Transcript Logistics Industry in China

Logistics Industry in China
- Opportunities and Challenges
Peter Y. F. Lee
September 10, 2008
Your speaker:
Peter Lee (李耀辉)
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 P&O Nedlloyd (China) Ltd.
Managing Director of P&O Nedlloyd Logistics
(China) Ltd.
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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
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Logistics Industry in China
Short History and Fast Development
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Increasing Needs – Opportunities of
Logistics Services
1. High growth rate of International Trade Creating Huge
Demand of International and Domestic Logistics Services
2. Supply Chain Management reduces TOTAL COSTS of
Logistics
3. Increasing Demand of Logistics Services at Inland Cities
4. Improvement of Infrastructure: Highway, Railway, River
Transport and Port Development
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Increasing Needs – Opportunities of
Logistics Services
High growth rate of International Trade
Creates Huge Demand of International
and Domestic Logistics Services
China GDP Growth Rate Overview
12.0%
11.1%
11.0%
10.5%
10.4%
10.0%
9.0%
10.0%
10.1%
9.1%
8.0%
2002
2003
2004
2005
2006
2007
Data source: the National Bureau of Statistics of China, Jul 19, 2008
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China’s International Trade Growth Overview
Total exports and
imports:
2003
2004
2005
2006
2007
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+37%
+35%
+23%
+24%
+23%
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GDP Growth / Int’l Trade Growth Relationship
40
35
30
25
GDP growth
20
International
trade growth
15
10
5
0
2003
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2003
2004
2005
206
Peter Y. F. Lee
2007
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Increasing Needs – Opportunities of
Logistics Services
Supply Chain Management reduces
TOTAL COSTS of Logistics
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 valueadded at less total cost.”
Source: Martin Christopher 1997.
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Logistics Costs??
What does cost of
logistics stand for
the total cost of an
international trade
transaction?
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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
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Increasing Needs – Opportunities of
Logistics Services
Increasing Demand of Logistics
Services at Inland Cities
International Trades – Ratio between
Coastal and Inland cities
2007
2003
Coastal 90%
Inland 10%
Coastal 93%
Inland 7%
Why?
How
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do we see this picture in coming years?
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Opportunities of Logistics
Services
Improvement of Infrastructure:
Highway, Railway, River Transport
and Port Development
China Infrastructure
To support the rapidly expanding logistics
industry, China’s 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.
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Road – Highway and
Expressway
Overview and
development plans
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.
Bohairim
Road density
Total length of highways: 3.457 million KM
YRD
2005: 34.8 km/100 km sq
2006: 36.0 km/100 km sq
PRD
Source: MOC
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National Trunk Highway System (五纵七横)
Source: MOC
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Development plans
(2) The 11th Five-Year Development Plan for Road and
Water Transportation (公路水路交通”十一五”发展规划)
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
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Expected routes of the ‘7918’ Network to be completed by 2010
Source: MOC
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Railways
Overview and development plans
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 world’s 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.
Freight Traffic
Total length of railways: 77000 km
Source: MOR
Unit: billion
Joint
venture,
8900, 12%
Local,
4700, 6%
National,
63400,
82%
2000.0
1500.0
500.0
0.0
Peter Y. F. Lee
7.1%
2195
5.9%
1000.0
2005
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2072.7
10%
8%
6%
4%
2%
2.7 2.9
0%
Ton
Ton-kilometers
2006
2006 YoY growth
25
Priorities during 2006-2010
1. Dedicated Passenger Lines
2. Inter-city railways in the PRD, YRD,
Bohai-rim and other regions with dense
cities
3. 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.
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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
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Water transportation
Overview and development plans
Overview
In general, China’s water transportation could
roughly be divided into ports and inland
waterways.
Ports
China has one of the world’s 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
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Top 20 World Ports (2006)
1. Singapore
2. Hong Kong
3. Shanghai
4. Shenzhen
5. Busan
6. Kaohsiung
7. Rotterdam
8. Dubai
9. Hamburg
10. Los Angeles
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11. Qingdao
12. Long Beach
13. Ningbo
14. Antwerp
15. Guangzhou
16. Port Kelang
17. Tianjin
18. New York
19. Tanjung Pelepas
20. Bremen
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Top Ten Chinese Ports 2007
Rank
Ports
1
Shanghai
26,150,000
20.4%
2
Shenzhen
20,813,000
13%
3
Qingdao
9,462,000
23.0%
4
Ningbo
9,360,000
32.0%
5
Guangzhou
9,200,000
39.0%
6
Tianjin
7,102,900
18.0%
7
Xiamen
4,627,000
14.0%
8
Dalian
3,813,000
15.0%
9
Lianyungang
2,003,000
53.80%
10
Zhongshan
1,279,000
25.30%
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2007 (TEU)
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Increase %
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Overview
Inland waterways
China’s inland waterway system is
dominated by the Yangtze River (长
江), which is the main
transportation link for inland China.
Yangtze River is one of the world’s
most used inland waterways.
Nanjing (南京), Wuhan (武汉) and
Chongqing (重庆) 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.
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National Plan for Coastal Port Layout
Bohai Sea Area port
cluster
Dalian, Yingkou,
Qinhuangdao, Tianjin,
Yantai, Qingdao
YRD port cluster
Shanghai, NingboZhoushan, 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
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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
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Challenges of Logistics
Industry in China
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
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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
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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
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Logistics in China (I)
No clear “Business Scope” of
Logistics Industry
Foreign operators face ownership
restrictions, hampering trucking
and forwarding activities
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Logistics Companies in
China
Local and Foreign
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…
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Logistics Companies
International companies
Global connections
Integrated global system
Standardized processes
Local companies
Hardware providers
Local knowledge and connections
Upstream and downstream support companies
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Top 10 Global International Logistics
Companies (freight forwarding related) 2006
1.
2.
3.
4.
5.
DHL Global
Kuehne & Nagel
Schenker
Panalpina
Expeditors
6. UPS SCS
7. SDV
8. EGL
9. Sinotrans
10. Nippon Express
Source: Transport Intelligence
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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 JV’s in China
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Industry Structure
Foreign invested logistics providers
Sub-contractor market will develop
increased competition - shake out?
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3 Case Studies
1. Buyers’
Consolidation
2. Regional Distribution
Center
3. Primary and
Secondary
Warehousing
Case 1 – Buyers’ Consolidation
Home 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
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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
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Case 2 - Regional Distribution Centre
BASF
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
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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
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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
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Case 3 - Primary and Secondary
Warehousing - Heineken
Single commodity: different packing
Production Area: the Netherlands
Loss of market share: 1%<
Single entry port: Shenzhen
Distribution through agents in China
Distribution Channel: widespread everywhere in
China, but mainly at coastal cities
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Primary and Secondary Warehousing
Heineken
The Plan
Shipment hubs: one N. China port (Qingdao or Tianjin), Shanghai
and Shenzhen
Setting up of Primary warehouses at ports, with bonded and nonbonded 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
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THANK YOU
Contact:
[email protected]