The logistics industry in China grows rapidly as the economy of the country is booming. The development of the manufacturing industries, booming of the e-commerce, and the improvement of infrastructure drive the growth of the logistics industry in China and the growth of logistics in China still remains robust with a year-on-year growth at 9.8% in 2012.
Fierce Competition in China Logistic Industry
The logistics market in China, however, remains in the early stage of development with fierce competition and great fragmentation, especially in the road transportation. Thousands of companies are competing in the market with the top 20 road transportation players only accounted for the 2% of the market share.
Shift in Factories’ Location
Manufacturing industries contribute an important role in the logistic industry as industrial products account for 90% (Table 1) of the logistic value. As the manpower and operating cost in China is increasing, more companies tend to relocate their manufacturing facilities to inland or further northern and western part of China or even to other South East Asia countries which has lower manpower and operating cost. The network coverage is expected to shift accordingly with the trend of moving of the manufacturing factories to other areas either within China or other countries.
High logistics cost and inefficiency
The cost of logistics including transportation, warehousing and goods management in China is relatively high. The logistics cost of China is 18% of GDP, higher than most developed countries with typically below 10% of GDP. There are number of reasons that lead to the high in value, for example, operational inefficiency, high toll fees and taxes.
Among the total logistics cost, transportation costs contribute the largest proportion, over 50%, of the cost (Figure 2). High toll fees and multiple collection of tax were imposed by the provincial or city governments to recover the investment of these infrastructure. The toll fees and taxes can account for up to between 30% and 40% of their transport cost for logistics companies.
Lack of Integrated Services Providers
Multiple transfers are not uncommon for transportation of goods in China. There are no cargo hubs that help link freight from rail to road. There is lack of integrated service providers to emerge different services and needs and offer a comprehensive solutions or 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 can always up to the standard. That is 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 needs on logistics, in particular for enterprises with factories migrating key cities to inland or low-tier cities where logistics coverage and support are still not yet well developed.
Future Development of Logistics Industry in China
The 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, development of green logistics.
With the new reformation plan of the Chinese government, the logistic industry is going to be revolved. More merges and acquisitions are expected to develop a more concentrated market with better synergy on the services provided. The shift of the manufacturing factories also mean the change in the development logistics network is implied. In response to these changes, logistics companies need to be more responsive and flexible in operation to meet customer changing needs, improved in operation efficiency and enhanced the services offered.
How Freelog can Help You to Deal with the Future Development?
As market grows, customer not only ask for transporting goods from one location to another location, market demands more valued-added services from logistics companies to support their business development needs and growth. Price cutting, which many logistic companies relied on to compete in the market nowadays, 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, 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 start complaining the high transportation cost in China when compared to other countries. The capability to reduce cost while providing good level 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.