Forbes Review of Logistics in China

Tuesday, October 3, 2006 2:00
Comments Off on Forbes Review of Logistics in China

Robert Malone has just written a 6 part piece on China Manufacturing and Logistics, 1 of which were devoted to the logistics of goods and 3 for the major express carriers (UPS, DHL, and FedEx).It was an interesting piece as it starts off with a nice backdrop piece on the “factory of the world” phenomenon and its need for strong logistics infrastructure and service providers.

However, as reported, the reality on the ground is quite different as logistics costs as a percentage of GDP are nearly 20% (almost triple the U.S. and some countries in E.U.). The article does a very good job of profiling the 3 majors from an express point of view, and shows that each of the three not only have recognized the importance of air service needs in China, but also have begun to put their money where their mouths are.

In addition to investing in infrastructure, these copmanies are also invsting in brand equities and sales forces to create markets in China.
However, this article is not complete in several ways that I think deserve mention:

(1) Local players are not discussed. There is a piece on Li & Fung, but the report is primarily focused on their business model of managing manufacturing. It did not mention their tie to IDS logistics, or that many companies ask them to provide 3pl services in textile and other industries. In addition, while companies like Sinotrans and COSCO are looking to become more direct competitors, others like Kerry Logistics and Shenzhen Anda are already competing

(2) Only the express units were discussed: to understand what companies will ultimately succeed in China, one needs to understand who will put together the most comprehensive package. In the article, the importance of ground transportation only received one mention, and 3pl services were left out altogether. given the main acquisitions, and the primary investment dollars have been put into and will continue to go to long haul and 3pl, I think that the article short sided UPS Supply Chain services and their announcements to build over 30 wareshouses, FedEx’s purchase of DaTian, and DHL’s integration of Exel.

(3) A Regulatory backdrop should have been added: In addition to understanding the true landscape of service provided, readers should understand that logistics is still a restricted industry. As such, many of the traditional services were either only recently possible (long haul trucking) or are still heavily regulated and are for the most part outsourced (air cargo). In the last few years a lot has changed, and there are still changes coming.

Again, I think that the article provides a great highline on the carriers from an express point of view, but from my discussions with each of these companies it is their M&A activity, long haul trucking, and 3PL that is of most concern for them.

There are companies like APL and Maersk that will continue to focus on outbound traffic consolidation and companies that will focus only on inbound freight forwarding. however for DHL, UPS, FedEx, and TNT, the game is much more complicated. Creating a China-wide network (owned and outsourced) that will service global contracts and capture new ones is the brass ring that they are all reaching for.

For more information, I encourage readers to view our reports on the logistics industry (Long Haul Logistics,Changing Nature of Distribution, and Logistics Overview ) and our map detailing China’s Domestic Transportation Network. In addition, 3pl Wire and Asia Logistics Wrap are great blogs, and the China Supply Chain Management Council also offers very good information online.

Full disclosure: I was a former member of Emery Worldwide and UPS and I continue to work with providers advise manufacturers in China.

Both comments and pings are currently closed.