Long before the establishment of the Hong Kong SAR (Special Administrative Region) in 1997, the idea of connecting Hong Kong with Macau/Zhuhai had already been broached. The Pearl River separates the Western side of the Province of Guangdong from Hong Kong, and although there are many short sea connections, the idea of another land gateway to the China hinterland had a strong appeal. The main Hong Kong-China cross-border connection at Lo Wu handles in excess of 260,000 people daily, and virtually every one of the four land crossings is congested. Beyond moving people, the idea of another land crossing had economic appeal to Hong Kong’s land challenged business community. Hong Kong’s economy is already inexorably tied to the Mainland and especially the PRD (Pearl River Delta) region. The 9+2 Pan PRD region, which includes the nine southern provinces plus Macao and Hong Kong, is China’s most economically developed. The 400 million population had a 2012 GDP growth of 8.1% (excluding Macau and Hong Kong), a per capita GDP of $15,100 (2011) and exports of $991.5 billion in 2012. From a larger perspective Hong Kong’s relationship with China through CEPA (Closer Economic Partnership Arrangement), which is in essence a free trade agreement, acts as a springboard for both cross border trade and investment. In China’s 12th Five-Year Plan, a chapter was dedicated to Beijing’s support for Hong Kong as a financial, trading and logistic hub. Hong Kong is already the largest source of foreign direct investment for China enterprises at over $629 billion or around 47% of FDI (end June-2013). The HZMB Route & Logistics Implications The initial seabed feasibility work kicked off in 2007, and in 2009 China’s Central Government, Hong Kong and Macau agreed to finance 22% of the total costs with the remainder consisting of loans of around $8.4 billion organized by a consortium of banks led by the Bank of China. Construction of the bridge began in December 2009 on the Guangdong side and 2011 on the Hong Kong side, and opening is anticipated 2016. However, the HZMB is a great deal more than a bridge (and tunnel) as it will link the less developed Western Guangdong region with the Hong Kong gateway. The HZMB route swings along the north side of the island of Lantau next to the Hong Kong International Airport. The logistic implications of the route are enormous. The rapid development of the region directly north of Hong Kong of cities like Shenzhen and Guangdong has begun hitting limits of practical expansion. However, the south Western part of the Province near the cities of Zhuhai and Macao holds untapped potential that can be unleashed with easy access to both Chinese and global markets via Hong Kong. Structurally, the China market is changing very rapidly, and a “new China” strategy for many companies is evolving. Part of the change is that the “Go West” campaign that was started back in 2001 to encourage investment in export oriented factories away from the coast and into the hinterland has begun to catch on. Dr. Henriette Hallberg Thygesen, CEO for Damco (an AP Moller subsidiary,) a forwarder with long experience in China market, said of the Go West plan, “I began working in China in 2002, and the Go West plan was already in place but nobody went…now it’s really taking off.” Besides the geographical element, another feature of the change is that China as purely an exporter has given way to China both as an importer and exporter. Dr. Thygesen says with the emergence of the China consumer, Damco as a logistic provider is building new products to service a vastly more complex logistics system than existed prior with the pure export model. Hong Kong’s role in the China supply chain has also changed with the rise of the Chinese consumer. Andrew Davis, Associate Director-General for Invest Hong Kong, explained how the changes in China in just the recent year and a half have impacted logistics and trade. He said that as the middle class in China has grown so have factory production costs, and “sourcing companies are looking at a ‘China Plus” [strategy] …say 40% from China - perhaps a Japanese automaker in Laos or ladies underwear for Marks & Spencer from Cambodia …companies like VF, the largest apparel group, have a 1,000-people in Hong Kong doing global sourcing.” But the key is that it “all comes together in Hong Kong” both because it is a high-end consuming region but also as a key logistics hub. It’s worth remembering half the world’s population lives within five-hours flying time of Hong Kong. On the other side of the equation, Hong Kong is one of the great shopping centers of the world. On holidays, China’s new middle class like geese flying south, flock to Hong Kong, suitcase in tow, and will proceed to clean out an entire display cabinet of Estee Lauder, Christian Dior, Chanel or other name brands. The purchasing power of Hong Kong is never more on display than with luxury cars. The region has one of the highest luxury car ownership per road mile in the world. Recently, Audi had a launch of their new 2014 A-3 model and brought to Hong Kong 350 units… and sold them all. HKIA and the Third Runway Project The air market in Asia especially is growing very fast. China’s civil aviation authorities forecast that passenger traffic will grow 11.4% annually to 2020, and by 2025 China will be the largest airfreight market in the world. IATA Consulting estimates that with current growth projections, Hong Kong will exceed 100 million passengers, over 600,000 flights and nearly 9 million tonnes of freight by 2030. Unfortunately, the two-runway system’s maximum capacity is only 420,000 movements annually. The obvious answer is a third runway which should be able to handle 620,000 flights a year. But building the runway is going to be challenging with the numerous regional airports (in China and Macau) and complex flight patterns and potential air draft issues for ultra large containerships moving to Shenzhen. In regards to airfreight, HKIA (Hong Kong International Airport) is the logistics linchpin in the Hong Kong-Zhuhai-Macao Bridge (HZMB) transportation chain. The HZMB will run right past the airport, opening up the possibility of moving cargo direct from Western Guangdong to virtually any destination in the world. But HKIA is already close to maximum capacity, and a third runway could make a big difference in connectivity. The HKZM will connect via the Hong Kong Link Road to the new Hong Kong Boundary Crossing Facilities with 28 stands for border clearance. HKIA is one of the world’s most active airports and a critical supply chain link. In 2012 the airport handled 56.5 million passengers and 4.03 million tonnes of freight (the world’s busiest). The airport located at Chek Lap Kok (Lantau Island) is about 30-km (just under 19-miles) from Hong Kong and operates two runways, 24-hours, with the inner runway generally serving freight. Currently the airport has over 350,000 movements annually with 64-flights running at peak hours. The airport’s onsite air cargo facilities include HACTL’s Super Terminal 1 (Hong Kong Air Terminal Ltd.), AATL (Asia Airfreight Terminal Ltd), a new Cathay Pacific facility (CPSL) and DHL. The new $760.8 million Cathay Pacific (Cathay Pacific Services Ltd) cargo facility, which will have annual capacity of 2.6 million tonnes, is very much a state-of-the-art facility and also reflects some of the realities of the Hong Kong market. Mark Sutch, Cathay Pacific’s General Manager Cargo Sales & Marketing, told the AJOT that although Cathay Pacific was a shareholder in HACTL; it was just one of many within the facility and thus decided to build its own. “Problem was, if a customer like an Apple or Intel had a specific requirement, we [Cathay Pacific] couldn’t address it [while at HACTL.] With the new facility, we can customize that solution.” This reflects two Hong Kong truths: the need for increased velocity to offset land shortages measured against the need to move up the value chain with customized solutions. Although the new facility is initially only handling Cathay Pacific and subsidiary Dragonair, the facility has the license for third parties. Sutch says, it would have to be a service “that makes sense.” A company that Cathay was interlining with or had related interests. Algernon Yau, CPSL CEO said while showing AJOT around the 109-sqm highly automated facility, it was “designed to handle just-in-time operations,” which accounted for the high capacity (2.6 million tonnes) in such a small footprint. The entire facility has close-circuited TV, cold storage, dangerous goods, livestock as well as a unique system of registering vehicles to increase terminal velocity and nearly eliminate trucking wait times. The facility already utilizes a high degree of RFID tags, which with the bridge/road system enable notification to the cargo facilities of the truck’s arrival and nature of the freight. The proposed third runway represents a big piece of the logistics future for the entire region as it knits together facilities like CPSL with HZMB. The idea is to build a runway out side and parallel to the existing north runway (largely for passenger aircraft). This involves land formation of 650 hectares north of the existing airport. It would also involve building a taxiway runway system and airfield support. Most of the cargo facilities are on the south side of the airport, and a tunnel was built but never deployed that runs underneath the south runway into the cargo area. By opening the tunnel, cargo from the adjacent planes can be funneled into the cargo area without crossing traffic. However, one of the great challenges of adding a new runway is the northern runway has a core of rock, and any tunnel would have to be built with the current northern runway being shutdown and traffic shifted to the runway (or possibly with outer runway completion, runways). The combination of the two projects represents a major change in logistics both regionally and for all of Asia.