Logistics in China

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Logistics in China

• China to Canada How to manage the
  transportation challenges
• par Eric Allard
• Schenker Canada

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China General Information ( as of April 06 )
Population 1.3 billion GDP 2.26 billion US
( 9.5 compared to 2005 ) Urban unemployment
rate 4.2 ( same as 2005 ) Inflation rate
1.9 ( 2005 3.9 ) Economic Growth 9.4
p.a.
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Logistics in China General Information

• Logistics Cost around 20 of GDP ( 2-3 times
  higher than in developed countries
• Logistics account for around 90 of production
  cycle time and around 40 of general production
  cost ( United Nations Development Programme
  estimate )
• Approx 90 of the logistics market in China are
  controlled by State Owned Enterprises
• 2.6 million road haulage operators with 5.1
  million vehicles
• The share of contract logistics is at only 2
• 3 Major logistic regions Pearl River Delta (
  South China including Hong Kong ), Yangtze River
  Delta ( Shanghai, Wuxi, Suzhou,Hangzhou, Ningbo )
  and North Delta ( Beijing, Tianjin )

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3 Main Gateways into China
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Main Industries North Delta Beijing/Tianjin
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Main Industries Yangtze River Delta
Strong impact of the international Multi Fibre
Arrangement (MFA) which restricts imports of
clothing and textiles due to low-cost advantages.
Estimation that Chinas share of the world
textile market could increase to over 50 by
2007, up from only 17 in 2003.
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Main Industries Pearl River Delta
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Logistics in China-Challenges

• Up until 2005 Joint Venture with chinese company
  needed
• 600 000 logistics experts needed, currently
  around 60000 available
• Regulations ( Import / Export customes ,
  bonded-non bonded zones )
• Infrastructure

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China 3PL MarketCurrent Outsourcing Of Logistics
Although the majority of shippers outsource
direct transportation services, only about 50 of
shippers outsource logistics.
Rate of outsourcing of logistics by type of
shipper
Outsourcing rate
100
88
80
60
48
of respondents
40
20
0
Direct transportation
Logistics
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China 3PL MarketCurrent Outsourcing Of Logistics
Under pressure to reduce costs, many shippers
look to their 3PL providers for industry and
operations experience in order to reduce
logistics costs.
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China 3PL MarketCurrent Outsourcing Of Logistics
About 30 of shippers, particularly MNCs, would
prefer to outsource to foreign providers, while
more than 20, particularly Chinese, would prefer
Chinese providers.
Who prefers Chinese providers?
Who prefers foreign providers?
Prefer Chinese provider 22
Prefer foreign provider 30

• 30 of all shippers
• 37 of MNCs
• 15 of Chinese shippers

• 22 of all shippers
• 19 of MNCs
• 31 of Chinese shippers

No preference 48
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China 3PL MarketCurrent Outsourcing Of Logistics
Reasons to outsource to Chinese providers are
lower price and local knowledge, whereas foreign
providers have a strong IT system and
professional know-how.
Advantages of foreign providers
Advantages of Chinese providers
IT system
Lower price
79
75
Industry/operational experience
45
51
Local knowledge
Domestic network coverage
Standardized operations
44
34
Relationship to central /local government
31
International network
27
Ownership of some strategic assets
13
Logistics talent
14
10
Financial position
9
Flexibility of operations
Integrated logistics capabilities
5
Policy protection
5
0
20
40
60
80
0
20
40
60
80
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China 3PL MarketProviders operations
Chinese providers focus more on domestic
logistics opportunities due to lack of overseas
network foreign providers draw most of their
revenue from import and export logistics as they
focus on serving their global accounts.
Revenue split between import, export and domestic
Import
Export
60
Domestic
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China 3PL MarketProviders operations
Multinational companies with national logistics
requirements are the main target clients for all
3PL providers, although Chinese providers have a
higher proportion of Chinese clients.
Revenue by client nationality
100
80
56
98
67
60
of revenues
40
20
33
44
2
0
All providers
Chinese providers
Foreign providers
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China 3PL MarketChallenges To Growth
While government restrictions in clearly the top
issue for foreign providers, all players are
facing the challenge of finding qualified people
at all levels.
Challenges for Chinese providers
Challenges for foreign providers
Finding qualified people
Government restrictions
40
29
23
Ambiguity of policy
Finding qualified people
24
Government restrictions
23
20
Ambiguity of policy
IT systems / development costs
Client rigidity/ unrealistic expectations
17
12
Client rigidity/ unrealistic expectations
2
8
Incompatible culture
IT systems/ development costs
0
2
Incompatible culture
0
10
20
30
0
10
20
30
40
of respondents
of respondents
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China ?? Canada Challenges

• Capacity Air/Sea
• Rates

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China ?? Canada General Info

• Import/Export
• Ratestructure
• Nature of goods