Hong Kong Protests: Impact on Supply Chain Operations

Hong Kong Protests: Impact on Supply Chain Operations

Executive Summary

  • On September 4, Hong Kong Chief Executive Carrie Lam announced that her government would be formally withdrawing the highly controversial Fugitive Offenders and Mutual Legal Assistance in Criminal Matters Legislation Bill, commonly referred to as the extradition bill, in the latest bid to bring an end to the city’s three-month-long protest crisis. 
  • Hong Kong’s protest crisis has brought about unpredictability for companies operating in the world’s busiest cargo hub. Major supply chain disruptions have ranged from sit-in protests, that led to the cancellation of more than 300 flights and forced the Hong Kong International Airport (HKIA) to shut down for two days, to city-wide demonstrations and general strikes that have paralyzed major ground transportation routes throughout the city. 
  • Hong Kong’s ocean freight and port operations have largely been unaffected by the protests. However, should the Emergency Regulations Ordinance (ERO) be enacted, it could pose serious disruptions to manufacturing as well as ground transportation, air, and ocean freight operations for shipments inbound and outbound from Hong Kong. To date, the Hong Kong government has reiterated that it was considering all options – including invoking the ERO – to quell civil unrest. 
  • Customers should continue to monitor Everstream Analytics for the latest updates to anticipate planned demonstrations in order to mitigate any potential risks that could lead to shipment delays or disruptions. 

Background

On September 4, Hong Kong’s Chief Executive Carrie Lam announced via a televised address that her government will move a motion to withdraw the highly controversial Fugitive Offenders and Mutual Legal Assistance in Criminal Matters Legislation Bill, commonly referred to as the extradition bill, in the latest bid to bring an end to the three-month-long protest crisis. 

The decision sought to address five key demands set out by Hong Kong protesters that have evolved since the extradition bill was initially published on March 29. Although the formal withdrawal of the bill was the first of the five demands, it remains unclear whether the latest concessions will be enough to appease protesters ahead of the National Day holiday on October 1, which marks the 70th anniversary of the founding of the People’s Republic of China. 

Hong Kong’s protest crisis has brought about civil unrest and unpredictability for companies operating in the world’s busiest cargo hub. Supply chain disruptions have ranged from sit-in protests that led to mass flight cancellations and delays, after forcing the Hong Kong International Airport (HKIA) to shut down for two days, to city-wide demonstrations and general strikes that have paralyzed major highways and expressways throughout the city. 

This Special Report by Everstream Analytics takes a closer look at how companies can better mitigate the impact of Hong Kong’s protest crisis on their supply chains and assess the risks posed to shipments sent via post, air, ocean, and ground transportation routes that could be seriously disrupted should the demonstrations continue. 

Figure 01: Hong Kong Protests Timeline. Source: Everstream Analytics

Potential Disruptions

Air Freight

The protests have impacted airport operations since the end of July before culminating into major sit-in demonstrations that forced the Hong Kong International Airport (HKIA) to shut down for two days from August 11-12 and resulted in the cancellation of over 300 flights. The Hong Kong Airport Authority (HKAA) was later granted an interim injunction order on August 13 that has since been extended by the high court to prohibit protests at the airport. 

Although most freighter aircraft was not affected, some cargo carriers reported flight cancellations on August 13 including the Yangtze River Express, China Cargo Airlines, UPS, Airbridge Cargo Airline, and SpiceJet. The flow of cargo to Ontario, Chengdu, and Shanghai were also adversely affected.

Figure 02: Number & Destinations of Flights Canceled During the August 11 – 12 Demonstrations. Source: South China Morning Post

These events were preceded by peaceful demonstrations by airport staff and employees from various airlines on July 26 before progressively escalating to an air traffic controller sick-out strike that resulted in over 200 flight cancellations and runway utility reductions. Another round of demonstrations broke out on August 9 and continued to August 11 without the cooperation of the HKAA.

Roadway closures have also been common with protestors attempting to paralyze main transport routes and highways to and from the airport, which has had a serious impact on the ability of cargo carriers to get freight to and from the airport. On September 2, protesters targeted the HKIA which resulted in 25 flight cancellations and some flight delays after demonstrators were able to block off roads with trolleys and mill barriers in an attempt to stop traffic on the main road leading to the terminals. 

The HKIA will likely continue to be a repeated target as protesters seek to draw global attention to the ongoing situation. Protestors have already planned another upcoming round of ‘stress test’ demonstrations aimed at paralyzing the HKIA’s transportation networks on September 14 and 21. On September 7, Hong Kong police were successful in thwarting protestors’ plans to demonstrate again at the HKIA after increasing security and mounting road checks to prevent protestors from reaching the airport. Protestors were also stopped on August 24 after planning to disrupt all transport modes and block major roads leading to the HKIA.

Ground Transportation

Another consistent trend has been major disruptions to key ground transportation routes throughout Hong Kong as violent confrontations continue to escalate between police and protesters. 

Full or partial traffic suspensions have frequently taken place primarily in the Hong Kong Island area including at the Cross-Harbour Tunnel, Harcourt Road (as well as other key roads leading to Hong Kong’s Legislative Council), Chater Road, Connaught Road, and Des Voeux Road. Ground transportation disruptions have also been reported on major roads and highways in Wong Tai Sin, Mong Kok, Yau Ma Tei, Tsing Yi, and Tuen Mun districts due to protest-related activities. At the height of the anti-extradition bill protests, around 2 million Hong Kong protesters flooded the streets in Central, Admiralty, and Wan Chai districts on June 17 in peaceful demonstrations against the government’s then-proposed bill.

As the confrontations have become increasingly more violent, water cannons, rubber bullets, tear gas, petrol bombs, barricades, and fires have brought traffic and major roadways to a standstill. On July 22, protestors lighted a fire in front of the Hong Kong-Macau Ferry Terminal – which provides access to Macau and southern Mainland Chinese ports – during late-night clashes but no operations were impacted. Customers are advised to monitor Everstream Analytics for the latest updates to avoid affected areas and anticipate potential heavy disruptions to transportation throughout the city.

Cross-border trucking activities between Hong Kong and Shenzhen are operating normally and have largely been unaffected. On June 12, Chinese state media reported “special conditions” and “large scale activities” that caused cross-border buses to be re-rerouted, although industrial vehicles and trucks coming to and from Mainland China were largely unaffected. 

Ocean Freight

As of this writing, Hong Kong’s port and ocean freight operations have largely been unaffected by major demonstrations that have mostly taken place on weekends and have been concentrated in the Hong Kong Island area. There have also been no major blockages or disruptions reported at ocean terminals and no impact to shipping via Hong Kong. 

Although import and export activities at Hong Kong’s ports have been unaffected as of now, ocean freight could be severely impacted if the government were to ever invoke the Emergency Regulations Ordinance (ERO). On August 28, Chief Executive Carrie Lam hinted that the government was considering all options, including the ERO, to address the protest crisis. 

The ERO, which was last used during the Leftist Riots of 1967, would empower the Chief Executive with “control of the harbors, ports and waters of Hong Kong, and the movements of vessels”, “trading, exportation, importation, production and manufacture”, and “transport by land, air, or water and the control of the transport of persons and things”. 

Postal Shipments

Hongkong Post has reported intermittent disruptions to the processing of all inbound, outbound, and local mail (including EMS, parcels, and letter-post items) since early June. According to the latest update from the postal operator on Aug 26, the backlog is expected to last a few days, although no confirmation has been provided yet that operation has returned to normal.

While shipments from Mainland China to Hong Kong have remained unaffected since the protests began, Chinese authorities issued a notice on August 13 calling for tightened security for domestic and international shipments (inbound and outbound) ahead of the National Day anniversary on October 1. Companies will be required to handle shipments at its origin to prevent prohibited goods such as gas masks and laser pens – which have been common in the Hong Kong protests – as well as weapons, cash, drugs, dangerous goods, and other items from entering China. 

Regulatory and Financial Risks

The latest round of demonstrations on September 8 in Hong Kong called for the U.S. to pass the Hong Kong Human Rights and Democracy Act (HRDA), which could pose serious challenges to the special status afforded to the city under the Hong Kong Policy Act (HKPA) of 1992. Should the HRDA be enacted, it would require the U.S. government to assess Hong Kong’s level of autonomy annually and whether it should continue to have a special trade status. 

Although the impact of the HRDA would largely be symbolic, it could have the effect of raising doubts about the specific conditions outlined under the HKPA that have allowed for the ability to negotiate trade and investment agreements independent of Mainland China, and shielded the city from tariffs levied on Chinese goods as part of the ongoing U.S.-China trade war. A group of bipartisan U.S. senators have already called on the Trump administration to assess U.S. export rules for Hong Kong and whether sensitive U.S. equipment and technologies could be leaked to Mainland China. 

Another potential financial risk comes through the form of recurring ‘Cash Day’ bank run demonstrations that were planned on July 13 and August 16 which called on Hong Kong protestors to all take out bank deposits of HKD 10,000 (USD 1,275; EUR 1,148) and convert the money to U.S. dollars (USD), which primarily targeted Mainland Chinese banks such as the Bank of China (Hong Kong). Although both protests have largely been unsuccessful to date, the sudden shortage of liquidity could pose a serious risk to suppliers and companies requiring access to funds for day-to-day transactions and sufficient supply of banknotes in Hong Kong. 

Recommendations

Everstream Analytics proposes a list of recommendations on how companies can best mitigate the impact of the Hong Kong protests on their supply chain networks:

  • Monitor updates on protests: The vast majority of Hong Kong’s protests are planned and voted on through local online forums and chat groups or organized by civil society organizations with many of the major protests coming over the weekend. Companies should therefore plan accordingly and identify alternative routes to mitigate any potential disruptions to pickup and delivery services. 
  • Re-route shipments and identify alternative flights for air cargo: Companies should develop contingency plans and consider identifying alternative routes for re-routing air cargo on flights that are potentially at high risk of being disrupted. While the likelihood of HKIA being forced to completely shut down again is unlikely, smaller scale disruptions, such as the stress tests aimed at disrupting traffic to the airport and even causing flight cancellations and delays, remain a possibility. 
  • Exercise caution for ground shipments: Companies are advised to exercise caution for ground shipments and coordinate with suppliers to understand how their shipments may be impacted from a geographical and product flow standpoint. Although most of the violent demonstrations have generally taken place at night and in the downtown area, there have been instances in which day-time or city-wide general strikes have resulted in major roadways being disrupted. 
  • Prepare contingency plans in the event of liquidity shortage: Although protestors have largely been unsuccessful to date, companies should be on alert for any potential risks posed by bank-run protests or mass cash deposit withdrawals. Given the potential for the sudden shortage of liquidity, companies and suppliers should make contingency plans to ensure that sufficient banknotes are available should it be necessary. 
  • Anticipate disruptions on October 1: Supply chain professionals should anticipate potential heavy disruptions on the upcoming National Day holiday on October 1. Given the highly political and sensitive nature of the event, companies should assess whether contingency plans will need to be made particularly with regards to shipments sent through ground and air transportation routes.  

Outlook

Lingering tensions between the Hong Kong government and protestors suggest that further demonstrations are likely to continue in the coming weeks and potentially months. Despite the latest concessions from the Lam administration, early indications suggest that it may not be enough to quell civil unrest for the foreseeable future. 

The protest crisis has challenged Hong Kong’s reputation as a reliable and safe global commercial hub. Although Hong Kong’s protest activities have mostly disrupted air freight and ground transportation operations for now, supply chain professionals will need to keep a close eye on other potential risks which range from financial to regulatory issues. 

Customers are advised to monitor Everstream Analytics for the latest updates to anticipate upcoming protests in order to mitigate any potential delays or disruptions to shipments. 

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