For anyone in the logistics industry, the title will not come as a shock.  It is something I have writeen on a few times, and is the basis of a few reports that I have written, but more than anything there are a few things that are common knowledge in China’s logistics industry:

1) With the majority of forgein owned frienght being for Export/ import, and the majority of manufacturing for export being on the EAst coast, the need for roadhaul is much greater than air frieght

2) As fragmented as road haul carriers are, the airlines are an even bigger mess (something we recently found out when costing airfrieght for 15 cities around China)

3) Only foreign firms shipping high value goods (Intel in Chengdu) are going to rely on air frieght.  Others, who are not time sensitive and are shipping common items, will chose a trucking or Kuai Yun copmany to support them (CNEX, FedEx, Kerry, STO, etc)

and while reading the FT this morning, I found a couple of good articles that sum up some of the issues facing China’s logistics industry, and those in need of services, quite well.

the first, Air freight from China: Clouds on the horizon, focuses on the fact that while many areas are setting up new airports (currently there are 130 +/-, with 30~50 more planned), there are relatively few companies putting goods into the belly of the aircrafts right now… and that there could be a situation where there is a significant amount of overcapacity and imbalance in the market (good for those who need to ship stuff… bad for carriers).

The second article,China: Logistics is key to inland shift, to be honest is not as well written as the first (Different writers) and starts off with a bit of what I think is a factual error by stating:

China’s spectacular economic development record has largely been concentrated in two areas – the so-called Pearl River Delta just north of Hong Kong and the immediate hinterland of Shanghai.

Uh, maybe I am getting picky here, but Tianjin has also done a fantastic job of attracting investment as well??

following that though, the authors rightly focus on the fact that few companies are going to be willing to move inland to manufacture unless the logistics is there to support them… something I would agree with, BUT, for many of the firms I work with they are not looking for export logistics support, but regional logistics support as their investments are 2nd and 3rd investments meant to supply a region.

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Last week, the China Auto Times printed a story (China Daily Story here) that China was considering a 100% gas tax that would raise the price of petro from 2.50USD a gallon to 5USD a gallon (I am sure you can understand why that story was buried). It was a story I had planned on commenting on, but no one else picked it up. According to the reports:

The government is worried about soaring fuel consumption and worsening air pollution in already smoggy cities with an increasing number of vehicles on the road, said Shi Yaobin, director of the Ministry of Finance’s tax policy department, at a forum on China’s auto industry development held in Tianjin over the weekend.

In hindsight, I should have paid more attention to it (and asked a few questions) as it appears that China is having a gas shortage (see: Business Week, IHT, and the Shanghai Daily)…

What makes this most interesting is that it appears to be (1) widespread across China and (2) it is affecting big customers

Why these two things are important are that one of the big incentives the oil firms offered for logistics firms (trucking, shipping, etc) and retail pump owners to sign on for big contracts was a guaranteed supply.. or at the minimum a spot at the front of the line. This is not the first gas-out China has experienced, but it is one of the most wide spread since they made the leap from exporter to 2nd largest importer a few years back.

These stories should serve as warning shot, and that everyone needs to plan for increased transportation costs and also understand that China’s reliance on gas is going to be a natural constraint to the growth of the economy.

China has already raised prices 10% across the board according to the WSJ, and it is only a matter of time before that goes higher (consider the fact that we are not in peak season for ANYTHING right now).

While this is good for a laugh, overloaded trucks are a big problem in China.

The economics are simple. The more you can load the more you make per load, and in china where mom and pop shops will move loads at cut throat prices,overloading for many is seen as one of the only ways they are able to survive.

The results (besides being bumpy roads and overturns) are that should you fail to take the entire truck’s capacity with your movement, you are risking damage and delays.

As we have covered before, failing to understand or fully take into account the transportation requirements of China to U.S. movements (or vice versa) can result in a number of issues: Cost overruns, Time to market delays, etc.

And with many transportation firms now cracking the China market, making sure that their clients understand the “Value Add” of UPS and FedEx’s experience is critical.

So… with that, we give you two Youtube videos this week, one from UPS and one from FedeX.

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For those of you who think that all bloggers are full of nonsense, this will be an eye opening experience.

A few weeks ago, I posted that the VAT rebate would change (see Call Your Accountant QUICK! VAT is going DOWN), then a week later on June 19 I told you to get moving in my post Rollin.. Rollin.. Rollin.. Get those Containers Floatin!

Well. For those of you who were able to get your containers out before this week, you are in the clear… but for those who were late, here are some pictures of what Shanghai port looks like, and I have got to tell you.. it ain’t pretty

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Last week while eating spicy ribs, I was discussing with a logistics executive the potential and the problems that international firms face when cracking the Chinese market.. who has done the best… and what the future holds for the express firms in China

At the same time, Fedex was preparing for its quarterly conference call.. and I am sure they were all grins while doing their math.

Fact is, Fedex has executed well in China, and there isn’t anyone in the industry that is China based that would disagree. They have time definite service to a number of cities (considered a big selling point for international firms… jury is still out on local firms), they will have an airhub in Guangzhou, and they recently absorbed their previous JV partner Datian that will strengthen their ground network….

Life is good at Fedex China…. and the recent comments by Fred Smith, Alan Graf, and Dave Bronczek are full of good things.

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Following up on our post Accounting for Transportation Costs , I was forwarded a recent report by BCG entitled Surviving the China Rip Tide(PDF)

Broken into several chapters, this report highlights a number of critical issues for companies to consider when planning out their China supply chain. At foremost concern is the effect that increased delays at U.S. and E.U. ports are having on supply chains.

Running @ 90% ~95% capacity already, many U.S. and E.U. these ports are really sensitive to the infrequent and seasonal spikes (Mid July is going to be a mess.. see our post Rollin.. Rollin.. Rollin.. Get those Containers Floatin! ), and in BCG’s opinion, retailers need to start planning for a situation that will only get worse.

In their words:

We believe strongly that a firm focus on reducing time and variability in the China-anchored supply chains serving North America and Europe can help companies dramatically reduce their costs, improve their margins, and build competitive advantage

Totally agree. Many companies fail to realize that with the proper planning, a lot of money can be saved in the supply chain.

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