HONG KONG AIR CARGO AND SEA FREIGHT VOLUMES POST

UNCLAS SECTION 01 OF 02 HONG KONG 000158 SIPDIS STATE FOR EAP/CM E.O. 12958: N/A TAGS: ECON EFIN EINV ETRD HK SUBJECT: HONG KONG AIR CARGO AND SEA FREIGHT VOLUMES POST STEEP DECLINES ¶1. Summary: Slowing international trade has reduced both air and sea freight volumes in Hong Kong. Hong Kong air cargo shipments declined 20 percent in the fourth quarter of 2008, compared with the prior year period, including a drop of 28 percent in December. The largest local air freight carrier, Cathay Pacific, announced on January 15 that it would postpone completion of its new air cargo terminal until 2013. Container throughput at Hong Kong sea ports declined 13 percent and 24 percent year-over-year, respectively, in November and December 2008. The HKG has not yet reported the number of Hong Kong tourist arrivals in 2008, but a five percent increase to 29.5 million is expected. Macau's tourist bureau reported over 30 million arrivals by foreign visitors in 2008, seemingly surpassing Hong Kong's tourist total. However, Macau's foreign visitor number is inflated by counting migrant worker arrivals. A local Hong Kong newspaper estimated Macau 2008 true tourist arrivals at approximately 22 million. MSARG officials will begin in February 2009 to provide separate totals for arrivals by tourists and foreign workers. End Summary. Air Cargo Hitting Turbulence -------------- ¶2. Hong Kong Air Cargo Terminals Limited (HACTL) announced January 11 that its total air cargo throughput in December 2008 (includes exports, imports and transshipments) declined almost 30 percent from a year ago to 167,845 tons. For the fourth quarter of 2008, year-over-year air cargo volume fell 19 percent, with imports from the United States declining eleven percent. HACTL General Manager Lilian Chan told local media that the global air cargo industry "is undergoing an extremely challenging ice age" related to worldwide economic weakness. HACTL hopes the market will recover in the latter half of 2009, said Chan. HACTL handles 80 percent of Hong Kong's air cargo. Hong Kong Airport Authority (HKAA) statistics indicate Hong Kong's air cargo and passenger traffic in December 2008 declined 28 percent and five percent, respectively, compared with the prior year period. ¶3. Cathay Pacific confirmed January 15 that it reached agreement with the HKAA to postpone the completion date of its new cargo terminal by 24 months to-mid 2013, in response to difficult market conditions. Cathay Pacific reportedly had second thoughts about the project in October 2008, just one month after construction work on the new cargo terminal began, and requested the HKAA to approve deferral of the project. An HKAA spokesman told the Sing Tao Daly newspaper that Hong Kong's air hub status would not be weakened by Cathay Pacific's delay. Cathay Pacific's spokesman declined to disclose the amount of compensation paid to the HKAA, noting only that it was "fair and reasonable." Sea Freight Facing Storms -------------- ¶4. The sea freight business appears to be no better off. Container terminals in Hong Kong also reported significant declines in container throughput. Kwai Tsing Container Terminals (home of Hong Kong's major terminal operators and primary intercontinental capacity) saw total container throughput decline 19 percent in December 2008, year-over-year, while the container terminals outside Kwai Tsing (used mainly by feeder vessels and regional carriers) reported a 38 percent drop for the same period. Total container throughput in all of Hong Kong's ports declined 24 percent in December 2008 (preliminary year-over-year estimate),compared with a 13 percent drop in November. Increased Tourist Arrivals in Hong Kong and Macau -------------- -------------- ¶5. Hong Kong has not yet released its final figures on total tourist arrivals in 2008, but preliminary figures reported by the local Chinese press state Hong Kong received 29.5 million tourists in 2008, an increase of 5 percent from a year ago. On January 14, the Macau Government Tourist Office reported that foreign visitor arrivals in Macau totaled over 30 million in 2008 (up 11 percent over 2007),despite a fourth quarter slowdown in arrivals related to the deteriorating economic climate and tightened PRC visa restrictions on Mainland residents wishing to visit Macau. The Hong Kong Economic Times challenged Macau's figures, stating the MSARG foreign visitor total includes foreign workers entering Macau. The Economic Times said Macau can only claim approximately 22 million tourists in 2008. The MSARG intends to carve out foreign migrant workers from their foreign visitor calculations, beginning in February 2009, in order to distinguish between foreign tourists and work-related HONG KONG 00000158 002 OF 002 arrivals. More Layoffs After Chinese New Year -------------- ¶6. Hong Kong Chief Executive Donald Tsang recently told Legislative Council members that Hong Kong's export trade volume might decline by "double digits" in December 2008, on a year-over-year basis, following a five percent drop in November. Tsang said he expected more layoffs and business failures after the Chinese New Year period ends on January 28. DONOVAN