China Logistics - Overview of China Logistics, Transportatio

In June 1979, 'Logistics' as referenced the first time after Cha Members returned from attendg an International Logistics Conference Japan. Durg the 1950s and 1970s, people used 'Physical Distribution' to describe the physical movement of goods. The to Chese characters stand for logistics are origated from Japan, hich Cha still adopted until today.

In 1985, US Logistics Management Association officially changed the name from 'Physical Distribution' to 'Logistics'. In order to differentiate the sequence of changes beteen these to concepts, 'Traditional Logistics' refers to former and 'Modern Logistics' means the latter hen translated to Chese.

Logistics started to get popular 5 years ago. Logistics panies and logistics centers ere established one after the other. Logistics caught every attention as production, distribution and consumption of goods bee everyday life. 3PL (Third Party Logistics) as slippg its ay to vocabulary.

Hoever, there is a big gap hen describg the ratio of 3PL Cha Logistics Industry:

Other vies contend that dustry value of Cha Logistics exceed RMB 2 trillion (same as above), hile 3PL market share is beteen RMB 130 billion to RMB 150 billion.

There is no absolute right or rong the above saygs, sce the differences e from different statistics and concepts. We ould say RMB 60 billion is pretty close to the picture after many studies and parison. Our analysis ill start from this figure.

Industry Value: RMB 2 trillion and 60 billion, grog at an annual rate of 10%-15%.

Number of panies: around 730 000, startg from only 1 logistic pany 1999 – PG LOGISTICS GROUP CO., LTD to currently more than 700 000 Cha. Though Cha logistics dustry has tremendous groth the past, these 700 000 panies are actually 'small, scattered, eak'. A myriad of them are just truckers movg goods. Modern Logistics Company is catchg nohere their eyes. Even, there is no ay to determe ho are the 3PL out of these 700 000 plus logistics panies.

Development pace: 10%-15% and 25%-30%. It is estimated that Cha Logistics Industry is grog at an annual rate of 10-15%, ith 3PL at 25%-30%.

Cha is not only the factory of the orld, but also generates tremendous opportunities to a Global Logistics dustry.

World Logistics Centers is Cha. Many panies ould not have their objectives acplished ithout the development and groth from Cha economy. More and more multi-national panies already recognized that grog ith Cha is the key to fulfill objectives. For stance, US spendg creases every year. US must buy from Cha, South East Asia or from India and South America order to fill their gap. As long as Europe and America buy from Cha, trade ill defitely contue.

Cha is very petitive hen sellg her goods. Cha merchandises are very petitive as ell. Buyers are still from US or Europe. Cha is of paramount importance. Cha still plays an important role the next round of dustry transformation. Cha ne promence as a manufacturg poer ill defitely boil don to logistics.

Relevant statistics shoed that groth of global logistics as far behd Cha logistics. Current Cha 3PL supply and services already surpass the RMB 60 billion mentioned above. It is anticipated that Cha logistics ill have explosive groth the next couple of years.

What are the ponents of this RMB 60 billion 3PL market?

From regional pot of vie, Providers of Cha export logistics are maly controlled by large foreign logistics panies located Shanghai, Tianj and Dalian.

Transport modes clude rail, sea, air and roaday. Services offered clude arehousg, ternational cargo transportation, Cha cargo transportation and consumables distribution, also small parcel and express delivery and third party logistics solutions.

Logistics suppliers can be classified to large multi-national service provider, like TNT, UPS ho are large logistics and express supplier and transportation panies. They entered Cha more than 10 years ago. Another thrust is logistics branches set up by shippers and state-run logistics provider, such as COSCO, Sotrans. Cha massive groth import and export sce aession to WTO drives up the market needs of Cha logistics. It is estimated that Cha logistics market ill mata a groth rate of 20% the g years.

Cha as a WTO member opens Cha logistics dustry to outside and foster cooperation. Operation scale of Cha logistics ill keep abreast ith ternational. Third Party Logistics, Fourth Party Logistics ill be moved faster to bee professional, modernized logistics providers so that all societal logistics can be driven don real terms.

Current Cha 3PL firms can be classified to 4 types terms of structure:

Types 1 are those logistics panies restructured from traditional arehousg providers and transportation panies ho on large market shares. Typical are Sotrans, COSCO, Cha Post, Cha Railay Express, CMST, Cha Contaer. Leveragg their former logistics frastructure and advantages ork, facilities, scale, these traditional giants expand their services and strive to bee modern logistics corporation. They all have rich professional experience, nationide ork, large operation scale and strong asset positions. Yet, their ork advantage is heavily restricted sce a great number of their regional branches are all dependently audited. Their branches across the country lack munications beteen each other despite of their national presence. In other ords, no co-operation and coordation durg operations, resources are not effectively utilized. Customers are far from served ith prehensive logistics unless you are a huge one. In truth, their regional offices are scattered and not ter-connected.

Un-petitive prices: Sce they have to bear huge labor cost to support their grand scale, their prices are usually higher than those small-and-medium regional counterparts.

Poor service quality. Except COSCO, Sotrans ho have many years of experience dealg ith outside, others lack genue orientation. Some of them rema at thkg themselves as dustry godfather hich leads to flexible and efficient services.

Type 2 is nely-formed state-run or state-oned logistics panies ho are maly mercial arehouse and transportation players the region. They have better management and faster expansion. Take Cha Shippg Logistics as an example, they emerged from a purveyor of arehouse services to an ternational recognized multi-national 3PL group providg such logistics service as arehousg, transportation, delivery and customs declaration.

They have their on fleet of trucks and former arehousg system to provide local elementary services. Prices are paratively loer. They contue to upgrade their service to meet customer demands as petition gets tense. Individual fe may stand out from the crod og to the past experience.

Pitfalls: regional coverage, dilapidated arehouse and facilities. Due to historic reasons, majority of them are overly burden. Their management and service mdset rema at elementary, traditional, dispersed and flat.

Type 3 are foreign players cludg from Hong Kong. They enter Cha to extend their service to their origal customers – multi-national groups. At the same time they use their management concept, operation model and quality services to attract Cha panies and gradually tap to Cha market. They are Datong, KINTETSU, HAVI, Maersk, EAC, Hutchison and Whampoa, Inchape, Sea-Land, Huashang, Sankyu. Foreign players have distctive advantages capital, personnel, kno-ho, management, service and technology (IT particular). They oupy a sizeable chunk of market supplyg logistics service to foreign panies Cha. Currently, a lot of multi-national groups ork ith Cha logistics panies through partnership or acquisition of equity to establish professional logistic entities. They are actively seekg Cha partners no. Some already secured, such as DHL ith Sotrans, FedEx ith DTW Logistics to expand ork coverage together. Hoever, a bundle of many are ternational express couriers at this stage. It is expected that there ill be many more multi-national logistics panies lookg for Cha counterparts ith substantial footprt the near future.

Type 4 are emergg private entrants across the region. They are flexible, lo cost, gro fast, most vibrant Cha 3PL logistics firms. Examples are: PG Logistics, Jiuchuan, Sunjet Logistics.

As lateers to the market, they usually position themselves to be professional 3PL service provider. Majority of them choose to be non-asset type of 3PL agent order to avoid massive vestment logistics facilities and risk of long return period. Their services close to foreign logistics panies but broader reach, not limited to only large cities or coastal areas. They are more flexible and adaptable local operation hen pared ith their foreign counterparts. Their service, management and IT applications are more advanced than their mon peers.

Their hurdles: Comparatively high prices, limited capital base, restricted expansion of busess scale and ork coverage. Fe experience basic service operation as they are neophytes.

3PL Cha rema at maly providg elementary logistics services such as transportation and arehousg. Value-added services as processg, delivery and tailored services are still the refg stage. Follog charts are statistics from Cha Association of Warehouse and Storage shog the outsourced logistics from Manufacturg Companies and Commercial Companies respectively.

From the above, both manufacturg and mercial panies choose to 'outsource to different parties', or assign different types of busess to different types of panies. Proportion of packaged service offered by 3PL firms to customers are not much from the perspective of logistics supply.

Analysis shoed that annual groth rate of 3PL service providers the first 10 years of this century ill be over 10%, ith 25% or above the next 5 years.

As at end of 2004, DHL, TNT, UPS, Fedex are establishg their ne transshipment centers Asia Pacific. These global express couriers or logistics giants may choose different locations for their centers, hether Hong Kong, Shanghai or Guangzhou, nevertheless, it is obvious that their freight hubs and transportation frastructure, busess ork are headg to Cha.

In Nov 17, 2004, Federal Express set up Cha headquarters Shanghai. This is another important measure taken by this renoned ternational courier sce 12 ne air freight routes opened beteen US and Cha. Federal Express's first fancial quarter 2005 shoed that export freight creased nearly 52% Cha market, a crucial factor suessfully fuel pany e from ternational priority courier services by 25%.

Federal Express ork already covered nearly 220 Cha cities. Their plan is to add 100 more to serve the 4 to 5 years. Moreover, ith Shanghai already place to serve for Cha, it seems natural to move its Asia Pacific headquarter to Cha as ell. This is regarded as a prelude to establish its on 'holly-oned' enterprise Cha.

Compared to Federal Express, UPS tention is obviously 'gog alone'. Its Cha partner – Sotrans Airport Transportation Development Co. Ltd. announced earlier that UPS ill pay USD 100 million to acquire direct management rights on the express services represented by its Cha partner. Sotrans Development and Sotrans are currently the agency anization for UPS Cha, offerg delivery services for UPS domestic Cha at a fee.

Aordg to Agreement, UPS has direct control on the express services Shanghai, Guangzhou, Shenzhen, Tianj and Qgdao sce January 1, 2005, and the right to dependently open courier services another 18 cities at the end of 2005. As a result, UPS staff Cha ill reach nearly 1700.

Agreement of Cha aession to WTO stipulated that Cha ill further open the market of road freight, arehousg, ocean ler transport, shippg agency and express services, cludg road freight transport, cargo freight leasg, holesalg, retailg and its logistics delivery of general goods, restrictions lifted on the region and shares ratio for foreign vestment import/export of automotive transportation panies. Amongst, quite a number of sectors alloed foreign participants to open holly-oned enterprises.

Obviously, this is hat the foreign vestors anted to see. They are gatherg steam to expand to Cha market once Cha fulfills its promise. Announcement made by Sotrans Development as mentioned above is an example. International logistics group no longer need to rely on JV or partnership once Cha Logistics market is fully opened.

Currently, there are already more than 250 000 foreign-funded panies operated Cha. Foreign vestment that Cha attracted actual exceeds USD 550 billion. 450 out of 500 orld large multi-national groups already vested Cha. More than 30 of them set up their regional headquarters Cha.

Underdeveloped Cha logistics sector hobbled at the early stage and not standardized, a sharp contrast to the boomg market on the flip side.

Information from Mistry of Commerce revealed that there are over 730 000 panies registered under the name 'logistics'. Apart from fe large Groups, most are simply cottage panies ith 'one truck and a driver'. These motley groups of 'professionals' are the culprits of the all-time high cost of Cha logistics. Statistical data shoed that ratio of Cha logistics cost to GDP is approximately 21%, hile this is only 10% developed economies. 1 or 2 percentage pots don logistics cost can spell out nearly RMB 200 billion of social benefits. Hoever, majority of Chese enterprises rema at cuttg labor and ra material to control their costs. Their mdset not yet austomed to the concept of scalg don logistics cost. Hence, dustry siders believed that Cha logistics is still a long ay to professional 'modern logistics'.

Logistics contributes to national economy be means of movg pany goods usg the most optimal solution, professional technology and ork at mimum cost. Lo logistics cost brg don its eightg national economy order to provide better vestment landscape. This kd of most optimal solution is achieved through utilization of idle societal resources. Yet, there are not many logistics panies Cha ish to be professional. People still thk logistics is only a bunch of panies tryg to do everythg.

Cha logistics has huge demand. Hoever, hat customers see logistics is only transportation. Fe Chese enterprises have the vision to use professional logistics panies to tegrate and revamp ternal logistics system. On the other side, scores of neers sept up to the avese. They run their on ay, no standard. Price ar and violations are mon. There is no need to put the blame on the flux of foreign players after Cha bee WTO member. All local logistics rushers are losg money if this kd of ternal price ar contues.

Current status of Cha logistics is that lo cost some dividual panies at this stage is at the expense of expandg societal cost. This kd of superficial lo cost does not reflect the truth. A large share of the logistics cost should be undertaken by panies are actually covered by government and society.

3PL is catchg attention from everybody sce reform the production of modern manufacturers and changes external conditions of the market. In developed countries, logistics advanced panies already move to 3PL or even 4PL.

Increased Logistics Outsourcg: When societal division of labor goes further, supply cha not only just cludes supplier, distributor and retailer, but also 3PL service providers, ho gradually bee an dispensable member. Survey result shoed that proportion of outsourced logistics is on the rise. 3PL role supply cha is creasgly important. Og to the professionalism, lo cost and improved service, more and more panies are illg to outsource their logistics and specialized its on core busess.

In the first half-year of 2004, demand of societal logistics contues to be driven by the creased market scale under the rapid development of national economy, especially the aelerated progress of heavy chemical dustry. Concurrently, imbalance of supply and demand of logistics aggravates. Logistics cost ill further climb up.

Data from Cha Logistics Association shoed the follog characteristics of Cha logistics the first half-year of 2004.

First and foremost, it's clear that logistics supply can't meet the demand. Economy asks for modern logistics. Beteen total logistics amount that reflect demand scale and the total freight volume that represent logistics supply is 17.3 percentage pots. The difference clearly demonstrates supply falls short of demand even price factor is elimated.

Second, logistics cost soar, ratio to GDP is bigger. This states that considerable crease total cost arisg from economic development stems from the crease logistics cost.

Third, vestment groth for logistics tends to go don hen pared ith the groth of logistics demand. In the first 6 months of 2004, vestment groth of logistics fixed assets as 8.5 percentage pots don hen pared to the total amount of societal logistics across the country the same period, and 7.4 percentage pots hen pared to the vestment groth of fixed assets cities and tons the same timeframe. Investment fall short of the demand causes serious transport bottleneck. It is the ma reason hy it's difficult to iron out logistics hurdles. It is also the major reason that causes the lo efficiency of Cha logistics and its high cost.

From: MBA CAREER DAYS