Without a doubt, 2007 has been one of the most active in the logistics in China. this is primarily a result of WTO restrictions passing their final milestone on Dec 1, 2006.. but it is also a result of the business in China improving on a macro level.

For me, while I found working in the logistics industry in the States boring, it is definately one of the most interesting industries that I focus on in China… and this week is already proving me right on that.

The first reference is to the deal that UPS has just announced a JV with Staples (see: Staples, UPS to establish joint venture in China). Much like their partnership (ownership) of Mailboxes Etc in the U.S., this partnership (ownership) could potentially result in UPS getting a lot of street level presence in China:

The first two Staples UPS Express stores will be opened in Beijing’s Central Business District. Two additional locations are planned for Shanghai by the end of 2007.

With regard to what the stores will provide customers:

Every store will include a broad range of core office supplies, document processing services, international package shipping, and packaging and labeling services for business customers and consumers. Customers can expect their UPS shipments to be picked up within 30 minutes of their telephoned request.

In my mind, the above partnership puts together to firms who are in need of one another. Not only does this spread out the costs of expansion for both parties (shared rent, cobranded marketing, etc), this arrangement provides customers with a one stop shop for office supplies and shipping. An arrangement UPS has found profitable before.

The only “what if” I have is how fast can this partnership be scaled out , and what is the role of OA365 going to be?

When I was a kid, going to the airport was about a cool as it got. I would glue myself to the window so that I could watch planes take off, landing, and luggage being loaded… and while I did know early one it was better to eat before going to the airport than to risk the food on the plane, one of the coolest pieces of equipment was the food truck.

For those of you may have taken the time recently to notice, you’ll notice that LSG Sky Chefs has become one of the most consistent logos found in the food industry, and so I was happy to see the following article entitled LSG Sky Chefs expands in China with Partnerships in Kunming and Lanzhou.

With China’s air traffic increasing at a torrid pace, I guess it should come as no surprise that LSG would see China as a potential, if not massive market… and lord knows airline food here needs help as well.

Where I hope this investment gets interesting though is that Kunming and Lanzhou have some of the most flavorful food to be found in China (see my flavor map of China here), and perhaps that will make its way into boxed dishes around the world.

Now if they would just give us proper tableware.

It has only been a few days since Dell announced its partnership with Gome, and they are wasting no time at all before stirring up the rumor mill once again.

According to the Digitimes article Dell and Haier Group reportedly interested in Founder-acquisition for China market boost, Dell and Haier are looking at the possibility of joining forces to rollup Founder. you may remember last year I mentioned Haier taking a stake in Founder.. and how I thought from a supply chain and distribution perspective this deal made a lot of sense.

Well, if Dell and Haeir come together on Founder, and both Dell and Founder computers can reach consumers through Haier’s distribution network and GOME’s network.. all using Haier’s world class logistics infrastructure.. well, I would say you have the makings for a potentially big deal.

One that Legend/ Lenovo - IBM are going to follow very closely.

While recently looking further into the Yangtze, recent container traffic patterns, and the companies operating on the Yangtze we have been able to see that there is something on the horizon… something in the planning among the big 5 state owned shipping companies (COSCO、China Shipping、China Changjiang Shipping, Sinotrans, and China Merchant Shipping).

These big five central companies have all develop their own specialties and market very well.COSCO, China Shipping, China Merchants and Changjiang are all heavy hitters in the shipping area with COSCO and CSL primarily export shippers and China Merchants and Changjiang primarily river shipping. Sinotrans however has carved out their niche not in shipping, but in freight forwarding, an area closely aligned with all four of the shippers.

Where this gets interesting is that China is in desperate need to begin privatizing its state assets, and with nearly 20% of GDP going to logistics, there is clearly ways to find efficiencies… and there are some interesting possibilities for very large mergers to take place.

First possibility is that: China Changjiang Shipping merges with Sinotrans. The international freight forwarding business of Sinotrans and river shipping business of China Changjiang Shipping would become a very interesting play. Changjiang owns a large part of all the containers moved up and down the Yangtze, and marrying it to a freight forwarder could lead to some things for the Yangtze river traffic itself.

The second possibility is that: China Shipping merges with China Changjiang Shipping and COSCO merges with Sinotrans. Were this to happen the CSL/ Changjiang group would become one of the largest (if not the largest)water operators in the world. this would definately lead to improved Yangtze container traffic, which would in turn lead to investment moving up the Yangtze. The COSCO and Sinotrans merger would bring together the largest shipper with the strongest freight forwarder, and thus china would have 2 super sized water based logistics companies that would look to rival groups like Maersk and APL.

Of course, these possibilities would no doubt bring about a certain level of chaos into the system once transacted, however the chum is in the water. China has invested billions into logistics infrastructure recently, and fully understands the value of having a strong logistics industry. By leveraging their state owned status to create super sized logistics companies, China would be betting that that the parts are worth less than the whole, and that the whole would provide China’s best hopes for global success.

If there is anyone in this area that may have picked up on this as well, or if you have a theory of your own, please share your comments

On April 3, Bill Zolliers spoke to members of a JP Morgan audience about their plans in China (see YRC Has Plans For China) where he said that YRC was looking to make two acquisitions by year end.

I took that to mean that they were already in final phases… and apparently, in at least one case they were.

Today YRC announced that they were buying Shanghai Jiayu Logistics,

one of the largest providers of less-than-truckload ground transportation services in China, with over 30,000 customers, 1,600 employees, 300 tractors and a network of over 3,000 vehicles.

According to Zolliers:

“Initially this acquisition will allow us to build a service network that will provide greater reliability for our customers as they move shipments within China as well as provide seamless, end-to-end service for international movement in the critical U.S.-China trade lane”

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WSJ , Shanghai Daily, and People’s Daily are all reporting that the the second draft of the impending antimonopoly law.

Last year when the first draft hit the press, many sent the nationalistic flag up the pole and declared China closed for business. Of course, while nothing turned out to be farther from the truth, and few deals have been caught up in the furvur.

What I found most interesting about this second reading though was the addition of a new provision that will look at deals from the national security standpoint. The People’s Daily reports the clause as:

“foreign mergers and acquisitions of domestic companies or foreign capital investing in domestic companies’ operation in other forms should be examined according to relevant laws and regulations if the cases are related to national security.”

While not terribly important to those who are picking up small investment in the 10-20MM USD range, this will have an impact on the mega mergers that many of the large MNCs are looking for… logistics, auto, medical, and other industries will all see the proverbial bar raised.

Of course, China is not the only one playing the security card (Senator Raises China Concerns on Blackstone)

YRC Has Plans for China (Part 2).. maybe

When YRC made their splash 18 months ago, it was the sign of a new era in logistics. they announced the purchase of JHJ, and it looked as though their Wal-Mart relationship was going global. Yet little after that happened.

Interestingly enough, while having lunch the other day, this deal came up as an example of one that left everyone scratching their heads. Anyone who has studied business is told that first mover advantage, has ADVANTAGES.. but in the case of YRC, it was more like first mover Abyss as little was heard from the group following the investment.

Then a month ago, Bill Zollers announced that they would be investing in 2 more Chinese firms, and given the specific nature of his comments I was left to assume that the targets were already selected with negotiations far enough along that he felt comfortable announcing their progress.. I know.. I know.. never assume anything

So, with their recent rumors of YRC being up for sale, maybe we have our answer….

I would be interested to know how their partners would react….

And why did Zollers mention the Chrysler/ Cerebus deal when asked about YRC’s potential buyout? Are they already speaking to potential suitors?

I know… I know.. never assume anything