The types of products your company represents or introduces are quite extensive. Among these products, which types require air freight to Hong Kong?
Wai: As a leading strategic healthcare business partner in the Asia Pacific region offering end-to-end distribution and commercialization solutions, DKSH, celebrating its 160th year globally and 102nd year in Hong Kong, has an unparalleled distribution network spanning 36 markets. This allows us to deliver a highly localized service and deep market knowledge to our clients, tailoring our solutions to meet the unique needs of each market.
At DKSH Healthcare Hong Kong, we have a very diverse portfolio of pharmaceutical, consumer health, and medical device products. One of our company's main business operations is the import of pharmaceutical and medical device products. Generally, this type of product requires air freight to Hong Kong, especially for those involving the cold chain logistics.
Among the air freight products that require special handling, how many of them need refrigeration and/or other controlled environments for transportation and storage?
Wai: Among these products that require special air freight handling, around 20-30% of them need to be stored and transported in a frozen environment. The rest of the products generally also require air-conditioned environments for storage and distribution.
This ensures the integrity and efficacy of these sensitive products, many of which are perishable or can be adversely affected by exposure to temperature fluctuations or extreme weather conditions. Maintaining the cold chain is absolutely critical, and our robust logistics infrastructure and expertise are crucial in delivering these time- and temperature-sensitive goods safely to their final destinations.
Among the product categories that require special handling, are pharmaceutical and medical products the highest in terms of value/volume?
Wai: Correct, the pharmaceutical and medical product categories are indeed the highest in terms of both value and volume among the DKSH Healthcare Hong Kong air freight shipments that require specialized handling.
The high value and volume of these pharmaceutical and medical categories underscore their critical importance within our overall air freight operations, and ensuring their integrity and timely delivery is a top priority for DKSH Healthcare Hong Kong.
Is this category of products the fastest growing segment of your company's business over the past 5 years? If not, which air freight product category has seen the fastest growth during this period?
Wai: Over the past five years, the business environment has undergone significant changes, especially in the aftermath of the pandemic. We have seen a noticeable growth in medical devices and pharmaceutical products, and the majority of these types of products are also imported via air freight to Hong Kong.
This accelerated growth can be attributed to the rising demand for timely access to innovative and life-saving healthcare products across the Asia-Pacific region, as well as DKSH's ability to provide industry-leading cold chain logistics capabilities.
• Hong Kong’s total expenditure on healthcare amounted to US$25.6 billion or 7.3 percent of GDP in 2022 and is among the highest in Asia. In the 2022/2023 Hong Kong government budget, US$11.8 billion was allocated to Hospital Authority (HA), an increase of US$1.15 billion from the year before. This makes the HA the largest end-user of pharma and medical health devices in Hong Kong. Much of this allocation goes into healthcare subsidies for residents, as they are only required to pay a minimal charge at public hospitals
• Since the 2023 removal of Covid-19 restrictions, the Hong Kong government is focused on enhancing government medical services, including expediting the upgrading or acquisition of medical equipment, the introduction of advanced medical devices, and the promotion of primary healthcare services
The superior growth trajectory of the pharmaceutical and medical product categories underscores their strategic importance and the critical role they play in DKSH Healthcare Hong Kong's overall air freight operations and future expansion plans.
(Source: Hong Kong Healthcare)
Of these air freight goods, how much is for local use, and how much is using Hong Kong as a transshipment hub to be re-exported to other countries and regions, or even air freighted directly to those destinations?
Wai: As DKSH Healthcare is one of the major pharmaceutical importers and wholesalers in Hong Kong, the majority of these air-freighted medical devices and pharmaceuticals are for use within Hong Kong. The next largest destination is Macau, with a smaller portion being re-exported to other countries, this goes in line with our purpose of enriching people‘s lives and providing healthcare for all (as we help the local people).
In what year was your cargo warehouse in Tsing Yi opened, and what is the total area/storage capacity to accommodate the logistics needs of these special products? What kind of infrastructure facilities does it have that are different from a typical logistics warehouse?
Wai: DKSH Hong Kong’s Distribution Center at Mapletree Logistics Hub Tsing Yi began operations in 2018, occupying over 140,000 square feet of space. In line with the storage and distribution requirements of our goods in the supply chain, the distribution center and warehouse is equipped with a range of infrastructure, including:
• cold chain and deep freeze facilities
• automated sorting equipment such as automated guided vehicles, vertical storage and conveyor systems
• large-scale mobile racking
• and warehouse environmental monitoring systems
Compared to traditional supply chain companies, DKSH is committed to using advanced technology to enhance the accuracy and efficiency of its logistics, while also providing end-to-end supply chain services that comply with pharmaceutical regulations and quality requirements.
These specialized capabilities allow DKSH Healthcare Hong Kong to provide unparalleled service levels and ensure the safe and timely delivery of our clients' critical healthcare products. The distribution centre is a cornerstone of our end-to-end cold chain logistics solutions.
Are medical products a relatively stable source of demand, less affected by economic cycles compared to other product categories?
Wai: Medical devices and pharmaceuticals have different demand cycles depending on their function and characteristics. For example, during the pandemic, the demand for vaccines surged dramatically. During the flu season, flu-related medications also saw fluctuations in demand. Moreover, after the pandemic, the demand for healthcare-related products in Hong Kong has steadily increased, and the demand for medical products can be considered to be on a stable upward trend.
Our purpose and mission is to “Enrich People’s Lives” by providing better "Healthcare for all" - we have developed specialized expertise in managing the unique requirements of pharmaceutical, medical device, and other healthcare products. This includes strict temperature control, regulatory compliance, and secure chain of custody management as well as sales and marketing – these capabilities that are critical in the highly specialized healthcare sector, so that we can help get high quality healthcare products and solutions to our patients where they need it, when they need it.
While economic factors can still influence certain aspects of the medical products supply chain, the underlying demand tends to be more resilient compared to many other industries, making it a stable and dependable segment of DKSH Healthcare Hong Kong's air freight operations.
What aspects of Hong Kong's regulations, costs, and other conditions are helpful or in need of improvement to support your operations as a regional storage and air freight hub in this area?
Wai: Firstly, Hong Kong has very stringent regulations when it comes to pharmaceuticals, with a relatively more comprehensive regulatory framework compared to other countries. The healthcare and pharmaceutical sectors in Hong Kong are highly trusted by the general public.
However, precisely because the regulatory standards are so rigorous, our operational specifications are also maintained at a very high level, making cost control an increasingly important factor. The high operating costs in Hong Kong, particularly for real estate and labor, can be a significant disadvantage compared to some neighboring countries. The limited availability of land for large-scale logistics facilities is another constraint.
Despite these challenges, DKSH Healthcare has been able to leverage Hong Kong's strengths as a global financial and logistics hub to build a robust cold chain infrastructure that serves the specialized needs of our healthcare clients. Our state-of-the-art distribution center and warehouse in Tsing Yi, combined with Hong Kong's well-developed air cargo connectivity, allows us to efficiently distribute time-sensitive and temperature-sensitive medical products across the region.
Do you feel that Hong Kong's three-runway system and other infrastructure can effectively maintain the competitiveness of your business in handling high-value air freight goods?
Wai: The three-runway system in Hong Kong has indeed brought new competitive advantages to the air cargo industry. With the commissioning of the three-runway system, the government and airport authority expect cargo throughput to reach new highs. This not only enhances the capacity of the Hong Kong airport, but also further solidifies its position as one of the world's busiest cargo airport.
The industry is also actively upgrading its infrastructure. For example, they are enhancing hardware equipment and digital services, as well as streamlining operational processes. The industry is also improving its cold chain handling capabilities to cater to the demand for high-value air cargo goods such as pharmaceuticals and precision instruments.
Hong Kong still faces competition from other airports in the Pearl River Delta region. But with the government's efforts to strengthen the infrastructure, Hong Kong is still expected to maintain its competitiveness, especially in the handling of high-value air cargo.
Furthermore, the airport's continued investment in technologies such as autonomous cargo handling systems, real-time shipment tracking, and end-to-end cold chain management solutions, aligned with DKSH's own capabilities, enhances the overall efficiency and reliability of our air freight operations. This ensures we can meet the stringent requirements of our pharmaceutical, medical device, and consumer health clients.
In recent years, various services using drones have begun trial operations in Hong Kong. Have you used drone delivery to transport your medical products to your customers?
Wai: The Hong Kong government has recently launched the “Low-altitude Economy Regulatory Sandbox” (“Sandbox”), and DKSH has also been closely monitoring the development of “low-altitude logistics” and medical product delivery. DKSH remains committed to its long-standing goal of providing high-quality, innovative, and efficient services to our customers.
Do you think such model is more likely to become a regular delivery method for remote and outlying areas in Hong Kong, or do you see potential for expansion to serve other customers?
Wai: Low-altitude logistics is still in a relatively early stage at the moment, and there are still many technical, regulatory, and cost-related factors that need to be further improved. However, new technologies are indeed having an inseparable impact on the development of the supply chain. DKSH continues to follow the ongoing development.