China’s Logistics Zones

Tuesday, February 10, 2009 0:33
Comments Off on China’s Logistics Zones

Earlier this week while meeting with a friend about their expansion throughout China, and their need to find a logistics provider who could support them, it was clear that many of the same issue I was working with 5 years ago are still found in many ways.

At the very basic level, it is important to think about logistics not simply as the process by which goods are moved, but buy which they are moved safely.  It is the control of goods from one point to another, and while there may be a few stops inbetween, it is the role of a provider to ensure that the level and pricing of services match the market.

An equation that foreign and Chinese firms perform at vastly different levels.

For those firms who are operating within China, and are looking to expend beyond an export platform, the need to move from their global providers will enter.  yes, DHL and FedEx have established networks within China that can support customers, but 95% of the time that I have supported firms here, they are looking for the local option.. an option made attractive by pricing more than anything else.

When speaking to my friend, there were two issues that I felt he needed to consider as first steps when choosing his providers that I think are important for readers to understand.

1) Location, location, location:

Much like a retail store needs to be in the middle of high foot traffic paths, the path by which a product is transported should be the moset efficient.  that while many may consider China to be a single market, it is in fact logistically split into three primary zones: north, west, and south, and that developing a positioning strategy that fully respects these zones will save money.

to illustrate this point, I have included a slide of a pricing study I conducted last year of express firms in China.  Using Shanghai as the point of origin, we looked at roughly 15 cities around Shanghai, and you can see three clear pricing levels.

the cheapest ring is of cities within about 250km of Shanghai, cities where regular truck/ rail service can allow for a 24 hour delivery, a second ring that is rougly 1500km – too far for an overnight train or truck in many cases, and a third level that is further 1500km.

So, for a firm whose markets are 70% in the south and 30% in the north the decision to place the main warehouse and point of distribution would be Shanghai, and vice versa.

2) China’s logistics industry is fragmented in ways you do not understand, and cannot predict.

5 years ago when working on my first indepth study, and in writing my white paper on China’s logistics industry, there was one single truth that explained all logsitics firms.

No one had “China” covered.

Some firms were stronger in the south vs. the north.  some were strong in Chengdu, but had to have partners to get outside the city.

However, over the last 5 years, as stronger firms have been able to grow (organically and through M&A), this has begun to change.  HK based firm Kerry Logistics was one that grew quite fast through M&A, while others like JHJ International grew their regional presence and sold out to an international, and other formed coalitions that crossed China and allowed each to cover “China”.

In some cases, as the adjacent slide highights, it was now more important than ever to carefully understand whose network was real vs. which was an illusion built on a 95% outsourcing arrangement.  It was only through sheer luck and a bit of careful analysis that through the same pricing study we found where one firm was actually selling another’s service as their own.. and adding 10% on top for good measure.

An arrangement that besides being wasteful, significantly comprises shipment security as well.

3) It only counts if it arrives in one piece

Which brings us back to square one, control, and the importance of ensuring that the firm you chose are actually in control of the shipments as agreed upon.

Both comments and pings are currently closed.