Logistics finance leader: COVID-19 expedited our digital transformation
Editor’s note: This article is part of A Year of Evolution: CFOs on 2021 series featuring insights from finance leaders across industries, and their COVID-19 lessons and 2021 plans. To receive weekly updates on this series, sign up for our CGMA Advantage newsletter.
Hong Kong Air Cargo Terminals Limited (Hactl) operates within the Hong Kong International Airport — the world’s busiest airport for cargo since 2010 after surpassing cargo traffic at Memphis International Airport (FedEx’s main hub) in the US. In the first half of this year, the cargo terminal operator saw its total throughput grow 1% over the same period of last year, according to an interim result presentation of Wharf (Holdings) Limited, one of Hactl’s owners.
Although the air cargo sector has suffered less than the air passenger sector, uncertainties brought by COVID-19 still make budgeting, planning, and risk mitigation tough tasks for finance leaders. Myriad challenges are also on the horizon. The global economy is forecast to see a negative 2020 full-year GDP growth, and air transport is losing market share to cheaper ocean trade, a common pattern seen during economic slumps.
Amy Lam, FCMA, CGMA, finance director at Hactl, discusses how the company navigated the health crisis so far, its digital transformation acceleration, and what she sees as the main threat to the company’s business in 2021.
Was there anything that you did after the first wave of the pandemic that you consider a successful response to the crisis?
Amy Lam: When the pandemic first hit Hong Kong, we immediately triggered our emergency contingency plan (ECP) for infectious diseases, which has been in place since 2003 when severe acute respiratory syndrome (SARS) hit.
The ECP has a list of action items that all departments must follow. The first and foremost for finance was to split our team into two units to avoid cross-infection [in the event of an infection]. These units worked in two different offices.
When the number of confirmed cases in Hong Kong was on the rise, we also started to include work-from-home in our contingency plan with only 20% of the finance team in the office. Work-from-home employees were given laptops and two-factor soft tokens, which generate one-time passcodes to access the company’s intranet and sensitive data in Hactl’s servers.
As a result, the finance team works effectively, as it can rely on real data, instead of estimated ones, in month-end closing. This is important for us, and I’d consider that a success.
In addition, we took a look at our counterparty risk by assessing subcontractors, vendors, and customers. While the assessments of subcontractors and vendors are the responsibilities of departments such as IT and facility management, the finance team assessed the financial situation of customers, which are mainly airlines. The finance team gathered information from the market and the commercial team, which works closely with customers. By doing all these, we stayed on top of potential exposures [on the horizon].
What is your most important priority now?
Lam: It’s cost optimisation — even if there isn’t a pandemic. We are relatively downstream in the supply chain. When there’s an economic downturn, cargo would be the first one to get hit.
We need to effectively manage our costs as we don’t have control over the cargo volume moved through the Hong Kong International Airport, which is our top line.
Cost optimisation has become our top priority since the end of last year when we did our 2020 budget. We decided to transform ourselves by taking a thorough look at our cost structure and processes, and engaging consultants to help us with that.
While Hactl has been in business for 44 years and is successful, the senior management can’t be complacent. We need to achieve sustainable improvements that help protect our margins and stay successful for years to come.
What are the biggest threats to your business, and how are you managing or overcoming those threats? What indicators are you tracking?
Lam: The biggest threat to us in cargo business is how COVID-19 will continue to develop in Hong Kong because that affects the health of our employees, who are important to the operation of our business.
Our facility operates 24/7. So any outbreak in our facility will cause a huge impact on our business. Although our facility is fully automated, we still need experienced and qualified employees to handle dangerous goods as well as loading and unloading of aircrafts.
While many passenger aircraft are grounded, air cargo, including daily necessities, personal protective equipment, and other urgent medical supplies, is still moved through freight companies, many of which are our customers. In addition, airlines have converted their passenger aircraft into cargo-only flights to keep business afloat. What that means is that cargo terminals are still handling a large volume of cargo. As an industry player, Hactl is doing its part in ensuring that the air cargo supply chain remains functional and cargo is transported to where it is required the most.
We have no clear idea of how many more waves of the pandemic will hit us — the third wave has subsided while the fourth one is on its way. We try to minimise the health threat by ensuring a safe and clean work environment for our employees. We keep track of any suspicious cases and confirmed cases daily within our cargo terminal. If there’s any such case, we’ll immediately take all necessary follow-up actions to stop that from spreading in our facility.
What approach are you taking to budgeting and forecasting for 2021? How is that different from past years?
Lam: The 2021 budget is a difficult task because it’s hard to predict our revenues with the continued pandemic concern. I’d expect a good top line for cargo if the number of passenger flights stays more or less the same next year.
But if many passenger flights resume services next year, freight companies might not find enough time slots to fly in and out of Hong Kong. That means our customers might not be able to maintain the growth they have this year and our top line will be under pressure.
While we didn’t have more certainty before the pandemic, we at least had a clear idea of how our business would move. Now, without any idea how the pandemic will develop, my team has been spending more time in scenario planning.
Scenario planning also makes sense as we need to take into account how governments’ financial stimulus plans in the US and Europe might affect cargo volume and demand for air freight capacity. We spend roughly 20% more time on budgeting because of the increased number of scenarios we need to create.
How has the pandemic affected the digital transformation journey at Hactl? Any plans to accelerate or hold off initial plans?
Lam: The pandemic accelerated our RPA [robotic process automation] journey that began in 2018. Since the beginning of the pandemic, we’ve come up with a more ambitious schedule to automate more processes.
We have also started our digitisation journey on accounts payable, with the aim to process payments without the need of paper-based documents and manual approvals with multiple stamps on paper-based invoices.
E-invoicing went live in August, and we didn’t expect the high level of acceptance among our airline customers. It turns out that they like e-invoicing because they can process invoices no matter where they work and what device they are using, especially during a lockdown.
We have also kicked off the evaluation process for an e-procurement system.
What do you see as the main constraints for your business in 2021?
Lam: I’d say we have a main threat instead of a main constraint. That would be the intensifying competition for customers in 2021. There are other cargo terminals in the Hong Kong International Airport, and those cargo terminals with passenger airline business will also target our customers to make up the losses in their passenger business.
Rapid-fire questions
What has been your biggest lesson from this pandemic?
Lam: Agility. COVID-19 hit us so suddenly and quickly that we had to learn to react quickly to changes.
What one piece of technology is a must-have in your 2021 budget?
Lam: Cybersecurity tools. COVID-19 has made cybersecurity a growing concern, and we’ve allocated more resources for this in our 2021 budget.
Looking ahead, what is one skill you want to develop in your team?
Lam: Digital mindset for digital transformation.
— Teresa Leung is a freelance writer based in Hong Kong. To comment on this article or to suggest an idea for another article, contact Alexis See Tho, an FM magazine associate editor, at Alexis.SeeTho@aicpa-cima.com.