A&A HMG Logistics Site Visit 2-2011

HMG Logistics Co., Ltd.

Shanghai, China Site Visit

February 14, 2011

Eric Xiang

Key Personnel:

Mr. Benjamin Tso, President

Mr. Clement Zheng, Manager, Business Development

Mr. Mark Cai, Supervisor, Business Development

Overview

HMG Logistics Co., Ltd. (HMG) was founded in Shanghai in 1994 as a full truckload (FTL) transportation and warehousing provider. In 2000, it began providing contract logistics services. Today, HMG specializes in aftermarket/spare parts logistics services in China.

HMG manages a 30,000 square meter bonded warehouse in the Shanghai Waigaoqiao Free Trade Zone (FTZ). It also manages bonded warehouses in Beijing, Chengdu, Dalian, Shenzhen, Wuhan and Wuxi. HMG holds a Class A license for customs clearance and provides customs clearance services in all of its bonded warehouse locations.

In its spare parts logistics operations, HMG focuses on the following industries: automotive parts, flat screens, nanotechnology, semiconductors, and photovoltaics. Foxconn, Intel, Semiconductor Manufacturing International Corporation (SMIC), and Shanghai Hua Hong NEC Electronics are major customers.

SMIC Customer Case Study

SMIC was importing equipment to set up a product line to produce computer chips and needed spare parts available for maintaining its equipment.

Initially suppliers would airfreight spare parts from their facilities to SMIC’s headquarters in Shanghai. The air transit time averaged two to three days. In addition, SMIC would incur an additional one to two days during customs clearance in Shanghai and had to immediately pay the import Value-Added Tax (VAT). This resulted in total shipping to receiving cycle time of three to five days. During this time, SMIC would have to halt its production line which resulted in significant financial costs.

Working with HMG to improve the process, SMIC requested all of its suppliers to use HMG's Shanghai bonded warehouse for the vendor-managed inventory (VMI) of spare parts. Now when SMIC needs the spare parts for equipment maintenance, HMG can deliver the spare parts from the warehouse to SMIC's factory in two hours to meet its just-in-time (JIT) manufacturing requirements.

SMIC’s spare parts have significant cargo value and as another value-added service, HMG has begun applying VAT deferred at China customs for SMIC’s imported parts shipments. This has eliminated the need for SMIC to pay the VAT to customs prior to final delivery. HMG has also added Singapore as a gateway to give SMIC's suppliers expanded flight options.

In China, it can be difficult to deal with customs and even more challenging to deal with customs operations in different cities. HMG's customers are located in different cities: SMIC and Shanghai Hua Hong NEC Electronics are located in Shanghai, Intel’s new factory is located in Dalian and Foxconn has factories in Chengdu, Shenzhen and Wuhan. And since HMG has developed strong relationships with China customs in these cities, it can efficiently manage all of its bonded warehouses and make customs clearance a smooth process for customers.

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