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How to Get Ahead in China Logistics

Freight companies such as FedEx, UPS, and DHL have been expanding their service offerings along the Pacific Rim and, in particular, in China. Both FedEx and UPS have recently increased the frequency of flights in and out of Beijing and Shenzhen, and UPS and DHL have supplemented their ocean freight services to meet growing demand.

Recent research has estimated the value of the China logistics industry alone to be as high as $15.75 trillion in 2010.

This, of course, was calculated before the dramatic increase in oil prices related to unrest in the Middle East. So far, there have been no public announcements of rate hikes by freight companies, but it seems unlikely that higher fuels costs won't be passed on to customers. Either way, its unlikely shipment of goods will cease due to higher fuel costs.

Logistics and freight companies that can take advantage of economies of scale are most likely to offset higher fuel costs. Sudden spikes have happened before. According to market researchers, some of the strategies adopted by logistics providers include changing modes of transport, realigning networks to reduce mileage, and implementing route optimization software. The ever increasing requirement for outsourced logistics services and entry of new players has made the global logistics market intensely competitive.

Another measure that's being emphasized in China is “green” logistics, with the growing awareness of global environmental concerns. Green logistics — which look at the overall supply chain in terms of its impact on the environment — include measures such as shipping products in larger batches; using alternative-fuel vehicles for manufacturing and shipping; reducing overall packaging; utilizing raw products that are harvested in a sustainable way; building facilities for manufacturing and storage that are environmentally friendly; and promoting recycling and reuse programs.

There's clearly an opportunity here for international logistics companies. The international transportation management segment accounted for the maximum share of the US third-party logistics market in 2009, according to Research and Markets. However, the percentage share declined in comparison to the previous year. According to the industry estimates, the revenues of this segment are expected to grow in response to increasing freight movement worldwide. The value-added warehousing and distribution segment showed resistance to the overall decline in the market amid adverse economic conditions and suffered the least decline in terms of revenues.

Additionally, outsourcing logistics facilities is gaining importance due to the growing demand for high-tech logistics. These trends are expected to grow in the coming years. And rising investments for transportation infrastructural development are emerging as one of the major driving factors for the Chinese logistics industry.

Currently, Research and Markets lists the key players in China as CMA Logistics Co., China Logistics Group, and China Ocean Shipping Group. It's unclear if the research was limited only to China-based companies. Either way, economies of scale apply to the market. Volume shipments — whether by sea or air — are the most cost-effective way to move goods.

The economic value generated by the logistics industry in China has been witnessing phenomenal growth, driven by rapid economic expansion of the manufacturing-based economy. The current market status in the country offers huge growth opportunities for both international and domestic players.

8 comments on “How to Get Ahead in China Logistics

  1. SunitaT
    March 5, 2011

    “Research and Markets lists the key players in China as CMA Logistics Co., China Logistics Group, and China Ocean Shipping Group”

    Barbara,

      Really surprising to know that names like FedEx and DHL are missing from the list. I guess it concentrated only on chinese companies. Do you think the oil price rise is  Sudden spike and will eventually come down ? If the price doesn't comedown then companies are left with no choice but to passon the costs to customers.

  2. jbond
    March 5, 2011

    I think that even with the rising fuel costs, which might be seeing a spike right now but will continue to rise rather than fall, companies that expect worldwide growth have no choice other than to pass along the costs to customers. UPS, DHL, and FedEx have major growth opportunities when it comes to the speed of deliveries. Even for a higher transportation cost, these companies can get your packages to its destination quicker. The only other overseas options are by ship. And that can take weeks for delivery. Obviously with larger shipments, freighters might be the only choice.

    Either way China's economic importance is not going away and every company that does significant business there should try to gain any logistical advantage they can.

     

  3. t.alex
    March 6, 2011

    I am quite surprised too FedEx and DHL are missing from the list. Is this list only limited to local Chinese companies only?

  4. eemom
    March 6, 2011

    While fuel costs are on the rise right now, they will eventually fall once things in the Middle East are resolved.  No one knows the time frame for that to happen.  Instead of companies passing the current cost increase on to customers, perhaps they can have a different short term strategy to deal with the cost increase.  Price hike to customers eventually mean price hike to consumers who are also dealing with rising fuel costs.  There needs to be a better formula for looking at the process internally to save costs which would ultimately benefit said companies when eventually fuel costs come down.

     

  5. Hardcore
    March 6, 2011

    This highlights another little 'secret' of how China operates under the surface.

    Up until recently  DHL & FedEx were not allowed to deliver in China.

    Basically what used to happen, was that they stopped delivery at the boarder area, where the goods were passed to 3rd party delivery agents.

    In many cases the deliveries were 're-bagged' in an outer sheath of the 3rd party company, and the goods were 'motor-biked' to the receiver, sometimes the outer sheath was removed, other times it was left on.

    Later the 3rd party delivery staff started to put on a Fed-Ex/DHL tea-shirt, but to all intents and purposes they were still 3rd party delivery agents.

    In the last couple of years or so both companies have sorted out these 'difficulties' and now have proper distribution centers in China, including dealing directly with the customs departments, and now each of the delivery staff carry the 'classic' point of delivery electronic hand units you would expect such staff to have.

    Lets just say that they were 'hobbled' in favor of local competition until recently, also a full business registration is needed before they will carrier goods from your location, many of the other china 3rd party delivery companies can be a little more 'flexible', especially when dealing with customs requirements.

    So  it is not really surprising that they are a little bit behind and  are a secondary preference compared to 'local' competition. Given a bit of time and they will soon catch up because most of the 3rd party agents do not have the level of integration and tracking that DHL/ FedEx have, but then of course they are significantly cheaper.

    HC

  6. Mydesign
    March 7, 2011

         HC, you are right, still last year DHL & FedEx were not allowed delivering within China. Normally they used to delivery at the border areas. The global players have permission only to deliver and take baggages from a particular point only, which is nearly to border or remote locations. Here the goods were passed to third party delivery agents. In most of the cases, this baggage’s are re wrapped with local provider packages and the goods were carried to the local area depot either by road, rail or air. From the local area depot to receivers place by local transporting door to door delivery vehicles. In all cases whether it is delivering by local or global players, scanning and scrutiny by the customs and police department is a must for clearance. 

         I think, they had made all such things to compete and to keep away western players like fed Ex and DHL, from the main land. After years of their effort, finally they opened their freight and logistics sector to the global players too. But, beware about Chinese governments policies; they always have some intension behind each movement. They used to keep a policy that; they want to grow before anybody.

  7. Mydesign
    March 7, 2011

        Barbara, One more area is going for green, packaging and shipping sector.  If we want to save our nature and mother earth, then surly we have to think and support all the movements towards green. We know that millions of plants are cutting down every year, for the packing sector. Now a day’s many of the international organizations are trying to educate the world about the global environmental concerns like global warming, CO2 Emission, Environmental pollution etc.

       Green logistics includes measures such as “shipping products in larger batches or bulky, using alternative-fuel vehicles for manufacturing and shipping, reducing overall packaging, utilizing raw products that are harvested in a sustainable way, building facilities for manufacturing and storage which are environmentally friendly, and promoting recycling and reuse programs.”

    More details about green shipping are available with the following sites.

    http://www.greenshipping.com

    www02.abb.com

  8. Ms. Daisy
    March 7, 2011

    Barbara, this article points at many opportunities within China and as you stated “There's clearly an opportunity here for international logistics companies”. The difficulty or question to ponder over is, How involved will the Chinese government allow international logistics companies in this opportunity for growth?

    From past comments, there are multiple governemnt policies in China favoring local companies and regional growth within China and definite restrain on international companies from partaking in this opportunity.

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