment) plan.

Speech by Council Member Jeffrey Lam Source: Screenshot of the live broadcasting by the Legislative Council of Hong Kong's official website

Mr. Lam questioned the Government's mechanism to assess the risk of transshipment. He said that the Government's tobacco control legislation aims to ban the use of alternative tobacco rather than transshipment. Before the ban, tobacco products could be transported through Shenzhen by land and air, and the Legislative Council should explain further the specific risks of transshipment. He believes that the Government's consideration in enacting legislation is not comprehensive and that developing redemption measures only after facing huge losses cannot reflect the foresight of the Government's legislative work. What's more, there is no specific timetable to solve the related issues.

Ms. Pamela Lam, Deputy Secretary for the Transport and Logistics Bureau, presents the legislative documents Source: Screenshot of the live broadcasting by the Legislative Council of Hong Kong's official website

Ms. Lam replied that air-to-air transshipment is better regulated than land-to-air transshipment, although the latter accounts for 90% of international transshipment in Hong Kong. The discussion on how to operate land-to-air transshipment is continuing. The implementation of sea-to-air transshipment is to meet the urgent need to restore Hong Kong's status as the hub of transshipment. The Legislative Council knows well the great importance of land transportation and is still discussing relevant issues, but is unable to provide the timetable now.

Legislative Council members call for restoring Hong Kong's status as an aviation hub

As an important economic pillar in Hong Kong, the trade and logistics industry accounts for about one-fifth of Hong Kong's GDP, providing nearly 600,000 jobs. In the past two years, under the dual impact of the global economic slowdown and the spread of COVID-19, Hong Kong's air cargo traffic has remained stable. However, since the implementation of the ban on e-cigarette transshipment on April 30, air, land, and sea transports have all come to a standstill, which, together with the problem of counterweighting, has caused the entire air transport industry in Hong Kong to suffer heavy losses and brought other related industries to a low point.

In early November, Financial Secretary Paul Chan said that Hong Kong's budget deficit this year is expected to exceed HK$100 billion ($12.7 billion), double the previous estimate. The Government should solve the problem through a more diversified revenue stream.

According to the legislative document, in 2021, the value of foreign trade generated by cargo transport at HKIA is approximately HK$4,340 billion[12]. Among them, e-cigarettes account for nearly one-tenth of the total weight of air cargo. The opening of e-cigarette transshipment will help diversify the Government's tax revenue and ease the pressure on the budget deficit.

The Council members called on the relevant authorities to establish a land-to-air transshipment bill as soon as possible, attaching importance to both sea-to-air (Dongguan as the main departure point) and land-to-air transshipment (Shenzhen as the main departure point), and develop substantive measures that can help Hong Kong return to its status as an international aviation hub and reinvigorate Hong Kong's economy and its air transport industry.

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Discussion Summary: HK to re-open transshipment in 2023