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China
Logistics Market Enjoying Spectacular Growth
STOUGHTON, WI, November 1, 2004 - China’s
logistics and express industry is enjoying a period of spectacular growth helped
by economic development and the increased acceptance of out-sourcing by Chinese
manufacturers and retailers. However, there are a number of challenges on the
horizon ranging from deep seated structural problems to the unpalatable prospect
of an economic ‘hard landing’. These are the main findings of Transport
Intelligence’s latest report, China Logistics 2004, which examines the country’s
logistics industry, profiles the key air, sea, forwarding and logistics players
and looks at the sector’s prospects for future growth.
According to the report, the Chinese logistics
industry will expand with a compound annual growth rate of 33% up to 2007. This
will be supported by the outsourcing of logistics functions as the practice
gradually gains credibility and as more sophisticated logistics companies enter
the market.
However, the outlook for the medium term is by
no means as upbeat. China’s economic growth has papered over major structural
problems which need to be addressed if the development is to be continued. These
include weak transport; information and communications infrastructure outside
economic zones; a culture of regulation and bureaucracy; fundamental problems of
energy supply; high transport and logistics costs; a poorly educated and badly
trained work force as well as high regional imbalances of trade (both
domestically and internationally). (see Appendix 1)
Worse still, the economy has yet to go through
a major restructuring which will be needed to transform its many state owned
enterprises (SOEs) into a thriving private sector. One problem for the country
is that increased economic activity has led to rising labor costs (especially in
key regions of manufacturing and logistics). This will increase pressure on
over-manned, inefficient public sector companies and eventually lead to higher
levels of unemployment with severe economic consequences. This will be
compounded by foreign competitors entering the market in line with China’s WTO
commitments.
Commenting on the markets prospects, John
Manners-Bell, the report’s author, added:
“If China’s economy does have a ‘hard landing’
as many economists predict, there will be a major impact on air, sea, express
and logistics companies which have over invested in capacity in the region. For
the time being though the fragmented, low value-add nature of the Chinese
transport market will still provide huge opportunities for foreign, and the more
developed domestic players, to grab market share. There is no doubt that China
will eventually become the world’s industrial powerhouse. However, its
transformation will not be as straightforward as many logistics companies would
like to hope.”
An appendix ‘Ten key challenges for the Chinese
logistics industry,’ setting out the main threats to future development, is
attached to this press release.
China Logistics Report 2004 can be purchased
form Armstrong & Associates, Inc. as a download for $995.
About Armstrong & Associates, Inc.:
Armstrong & Associates, Inc. is a supply chain
management consulting firm specializing in third-party logistics (3PL) industry
analysis, market research, mergers and
acquisitions and logistics outsourcing. Armstrong & Associates publishes Who’s Who In
Logistics? Armstrong’s Guide to Global Supply Chain Management. Recent reports
include Warehousing in the United States, Global Logistics Services Providers
II, Warehouse Prices and Practices in North America – Contract and Public
Benchmarks, 3PLs – A Comparative Financial Analysis of U.S. Results for FY 2003
and Customers of 3PLs. Armstrong & Associates, Inc. and Transport Intelligence
of the UK have a strategic relationship.
Appendix 1 (from the Report)
Ten key challenges for the
Chinese logistics industry
1. Poor infrastructure
One of the key challenges
facing the Chinese logistics industry is the state of the country’s transport
infrastructure. At present, despite some large scale projects, companies in the
region complain of insufficient integration of transport networks, IT,
warehousing and distribution facilities. Outside of the main economic centers,
the logistics sector tends to be of low quality, highly inefficient and with
little technological competence.
2. Regulation
Although it is slowly
opening up to outside competition, the Chinese transportation and logistics
market is one of the most highly regulated in the world. Regulation exists at a
number of different tiers, imposed by national, regional and local authorities.
Regulations often differ from city to city, hindering the creation of national
networks.
3. Bureaucracy & Culture
Getting the go ahead for
any logistics project in China still relies heavily on the strength of contacts
which companies have within Chinese bureaucracy. There are still high levels of
‘cronyism’ which require companies to build links with members of the Chinese
Communist Party at various levels. Many western companies also find it difficult
to repatriate profits which have been generated in the country.
4. Poor training
Training in both the third
party logistics sector and the manufacturing and retailing sectors is very weak
both at a practical level ie IT, driving and warehouse as well as at a higher
strategic level. Many do not realize the benefits which best practice in
logistics can bring to their companies and are therefore not interested in the
opportunities of outsourcing or of supply chain management techniques. This has
been compounded by the failure of the government and other regulatory
authorities to promote logistics programs.
5. Information and
communications technology
Outside of the main
logistics centers, information and communications technology and infrastructure
is unreliable. There are a lack of IT standards and poor systems integration and
equipment. At a very basic level, the consistent supply of energy is also
problematic leading to interruptions to communications through power outage.
6. Undeveloped domestic
industry
The Chinese logistics
sector is fragmented and dominated by commoditised and low quality transport and
warehousing, providing little base on which to build a modern industry. This
also makes it difficult to meet the growing supply chain demands for industrial
and commercial enterprises.
7. High transport costs
Some estimates put the cost
of transporting goods in China at up to 50% more than in developed regions such
as Japan, Europe and North America. These costs are increased by high tolls on
roads. Logistics costs (including warehousing, distribution, inventory holding,
order processing etc) are estimated to be two to three times the norm and in
excess of 20%.
8. Poor warehousing and
storage
Poor facilities and
management are to blame for high levels of loss, damage and deterioration of
stock, especially in the perishables sector. For instance, it is estimated that
30% of China’s fruit and vegetable harvest is damaged every year by the
inability to store and move it appropriately costing $1billion for this sector
alone. Part of the problem is insufficient specialist equipment, ie proper
refrigerated storage and containers, but it is also partly down to lack of
training.
9. Regional imbalance
China’s economy is
characterized by wide variances in levels of economic activity and development.
This is problematic in terms of distribution as there is a major imbalance of
goods flows from the developed east of the country to the more undeveloped west.
This has resulted in difficulties in finding backloads, leading to higher costs
for Chinese haulage companies which are then passed on to their clients.
Internationally these imbalances also exist between China and the rest of the
world, leading to difficulties in re-positioning empty containers.
10. Domestic trade barriers
Although China’s accession
to the WTO has lowered trade barriers such as tariffs and quotas for
international shipments, there are still problems related to moving goods around
China itself. Goods can be subject to unofficial border tolls when moving
between provinces. This is particularly evident when shipping from an inland
manufacturing location to a port city or vice versa.
For more information, contact:
Richard
Armstrong (800) 525-3915 or e-mail Dick@3PLogistics.com.
To purchase the report go to:
http://www.3plogistics.com/shopsite/index.html.
Source:
Armstrong & Associates, Inc.
100 Business Park Circle, Suite 202
Stoughton, WI 53589
Fax: (608) 873-5509
Website: www.3PLogistics.com |
