*********************************
Following is a question by the Hon Kenneth Ting and a written reply by the acting Secretary for Commerce and Industry, Mr Raymond Young, in the Legislative Council today (November 14): (Translation)
Question:
There are reports that insurance surcharges amounting to 10-20 per cent of the original insurance premium on air freight transport, recently approved by the authorities and imposed by a number of airlines on shippers, have greatly increased the cost burden on shippers. In this connection, will the Government inform this Council:
(a) whether it has assessed the specific impact of the rise in air freight transport costs on local enterprises; if it has, of the details; if not, whether it will conduct an assessment expeditiously; and
(b) of the measures in place to assist local enterprises in their bid for a reasonable insurance premium level to be set for air freight transport?
Reply:
President,
In the wake of the September 11 attacks in the United States, insurance companies worldwide have increased the premium for insurance relating to air transport after reviewing their risk assessment strategies. Details of the two items affecting the air freight costs of companies are as follows:
(a) as at November 8, 34 airlines have introduced a cargo insurance surcharge of HK$0.5 - HK$1.0 per kg for all shipments ex-Hong Kong. The airlines have explained that the surcharges were aimed at recovering the extra cost arising from the increase in insurance premium; and
(b) insurance companies all over the world have followed the practice of the London insurance sector by imposing a flat rate equivalent to 0.05 per cent of the total value of air freight on shippers as insurance surcharges.
The air cargo rates charged by airlines (including the surcharge described in (a) above) are basically the commercial decisions of individual airlines. In accordance with provisions of the applicable bilateral air services agreements, the surcharge applications were submitted to the Civil Aviation Department (CAD) for approval. The CAD has, in line with usual practice, consulted the Hong Kong Shippers' Council before approving the surcharge. After the September 11 attacks, cargo insurance premiums have gone up throughout the world. Having considered factors such as the operating cost of the airlines and the interests of users, etc., CAD is of the view that the surcharge is not unreasonable. We note that the surcharge has added a small percentage point to the overall freight cost. The assessment by the Government Economist indicates that the imposition of the surcharge will increase the operating costs of Hong Kong's trading sector as a whole by around 0.14 per cent, or comparatively could have reduced its gross margin by around 0.11 per cent.
As regards the surcharges imposed directly by insurance companies described in (b) above, this was purely a business decision of the trade and did not require Government approval. The percentage of surcharge against the original insurance premium varies with the amount of premium paid by shippers. The surcharge applies to both airborne and seaborne export cargo. The assessment by the Government Economist indicates that imposition of the surcharges will increase the operating costs of Hong Kong's trading sector as a whole by around 0.11 per cent, or comparatively could have reduced its gross margin by around 0.09 per cent.
We are aware that the surcharges have led to an increase in air freight transport costs, which in turn pushes up the operating costs of the affected enterprises. But since this is a global problem, the competitive edge of Hong Kong has not been undermined. Current assessment shows that the surcharges have not caused any significant financial burden to our enterprises. But the Government will continue to keep a close watch on the latest development.
The second part of the question concerns the Government's role in the setting of air cargo premium. As explained in paragraph 2 above, the CAD had considered and granted approval for the airlines to levy insurance surcharge after consulting the Hong Kong Shippers' Council (which comprises members of business associations and the cargo transport trade) through the Trade and Industry Department. The Hong Kong Shippers' Council showed understanding of the situation. As for the insurance sector, the objective of government supervision is to ensure the financial integrity of the insurance companies and adequate protection of the interests of the insured parties. The level of premium is the outcome of business decisions by individual insurance companies based on risk assessments and market factors. The Government is not in a position to interfere with it. This is clearly stipulated in section 26(3A) of the Insurance Companies Ordinance. We are committed to maintaining competition in the insurance sector and ensuring that it will continue to be an open and level-playing field, thereby providing the insured parties with choices over a diversified range of products and services.
End/Wednesday, November 14, 2001
NNNN
