Published on October 11, 2007
China LogisticsPast, Present and Future: China Logistics Past, Present and Future Yang Wang Georgia Institute of Technology Atlanta, GA30332 U.S.A The Logistics Institute-Asia Pacific National University of Singapore Singapore [email protected] Survey on distribution infrastructure of goods and service efficiency (The World Competitiveness Yearbook 1999) 10=Very Efficient 1=Very Inefficient: Survey on distribution infrastructure of goods and service efficiency (The World Competitiveness Yearbook 1999) 10=Very Efficient 1=Very Inefficient Cross-Country Logistics Cost Comparison (1999): Cross-Country Logistics Cost Comparison (1999) Slide8: The People’s Liberation Army (PLA) was the first organization in the post-revolution China to understand the importance of modern logistics. It learned the lesson painfully in the Korean War, after devastating defeats during the Fourth & Fifth Campaigns. Its logistics operations must be able to withstand constant aerial bombardment by the U.S. Slide9: A separate logistics unit was established. Gen. Hong Xuezhi was appointed the commander of the logistics unit, in charge of all logistics operations. Gen. Hong trained his unit to be agile, creative and opportunistic. The logistics operations improved markedly. The improved logistics was credited by several Korean War historians as one of the key factors that the PLA fought the mighty U.S. to a standstill. The Dawn of Modern Logistics (1985-1995): The Dawn of Modern Logistics (1985-1995) MNCs are beginning to set up JVs in China. The Association of China Logistics is founded (1984). Heightened awareness of logistics barriers and their impact on industrial modernization. First highway opened (1988, 20km). Increased demand for international and inter-province distributions. State control of transport and warehousing in China: State control of transport and warehousing in China The Dawn of Modern Logistics (1985-1995): The Dawn of Modern Logistics (1985-1995) Ignorance of modern logistics persisted into early 90’s. More and more 2PLs, but no 3PLs yet. The logistics operations were plagued by: Limited air, waterway, road capacity Completely unreliable railway services Virtually nonexistent IT support Poor facility and equipment Local protectionism Rampant corruptions Unpredictable “road blocks” Others Many of these problems still exist today. Toward WTO (1995-2001): Toward WTO (1995-2001) In 1995, PG Logistics took over the supply chain management of Procter & Gamble, becoming the first true 3PL provider in China. In 1998, Danzas became the first foreign company to be granted a “Class A” license by MOFTEC, allowing it to operate international freight forwarding. 3PL market with annual growth over 30%. “Class A” license granted to major international freight forwarders and shipping companies. Toward WTO (1995-2001): Toward WTO (1995-2001) Major investments by the government in infrastructures: Highway network Container Harbors Airports Information networks Logistics hubs Major investments by MNCs and some domestic companies in: IT support Qualified supply chain management personnel Modern equipment and facility Toward WTO (1995-2001): Toward WTO (1995-2001) Commitment by the government on: Fighting corruptions Removing many barriers Reducing red-tapes Naming logistics a “strategic sector” Toward WTO (1995-2001): Toward WTO (1995-2001) Changes fueled by: China becoming the manufacturing center of the world Fast growing domestic market Industry consolidations Demands by MNCs and key domestic companies for quality operating environment and services China’s Industrial Output (RMB 100 million Yuan): China’s Industrial Output (RMB 100 million Yuan) Cargo Transportation Breakdown in Year 1999: Cargo Transportation Breakdown in Year 1999 Length of Transportation Lines in Year 2000（Unit：10,000 km） : Length of Transportation Lines in Year 2000（Unit：10,000 km） Container Throughput of Top Ten Container Terminals (1998-2000): Container Throughput of Top Ten Container Terminals (1998-2000) China Highway Development Plan to 2006: China Highway Development Plan to 2006 China Railway: China Railway Road (km): Road (km) Barriers and Challenges Entering WTO: Barriers and Challenges Entering WTO Infrastructures and hardware limitations. Intermodal transportation capability poor. Qualified personnel scarce. IT adoption slow. Government slow to adopt uniform standards. Local protectionism. Absence of rule by law. Corruptions. Fragmentation, no quality LTL services. Dirt cheap labor slows down modernization. Razor thin margin. Others. Comparison of Cargo and Container Throughput (1999): Comparison of Cargo and Container Throughput (1999) Proportion of types of warehouse owned (2000 market survey on logistics): Proportion of types of warehouse owned (2000 market survey on logistics) Inbound Logistics Activities of Manufacturing (2000 market survey on logistics): Inbound Logistics Activities of Manufacturing (2000 market survey on logistics) Slide34: Types of International Standard Pallets Europe: 1200mm 1000mm; 800 1200mm Australia: 1140mm 1140mm America: 40 Feet 48 inches Japan and other Asian countries: 1100mm 1100mm China: all of the above types of pallets with 1000mm 1200mm most widely used. Key Logistics Players: SOEs: Key Logistics Players: SOEs Former monopolies, mostly asset-based and gigantic 2PLs. Sinotrans, COSCO, China Rail, CMST, China Post, etc. Assets may be out-dated; lack skill and experience for integrated logistics management. 3PLs as SBUs of 2PLs and manufacturers. Sinotrans Logistics and Development, COSCO Logistics, Haier Logistics, CMST Logistics, etc. Local providers. Key Players in Logistics: MNCs, JVs, Private: Key Players in Logistics: MNCs, JVs, Private Pure 3PL ST-Anda, PG Logistics, etc. 3PL/Freight Forwarder Danzas AEI, Exel, EAS, etc. Container Shipping Company Maersk Sealand, APL, NYK, OOCL, P&O, etc. They are landing. Express Parcel Companies DHL, FedEx, TNT, UPS. SOEs v.s MNCs and JVs: SOEs v.s MNCs and JVs SOEs: Competitive pricing, local connections, less barriers to policy protections. Customers are mostly SOEs or private domestic companies. MNCs: Extensive global network, IT integration, quality services and management, brand name. Customers are mostly network MNCs from parent company. Some JVs: Somewhere in between. Post WTO Outlook: Post WTO Outlook In 4-5 years, almost all policy barriers will be removed. The battlefield will not be leveled then – it will be tilted in favor of MNCs and JVs. Consolidation; M&A Global players acquiring well managed domestic player is a winning formula. Major restructuring by asset-based SOE 2PLs to stay alive – spin offs. Post WTO Outlook: Route to Success: Post WTO Outlook: Route to Success M&A 3PL+3PL, 3PL buys 3PL. Express buys 3PL. 2PL+2PL, 2PL buys 2PL. Domestic 2PL forming partnership with foreign 3PL. Winners are likely to have extensive global network, and offer integration, cost optimization and value-added services through a combination of technology, skill and physical assets.