The logistics industry in China is growing rapidly as the Chinese economy is booming. The further development of the manufacturing industries, booming e-commerce, and the improvement of infrastructure, drive the growth of the Chinese logistics industry. The growth of the logistics industry still remains robust with a year-on-year growth of 9.8% in 2012.

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Table 1: The total logistics of value of China in 2011 and 2012

  

Fierce Competition in China Logistics Industry

The logistics market in China, however, remains in the early stage of development with fierce competition and great fragmentation, especially with respect to road transportation. Thousands of companies are competing in the market with the top 20 road transportation players only accounting for 2% of the market share.

Shift in The location of Factories

Manufacturing industries contribute an important role in the logistics industry, as industrial products account for 90% (Table 1) of the logistic value. As the manpower and operating costs in China are increasing, more companies tend to relocate their manufacturing facilities to either inland or further northern and western parts of China. Some are even moving to other South East Asian countries which have lower levels of both manpower and operating costs. The logistics network coverage is expected to shift accordingly with the trend of moving of the manufacturing factories to other areas either within different parts of China or to other countries.

High Logistics Costs and Inefficiencies

The cost of logistics including transportation, warehousing and goods management in China is relatively high. The logistics costs in China are represented as 18% of GDP, this is higher than most developed countries, with typically only 10% of GDP consisting of logistics costs. There are a number of reasons that lead to the higher costs, for example, operational inefficiencies, high toll fees and taxes.

Among the total logistics costs, transportation costs contribute the largest proportion, making up over 50% of the total costs (Figure 2). High toll fees along with double taxation are strategies often used by the provincial or city goverments to recover the investment of their infrastructure projects. Thse toll fees and taxes can account for up to between 30% and 40% of the transport cost for logistics companies.

Figure 2: Total logistics and compositions, 2008 – 2012

  
  

Lack of Integrated Services Providers

Multiple transfers are not uncommon for the transportation of goods in China. There are no cargo hubs that help link freight from rail to road. There is a lack of integrated service providers to provide for the different services and needs of logistics companies and offer some comprehensive solutions for the extensive network coverage. In addition, the service quality and logistics capabilities for service providers in the industry varies. It may not be easy to identify service providers offering reliable services that are always up to the required standard. It is for this reason why most large-scale retailers and companies doing business in China prefer to set up their own logistic team or companies to support their own logistic needs. This is true in particular, for enterprises with factories that are migrating from key cities to inland or lower-tier cities where logistics coverage and support are still not yet well developed.

Future Development of the Logistics Industry in China

The Chinese central government is concerned about the inefficiency and cost of the logistics industry in China. In the recent announcement from the State Council, China approved a new plan for reform on logistics development and improvement. The goal is to improve the cost and efficiency through simplification and standardization of taxation across cities, also along with the development of ‘green logistics’.

With the new reformation plan of the Chinese government, the logistic industry is set to evolve. More merges and acquisitions are expected to develop a more concentrated market with better synergy between the services provided. The shift of these manufacturing factories also means the changes in the development of the logistics network is implied. In response to these changes, logistics companies need to be more responsive and flexible in their operation to meet the customers changing needs, improve operation efficiency and enhance the services that are offered.

How can Freelog help you to deal with the Future Development?

As the market grows, customers not only ask for the transportation of goods from one location to another, the market demands additional ‘valued-add’ services from logistics companies to support their business development, along with their needs and growth. Price cutting, which many logistic companies relied on to compete in the market in the past, is not a sustainable solution. It is gaining importance to offer innovative and responsive solutions on services other moving goods, like warehousing, inventory management, distribution and delivery and inspection to gain market shares. Freelog is experienced in assisting the clients to diversify and extend the services offered. We have proven record to assist companies to develop services that can answer to the needs of the market.

Cost is another important issue that many companies already have faced, with the high transportation costs in China when compared to other countries. The capability to reduce cost while providing a good level of services are definitely key to excel and improve your profit margin. Freelog has supported many industries and logistics service providers to improve the performance and obtain cost reduction through optimization of transport utilization, improving the transport network organization, enhancing the warehouse performance / layout design, storage strategy, reduction of cycle time, etc.

Freelog has strong expertise in supply chain and logistics that can assist you tackle the changes and challenges from operational excellence, service recovery to cost reduction. Our international supply chain and logistics experiences and skills allow us to share with the best practices of the industries and tailor-made innovative solutions to our clients specific to their needs.

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 Charly began his career in China in new technology research and development. Coming from organization and management consulting, specialized in Supply Chain, he developed in FREELOG original project and multi-cultural change management practices and methods. Charly has participated in Brazilian development and is now in charge of Asia Pacific development.