Small countries with no natural resources usually have to be inventive to survive.

That's one reason the tiny island nation of Singapore has worked hard to become one of the busiest airports in the world in terms of cargo transportation. It has done so by leveraging its core advantages good geographical location, developed infrastructure, political stability and a well-educated workforce.

But its glory, some say, may be eclipsed by Chinese airports in the future.

Shanghai Pudong International Airport surpassed Singapore Changi International Airport in 2005 to become the ninth largest cargo airport in the world in terms of tonnage. Shanghai was ranked 14th in 2004, according to Airports Council International, an association of the world's airports. Beijing and Guangzhou airports, although still far behind Singapore in the rankings, are also catching up fast. Beijing went from 27 to 24 in 2005, with Guangzhou rising from 30 to 26.

Handling over 1.8 million tons of cargo, Singapore's cargo traffic growth actually slowed from 10 percent in 2004 to 3.3 percent in 2005.

Now, the tiny nation is looking for ways to maintain a top position in the sector.

"There is no doubt how fast Chinese airports are growing" by leveraging their core advantage of geographic approximation to manufacturing bases, says Yeo Kia Thye, air cargo division head of Civil Aviation Authority of Singapore (CAAS).

"With China coming up, the challenge for us is to find the way forward," Yeo says.

"The way forward" is actually a two-fold strategy. First, Singapore hopes to continue to enhance its competitiveness as a regional air logistics hub in Asia. Second, it is seeking opportunities to invest in Chinese airports to turn the fast growth of China from a threat into a new financial growth engine for Singapore.

Intra-Asia Traffic

As much of China's growth continues to come from manufacturing, there is a rising volume of finished products flying from China to Europe and the United States.

Singapore, for its part, is positioning itself to be a regional logistics hub for intra-Asia cargo flows.

"The way manufacturing develops in the age of globalization is that manufacturers have different sites in Asia to produce different parts of their products. The result is, within Asia, there will be increasing traffic of components and semi-finished products travelling between many different sites," Yeo says.

"As Asia develops from a more producing economy into a consuming economy, there will be rising cargo traffic within Asia," he continues.

Intra-Asia cargo flows have been an integral part of Singapore's air cargo market, accounting for more than half of Changi airport's cargo throughput in 2005. Northeast Asian economies, including Hong Kong, Japan, the Chinese mainland, Taiwan and South Korea, form five of Singapore's top 10 partners in cargo traffic.

Logistics Hub

Singapore launched an airport logistics park in 2003. The logistics center, called the Airport Logistics Park of Singapore (ALPS), is the first of its kind in Asia built within the airport free trade zone. The 26-hectare ALPS, located next to Changi airport's airfreight center, is a joint project between CAAS and JTC Corp, the main industrial land developers in Singapore.

A free trade zone allows quick turnaround, as value-added logistics as imported goods can be held or processed free of customs duties before re-export.

"The setting up of ALPS is part of our broader strategy to further strengthen Singapore's position as a leading air logistics hub for the Asia-Pacific region," says Damon Wong, assistant manager of CAAS' air cargo division.

Sandvik opened an Asia-Pacific distribution center in ALPS in November 2005. The Swedish industrial group specializes in producing cutting tools, mining and construction equipment and materials technology. The company has similar regional distribution centers in Europe and the United States.

"Logistics management is fundamental to manufacturers," says Tony Kitamura, deputy distribution center manager of Sandvik South East Asia Pte Ltd.

"Today's manufacturers compete less on product and quality, and more on inventory turns and speed to the market. Everybody wants to cut inventory because the products depreciate so quickly," Kitamura says.

Kitamura believes Singapore's good geographical location as center of the Asia-Pacific region, the large number of direct international flights and simplified customs processes prove ALPS is an ideal location for its distribution center to provide efficient "next day delivery service" for customers throughout the Asia Pacific.

China, Japan and India are Sandvik's largest markets in Asia. Although China is already home to Sandvik's six production sites, the country has still failed to attract a regional distribution centre.

"China does not have many direct flights to where we need to go," Kitamura says.

Beijing, Shanghai and Guangzhou are all building similar airport logistics parks, each of which is 10 times larger than ALPS in Singapore. But analysts say China still needs to pay more attention to "soft infrastructure" such as customs efficiency and co-ordination between different departments involved in foreign trade, including customs, quarantine and financial services.

Opportunity

While the Chinese Government opens the door for foreign investment in airport expansion, the huge growth potential of Chinese airports is attracting Singapore's attention.

"We don't see China as a competitor now. We see it as an opportunity for us. We can actually invest in China," Yeo says.

"Discussions are going on with Chinese airports. CAAS is interested in investing or managing airports in China," Yeo adds.

He declines to give further details about negotiations.

Overseas investors are allowed to invest in the construction and operation of Chinese airport terminals and runways, with a maximum equity interest of 49 percent.

CAAS is reportedly in talks to invest in Nanjing airport in East China's Jiangsu Province. It signed a memorandum of understanding with Nanjing airport to hold 40-45 percent of the Chinese airport by investing 1.5 billion yuan. Singapore has previously shown interest in the airports of Wuhan, Central China's Hubei Province, and Qingdao, East China's Shandong Province.

While CAAS is still choosing its investment targets in China, Singapore airport's largest ground handling company has already started its expedition in the country.

SATS (Singapore Airport Terminal Services) launched a joint venture with Beijing airport in 1995. The company, called BGS, provides ground-handling services in Beijing, including passenger handling, aircraft interior cleaning, line maintenance and cargo handling. It also provides similar services in the airports of Shenyang, Northeast China's Liaoning Province, and Tianjin.

"China, India and the Middle East are our business development focus for overseas markets," says Hoa Kai Ee, executive of SATS' cargo services planning.

SATS, which holds 40 percent of the joint venture, is a subsidiary of Singapore Airlines. With joint ventures in 26 overseas airports, SATS' revenues reached S$932 million ($605.8 million) in the 2005 fiscal year, 20 percent of which came from abroad.

"Our target is to bring that to 40 percent in the near future," Hoa says.