Following my presentation (click here to view) yesterday at the Supply Chain Council’s 2009 CHaINA conference, I received the below email inviting companies to participate in their annual green supply chain survey.

Working closely with the council for the last few years on CSR and sustainability, I encourage you to take the 10 minutes to fill out the survey.  Already about 100 firms have participated, and the findings have been quite interesting thus far, but the important of this survey will be to provide Max and his team with some valuable data that they can use going forward when developing their events and research.

So, take the time to click here and fill it out.

There was a time when the only coffee outfit was Starbucks, and its knock off SPR.

Along Nanjing Road, the highest concentration existed with 5 stores between the Portman hotel and People’s park, and in total there were roughly 80 by the end of last year (as you can see from the map above).

Over the last 18 months though Starbucks’s hold on the market changed. Dramatically.

Leaving aside the recession for a moment, and the fact that a tall latte goes for 28RMB, the growth of Starbucks has been eclipsed by the by new entrants: Costa Coffee, 85c, Dunkin Donuts, and others. It is a market that in many ways was made by Starbucks, that others have learned from, and in the case of the Taiwanese 85c brand, looked to take away.

At first, 85c was a single store on the less than traveled corner of Maoming Road and Weihai Road (.5 km south of Nanjing road). A store that perhaps drew few glances at first from the folks at Starbucks, but within a week, it was probably clear to executives on Yishan road that they were witnessing the birth of a strong competitor.

The cakes themselves were measurably better than the local alternatives one would find at some of the other cake shops, and the bread variety was quite good (the Parmesan bread is fantastic!), but it was the 7RMB bubble teas and coffees that were growing in popularity. Everyone was talking about it, and myself and a few others quickly looked at the website and talked about taking up some of the licenses that were being offered up for the new stores.

It was the birth of what will shortly be the largest cafe in Shanghai, and the recent CHAINA article Watch out Starbucks, 85c is the new kid in town in China has a very interesting interview with one of its executives detailing its recent growth,

Q: When did you start the business in China?
PZ: We opened our first store in Shanghai 2 years ago. We now have 42 stores, 31 are in Shanghai and the rest are in Hangzhou and Suzhou. We are planning to open another 91 stores in Shanghai by the end of the year. We built our factory in Song Jiang in June last year.

What it is going to take to support that growth.

Q: Why did you choose Song Jiang as the location of the factory?
PZ: We needed a place big enough to accommodate us. We have around 6,500 square meters, which has the capability to supply 60 stores. Since we are growing so fast, a key issue that we face is how to supply the growing number of stores. We have already found a venue in Hangzhou which is 10,000 square meters in size and we’ll soon build an-other factory there.

.. and the logistics that goes into supporting the stores

Q: How do you manage logistics to each store?
PZ: Currently our 42 stores make their orders every day before 10 a.m. based on their previous day’s sales. Then our factory works 24 hours a day to make the delivery be-fore the following morning since our products have a short shelf-life. We need to pre-set product specifics on each item into our ERP system. So if I need to produce 1,500 pieces of cake today, then the system will tell me how much butter and dough we need and so on. Before 4:00 pm the same day, the products will be ready and around 7:00pm, we’ll make the delivery of the frozen cakes from factory to each store. At 2:00 am, we’ll make the second delivery of the day of normal-temperature cakes.

An interview that is interesting from many angles (Successful China business case, Retail Logistics, Branding, and real estate), I found the dialogue very interesting, telling, and was amazed to see just how profitable one of these stores could be:

What’s the average sales revenue of a store?
PZ: The best shop can have revenue of RMB1.9 million per month in Shanghai, while our store in the US, can do in excess of USD 400,000 per month.

Read the rest of the article here

When news of the passing of China’s new postal law held up China Post’s monopoly on express documents and small packages, it was clear that there would be groups – foreign and domestic – that were going to be scrambling to develop a work around.

It is an issue that many foreign firms have been having to work through for many years (i.e. this is nothing new), and sometimes China Post would take small measures to make sure everyone knew who was boss, but many in the industry were hopeful that the law would change and the gates would open.

Sadly, a few firms who believed the changes were coming so much that they made significant investments through asset acquisitions and mergers to position themselves within China’s domestic market in an advantageous way. The problem with that, as will be fleshed out below, is that when the new law upheld the monopoly, it removed one of the most profitable segments of the market.  Which, as you can imagine worked against firms who had invested in domestic express networks.

Key to the changes are a few BROAD definitions:

Express is defined as delivery activity quickly completed within committed time frame.
Delivery is defined as the activity to send the letter and postcard, parcel, printing matters and other items to certain individual or company upon the address attached, via sending and receiving, sorting, transportation and delivery, etc.
Letter is defined as information carrier to a particular individual or unit sealed in an envelop according to the specific address excluding book, newspaper and magazine, etc.
Parcel is defined as the weight less than 50kg, each Length, Width and Height is less than 150cm. Further, L+W+H <= 300cm.

At the same time, in breaking down the product groups, it appears that there are 3 separate products that are being addressed through this regulation

• Letters and Postcard
• Printed material not exceeding 5kg/ piece
• Parcels not exceeding 10kg/ piece

However it is this passage (English translation of regulation) that effectively delivered the death blow:

Foreign invested companies are not allowed to deliver domestic Letter and Postcard.

Express companies are not allowed to deliver Monopolized Letters and Postcards and government documents.

In reading this, it is important to understand that while the first sentence pertains to foreign firms, and we heard from their people, the second sentence is really geared towards the local firms known as kauidi (express companies).  Why that is important is essentially that while FedEx was positioning itself as the foreign player to be reconed with, or at least the firm with the strongest global + China capabilities, there were literally dozens of express firms who were in the process of building their China wide networks (and international partnerships).

SF Express being one of the more interesting (which is still gladly taking by business!).

Of course, for local firms, it is possible to get certified:

• • Registered capital: delivery within one province or municipality – RMB 500,000;
  • Across province or municipality delivery – RMB 1,000,000;
  • International express – RMB 2,00,000
  • Entity type: company limited or company limited by shares
  • Service capability
  • Strict service quality control policy and operation process standard
  • Sufficient security policy and measures

Hurdles that are sure to be cleared by the likes of STO and SF express, but for many other local firms these new rules and regulations could present a significant hurdle to their ability to operate off the back of electronic bikes or through the underground.

Which, in the end, will go a long way to increasing Beijing’s dreams of improving the quality of its logistics industry.

.. and for those firms looking for a loophole, or think they will just slide by, the law has gone the extra mile to clarify that there are consequences to breaking the law:

• Running express business without license: confiscate all illegal income and RMB 50,000 ~100,000 of penalty. If serious, RMB 100,000 ~ 200,000 of penalty.
• If no inspection policy or no execution of inspection: punishment on responsible person, stop the business or even suspend the express license.

Moderator note – I would like to thank Eric for providing me with the translation

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Important News:
DHL sees early signs of Asia stabilising
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For the last 20 years, China Post has held the sole right to deliever China’s mail, domestic China express packages, and express letters.

It is a situation a regulation that has been frustrating for many of the global express carriers (UPS, FedEx, TNT, and DHL) becasue Logistics is in its simplest form about control of goods.

Making sure things arrive. In one piece. Unadulterated

So, with global clients expecting this service when signing over their package, it is understandable that many of these firms would now be concerned with the recent passing of China’s Postal Law.

Foreign companies will be limited to delivering express packages domestically, and can only send express letters internationally, Wang Yuci, vice director of the State Post Bureau, told Dow Jones Newswires Friday on the sidelines of a press briefing.

Chinese companies, both state-owned China Post and privately operated ones, will carry out the business of domestic express delivery of letters, according to the revised postal law.

For many firms, firms like TNT and FedEx, who were betting and positioning in China’s domestic delivery space, this is likely to come as really bad news as each had put a lot of money into developing domestic networks that would move documents around the country, and depending on the definition of the term “packages”, they could also find themselves having to outsource their domestic delivery of letter pouches to local partners as well.

Outside of the organic growth markets in China being blocked for foreign firms, firms who were gearing up to enter the local market through investments were also impacted – as confirmed by a quote in Xinhua:

the amendment article on not opening domestic delivery to foreign investment conforms to China’s WTO commitment

So what does this really mean for foreign firms sending their packages, it is still a largely unanswered question. With so many firms relying on UPS to send contracts and sensitive documents through a trackable system, it is clear that firms will need to watch and assess the situation.

The new law also put in place a new article article forbidding “all organizations or individuals from opening, hiding, damaging or discarding others’ letters, instead of just preventing postal workers from doing so.”, but I would remain skeptical on the value of this clause and find little value in it.

Fear grips lines as box numbers shrink

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Important reads:
China Shipping says coastal shipping rate down 39 pct
Ships lie idle on Subic Bay

Time to Board China’s Infrastructure Train

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Earlier this week, there were many who saw China’s PMI of 49 as a sign of hope that things were turning around, but I did not…. and I just received this email from a good friend who is on the front lines of the cargo industry:

To be honest scary dead… it’s an absolute horror scenario going on the moment… no cargo in the market….

Heard this morning in the news around 300 cargo vessels are parked around Philippines due to no cargo in the market…

Quite scary….

For me, this pretty much says it all.

That while things were “rebounding” in February, we are in for a rough March to April as vessel bookings have dropped off the charts and boats are being parked.

Update: As a follow up to this email, I asked my friend “If no cargo in the market now, when do you see orders coming back online?”, to which he replied:

Well I don’t see things picking up before Q3 for 2009… it’s quite scary…..

Update 2: Bloomberg’s article Empty Ships Flock to Subic Bay as Lines Battle Plunging Rates provides some more context on my friend’s comments:

Subic Bay in the Philippines is the busiest it’s been since the U.S. Navy moved out 16 years ago. The traffic surge is coming from ships all carrying the same cargo –nothing.

Last week, 19 vessels were anchored in the mountain-lined bay awaiting charters near an empty container terminal.