28.2.2017: Todays CBRA interview with Mr. Jimmy Pang focuses on Supply Chain Security Association, and safety and security risks with lithium batteries, in the context of air cargo logistics.
Hi Jimmy, and thanks for joining CBRA Interview. Can you please tell first a bit about yourself: who you are and what you do?
With over 20 years of supply chain operation and consulting experience, I have witnessed vast changes taking place throughout the supply chains, in both Hong Kong and China. The resulting tragedies and incidents from various terrorist attacks, natural disasters, organised criminal activities and human errors have made me realize how critical it is to enhance world trade and supply chain security. Following twelve years of experience in aviation security and safety training, I have dedicated myself to promoting supply chain security, with the Supply Chain Security Association, SCSA, as well as with the TAPA Association, Hong Kong – aiming to raise overall awareness, to share my experiences through cooperation with universities, and to initiate research projects.
Can you share more details on the Supply Chain Security Association, SCSA?
The 9-11 incidents triggered policy makers, governments, industries, multi-national companies and non-governmental organizations to put forward a number of anti-terrorism initiatives. But all these different initiatives have created more confusion, instead of providing support to the export industries. As a result, a group of supply chain practitioners and scholars established the SCSA, aiming to facilitate safe and secure trading activities, by for example organising information sharing seminars and training courses. After the first few years, the association gained support from almost one hundred logistics companies. SCSA also participates actively in conferences, workshops and other international events to obtain first-hand information from international policy makers and leading practitioners, including APEC, IATA, ICAO, INTERPOL, WCO and TAPA – this helps to gain a comprehensive perspective of each new initiative as well as to share local concerns. In the meanwhile, we initiated some industry projects to tackle the new challenges, for example: AEO trail-run; China – Hong Kong cross border re-export cargo integrity study; Hidden dangerous goods awareness; and, Li-CAT program, initiative for enhancing safety for lithium battery product shipping via air cargo. Finally, we also partner with local academic institutes through educational and internship programs to promote supply chain security.
From your viewpoint, what are the biggest risks and challenges with lithium batteries, in the context of China – Hong Kong exports, and air cargo safety?
First of all, let me put forward a few facts that shape Hong Kong’s export industry, regarding the legal environment; re-export cross border trade model; Hong Kong being the world number one aviation logistics hub; threats of lithium batteries and products containing them; and, multi-level consolidation business model and unqualified co-loading agents.
First on the legal environment: There are two legal systems between Hong Kong and China. In the international export trade scenario, while Hong Kong is well-linked with the international legal system, but China is not. Thus, if any issue arise regarding an export consignment from China via Hong Kong to the international market, the liability will be chased back to Hong Kong only, as there is no clear cross-border jurisdiction between Hong Kong and China.
Second on the re-export cross border trade model: China has well-established manufacturing facilities next to Hong Kong, and Hong Kong has world-class finance, legal and logistics infrastructures. This has led to Hong Kong becoming one of the major hub for Chinese manufacturers. According to government statistics, over 60% of the Hong Kong export cargo originates from China. This is called “re-export cross-border cargo”.
Third, Hong Kong is the world No.1 aviation logistics hub and one of the major ports for electronics exports: For the last six years, Hong Kong has remained the top aviation logistics hub in the world, handling 4.3 million tonnes of export cargo annually. According to the Hong Kong Census & Statistics Board, the air cargo exports amounted in 2015 to 1333 billion Hong Kong $ – equals roughly 160 billion Euros. In 2015, 64% of the exports comprised electronic products amounting to an approximate value of 509 billion Hong Kong $ – 62 billion Euros. It has been previously estimated that the production of lithium batteries would increase by 1600% between years 2000 and 2020, causing a growing safety concern of cross-border transportation of lithium products between Hong Kong and China.
Fourth, threats of lithium battery and its products: Lithium batteries have many unseen dangers besides quality concerns, for example the well-known cases of Samsung Note 7 and hover boards that have caused fire or explosions while charging. If the product is packed improperly or damaged, it carries the risk of catching fire quite quickly. A poor shipment of lithium battery products may threaten life and harm the world’s aviation supply chain. The threat starts from manufacturing, moves to logistics and finally to the end-users. In Hong Kong’s situation, the lithium batteries and their products are shipped daily from China to Hong Kong by truck, and re-exported to international markets by air. It is not uncommon to find mis-declared lithium batteries or undeclared products, which is done either to save costs or due to ignorance of dangerous goods aviation transportation regulations. The risk should not be underestimated and neglected. It would not only harm the Hong Kong economy, but also the global electronics industry, next to threatening people’s lives, of course.
And fifth, multi-level consolidation business model and unqualified co-loading agents: In export trade, usually a number of stakeholders, so called multi-level consolidators, are involved, causing more difficulty in determining the accountability of stakeholders. Especially if an accident occurs, due to loopholes in the cross-border re-export regulations, tracing the accountable mainland shippers becomes difficult – and till today, there is no single successful case. The last few years have witnessed a recent rise in threats. The so-called co-loading cargo agents in China act as cargo agents for cargo source shippers, that is the manufacturers or exporters. Next, they consolidate the cargos, acting as shippers for Hong Kong cargo agents. Being familiar with the loopholes in dual jurisdictions, they try to save costs, while inducing mis-declaration or under declaration problems.
As a result, all the above factors create a perfect storm: a honey pot to smugglers and irresponsible shippers or co-loading cargo agents, who can take advantage of the cross-border re-export business model.
Well, thanks a lot Jimmy for sharing all these interesting insights. May I propose that we continue on this topic, and welcome you as the 1st guest author for CBRA Blog, to be published during March 2017?
Sure Juha, let’s do that!
More information on the SCS Association: http://www.scsasecurity.org/