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Logistics Industry in China - Opportunities and Challenges

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Title: Logistics Industry in China - Opportunities and Challenges


1
Logistics Industry in China - Opportunities and
Challenges
  • Peter Y. F. Lee
  • September 10, 2008

2
Your speaker
  • Peter Lee (???)
  • In logistics industry since 1973
  • Worked in Hong Kong, Sydney, Rotterdam, Toronto,
    Shanghai
  • Last positions
  • General Manager of TMT Multimodal Transportation
    Co. Ltd.
  • Managing Director of PO Nedlloyd (China) Ltd.
  • Managing Director of PO Nedlloyd Logistics
    (China) Ltd.

3
Agenda
  • Logistics Industry in China
  • Increasing Needs Opportunities of Logistics
    Industry in China
  • Challenges of Logistics Industry in China
  • Logistics Companies in China
  • Case Studies

4
Logistics Industry in China
  • Short History and Fast Development

5
(No Transcript)
6
Increasing Needs Opportunities of Logistics
Services
  • High growth rate of International Trade Creating
    Huge Demand of International and Domestic
    Logistics Services
  • Supply Chain Management reduces TOTAL COSTS of
    Logistics
  • Increasing Demand of Logistics Services at Inland
    Cities
  • Improvement of Infrastructure Highway, Railway,
    River Transport and Port Development

7
Increasing Needs Opportunities of Logistics
Services
  • High growth rate of International Trade
  • Creates Huge Demand of International and Domestic
    Logistics Services

8
China GDP Growth Rate Overview
Data source the National Bureau of Statistics of
China, Jul 19, 2008
9
Chinas International Trade Growth Overview
  • Total exports and imports
  • 2003 37
  • 2004 35
  • 2005 23
  • 2006 24
  • 2007 23

10
GDP Growth / Intl Trade Growth Relationship
11
Increasing Needs Opportunities of Logistics
Services
  • Supply Chain Management reduces TOTAL COSTS of
    Logistics

12
Logistics Supply Chain Concept
  • Supply chain management can be defined as the
    management of upstream and downstream
    relationships with suppliers, distributors and
    customers to achieve greater customer value-added
    at less total cost.
  • Source Martin Christopher 1997.

13
Logistics Costs??
  • What does cost of logistics stand for the total
    cost of an international trade transaction?

14
Costs of Logistics
  • What are the costs of Logistics?
  • Transportation
  • Warehousing
  • Customs clearance
  • Insurance
  • Management/IT
  • And?
  • Work-in-process
  • Finance cost of work-in-process
  • Total Cost versus Unit Costs consideration
  • The Case of Haier in 2003/2004

15
Increasing Needs Opportunities of Logistics
Services
  • Increasing Demand of Logistics Services at Inland
    Cities

16
International Trades Ratio between Coastal and
Inland cities
  • 2007
  • Coastal 90
  • Inland 10
  • 2003
  • Coastal 93
  • Inland 7
  • Why?
  • How do we see this picture in coming years?

17
Opportunities of Logistics Services
  • Improvement of Infrastructure Highway, Railway,
    River Transport and Port Development

18
China Infrastructure
  • To support the rapidly expanding logistics
    industry, Chinas transport infrastructure will
    continue to see improvements in the coming years.
  • This presentation shows the latest development
    and major development plans of the three major
    modes of transportation in China, namely roads,
    railways and waterways.

19
Road Highway and Expressway
  • Overview and development plans

20
Overview
  • The road network is developed in the three major
    economic regions, namely the Pearl River Delta
    (PRD), Yangtze River Delta (YRD) and Bohai-rim
    region.
  • At the end of 2006, the total length of highways
    in China climbed to 3 457 000 km.

Bohai-rim
Road density 2005 34.8 km/100 km sq 2006 36.0
km/100 km sq
Total length of highways 3.457 million KM
YRD
PRD
Source MOC
21
National Trunk Highway System (????)
Source MOC
22
Development plans
  • (2) The 11th Five-Year Development Plan for Road
    and Water Transportation (?????????????)
  • In 2006, the MOC promulgated the 11th Five-Year
    Development Plan for Road and Water
    Transportation (the Plan).
  • The Ministry aims to build 370 000 km of highways
    including 24 000 km of expressways during this
    period.

Source MOC
23
Expected routes of the 7918 Network to be
completed by 2010
Source MOC
24
Railways
  • Overview and development plans

25
Overview
  • Railway is also another important mode of
    transportation carrying goods and people in
    China. At the end of 2006, the total length of
    railways in operation reached 77 000 km, which
    ranked 3rd in the world and accounted for 6 of
    the worlds total.
  • The volume of freight dispatched by the railways
    in China in 2006 was 2.9 billion tons, with a
    year-on-year (yoy) increase of 7.1. The total
    freight ton-kilometers in 2006 were 2 195
    billion, with a yoy increase of 5.9.
  • The structure of the railway network has also
    improved a great deal. In 2006, 34.3 of the
    railways were double tracking and 31.7 were
    electrified.

Source MOR
26
Priorities during 2006-2010
  • Dedicated Passenger Lines
  • Inter-city railways in the PRD, YRD, Bohai-rim
    and other regions with dense cities
  • Container transportation system
  • To build 18 container logistics centers, with the
    help of new and existing railways, and to
    construct double-deck container transportation
    railway in the big cities.

27
Railway Container Freight
  • National railway has completed 3.6 million TEU
    during 2007
  • International containers by rail around 2
    million TEU
  • About 1.5 of Total China Ports throughput
  • Target to reach 10 million TEU by 2010
  • In general, the development of container freight
    railway lags behind

28
Water transportation
  • Overview and development plans

29
Overview
  • In general, Chinas water transportation could
    roughly be divided into ports and inland
    waterways.
  • Ports
  • China has one of the worlds most extensive
    network of coastal ports, the largest ones are
    Shanghai and Ningbo in the Yangtze River Delta
    (YRD) Shenzhen and Guangzhou (incl Nansha) in
    the Pearl River Delta (PRD) Tianjin, Qingdao and
    Dalian in the Bohai-rim region and Xiamen on the
    Fujian Coast.

Source MOC
30
Top 20 World Ports (2006)
  • 11. Qingdao
  • 12. Long Beach
  • 13. Ningbo
  • 14. Antwerp
  • 15. Guangzhou
  • 16. Port Kelang
  • 17. Tianjin
  • 18. New York
  • 19. Tanjung Pelepas
  • 20. Bremen
  • 1. Singapore
  • 2. Hong Kong
  • 3. Shanghai
  • 4. Shenzhen
  • 5. Busan
  • 6. Kaohsiung
  • 7. Rotterdam
  • 8. Dubai
  • 9. Hamburg
  • 10. Los Angeles

31
Top Ten Chinese Ports 2007
32
Overview
  • Inland waterways
  • Chinas inland waterway system is dominated by
    the Yangtze River (??), which is the main
    transportation link for inland China.
  • Yangtze River is one of the worlds most used
    inland waterways. Nanjing (??), Wuhan (??) and
    Chongqing (??) are the main inland ports along
    the Yangtze River. While the navigable river
    stretches from Shanghai to Chongqing, most
    activities occur between Nanjing and Shanghai.

33
National Plan for Coastal Port Layout
  • Bohai Sea Area port cluster
  • Dalian, Yingkou, Qinhuangdao, Tianjin, Yantai,
    Qingdao
  • YRD port cluster
  • Shanghai, Ningbo-Zhoushan, Nantong, Nanjing,
    Zhenjiang, Lianyungang, Suzhou, Wenzhou
  • Southeast coastal area port cluster
  • Xiamen, Fuzhou
  • PRD port cluster
  • Shenzhen, Guangzhou, Zhuhai, Shantou
  • Southwest coastal area port cluster
  • Zhanjiang, Fangcheng, Haikou

Source MOC
34
Market Preferences
  • In order of preference in domestic transportation
    of containers
  • River transport
  • economical, efficient and a true multimodal
    transportation
  • Railway (distance of longer than 800KM)
  • economical, inefficient, unreliable
  • Highway
  • expensive, efficient, convenient

35
Challenges of Logistics Industry in China
36
Logistics Market in China (I)
  • Strengthening the willingness of using logistics
    services
  • Limited management and experience
  • Limited willingness to outsource logistics
    services
  • Focus on unit price
  • Focus on single event operations cost
  • Insufficient attention on adding value to
    customers

37
Logistics Market in China (II)
  • Major problems
  • Lack of proper administration organization
  • Difference between existing demand and potential
    demand
  • Lack of outsourcing concept
  • Lack of sufficient public facilities, IT
    technology and middle managers

38
Logistics Market in China (III)
  • A few misunderstandings
  • logistics service development modern facilities
    and equipment
  • sales logistics requirement operate
    logistics service
  • logistics service a very profitable business

39
Logistics in China (I)
  • No clear Business Scope of Logistics Industry
  • Foreign operators face ownership restrictions,
    hampering trucking and forwarding activities

40
Logistics Companies in China
  • Local and Foreign

41
Logistics Companies
  • Freight Forwarding and Freight Management
  • Sea
  • Air
  • Road/Rail
  • Project Logistics
  • Customers tailored program
  • Hardware solutions Supply chain management
  • Standardized system and processes
  • Lead Logistics
  • Managing and integrating logistics service
    providers across geographies
  • Customers tailored program
  • Standardized system and processes
  • Specialized industry related, e.g. chemical, etc

42
Logistics Companies
  • International companies
  • Global connections
  • Integrated global system
  • Standardized processes
  • Local companies
  • Hardware providers
  • Local knowledge and connections
  • Upstream and downstream support companies

43
Top 10 Global International Logistics Companies
(freight forwarding related) 2006
  • DHL Global
  • Kuehne Nagel
  • Schenker
  • Panalpina
  • Expeditors
  • 6. UPS SCS
  • 7. SDV
  • 8. EGL
  • 9. Sinotrans
  • 10. Nippon Express

Source Transport Intelligence
44
Top 10 Global International Logistics Companies
(freight related) 2006
  • These 10 companies shared about 40 of the global
    market shares
  • All of them have established rep. offices or
    branch offices, or JVs in China

45
Industry Structure
  • Foreign invested logistics providers
  • Sub-contractor market will develop
  • increased competition - shake out?

46
3 Case Studies
  • Buyers Consolidation
  • Regional Distribution Center
  • Primary and Secondary Warehousing

47
Case 1 Buyers ConsolidationHome Depot
  • The issues
  • A large number of stores in the USA
  • A large number of suppliers in China, spread over
    mainly along coastal area
  • A large number of commodities
  • Central procurement
  • Online update of stock record

48
Buyers Consolidation
  • Services elements
  • Receive cargo from various suppliers
  • Sorting, Inspection, warehousing
  • Consolidation according to buyers instructions
  • Booking of shipping space
  • Transportation between warehouses and port
  • Custom clearance
  • Intercontinental shipping
  • Update stock and shipment details

49
Case 2 - Regional Distribution CentreBASF
  • The issues
  • Production Area Germany and South America
  • Customers Eastern China, Northern China, Japan
    and Korea
  • Commodities Chemicals (in drums or bags),
    including some Dangerous Goods
  • Distribution centre Singapore

50
Regional Distribution Center (1)
  • Service elements
  • A regional Distribution Center in Free Trade Zone
    in Shanghai
  • First transportation (shipments) is done by
    Shipping companies
  • Transportation to bonded warehouse in FTZ
  • Customs registration at FTZ
  • Unpacking and warehousing

51
Regional Distribution Center (2)
  • Service elements
  • For local buyers
  • Release cargo to local receivers or buyers
  • Customs clearance
  • Deliver cargo in full containers or break-bulk to
    inland points
  • For Northern Asia countries buyers
  • Booking of space with inter Asia shipping lines
  • Transportation to port
  • Customs registration and de-registration
  • Delivery of cargo to Northern Asia countries

52
Case 3 - Primary and Secondary Warehousing -
Heineken
  • Single commodity different packing
  • Production Area the Netherlands
  • Loss of market share 1lt
  • Single entry port Shenzhen
  • Distribution through agents in China
  • Distribution Channel widespread everywhere in
    China, but mainly at coastal cities

53
Primary and Secondary WarehousingHeineken
  • The Plan
  • Shipment hubs one N. China port (Qingdao or
    Tianjin), Shanghai and Shenzhen
  • Setting up of Primary warehouses at ports, with
    bonded and non-bonded facilities
  • Distribution of coastal markets via Primary
    warehouses
  • Setting up of Secondary warehouses at major
    inland cities, e.g. Chengdu, Wuhan etc.
  • Transportation of goods by river or rail from
    primary to secondary warehouses
  • The Reality
  • Brew in Shanghai
  • Local distribution via land and river
    transportation

54
THANK YOU
  • Contact peterleeofsha_at_gmail.com
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