China Logistics Sector Developments
Asia Supply Chain Insights from Mark Millar
Traditionally the logistics sector in China was focused on moving products from factories within China to the coastal ocean ports for export to developed markets. More recently the emphasis is just as much on moving goods within the domestic mainland China market in order to reach increasingly prosperous consumers, located all over this huge country. In particular, the residents of second- and third-tier cities in central, western and northeastern China are driving a new wave of domestic consumer demand. Although logistics in China is the backbone of the supply chain, the industry itself remains hugely complex, expensively inefficient and massively fragmented, with the top 20 companies sharing just 7 percent of the total domestic logistics market.
Despite these challenges, the domestic contract logistics industry continues to grow at healthy rates, being serviced by a mix of multinational logistics service providers (MNC LSP) and local Chinese companies. Valued at USD 88 billion in terms of 3PL revenue, China’s logistics market is the second-largest in the world and is projected to become the world’s largest 3PL market by as early as 2016, with growth forecasts of 12 to 16 percent over the next 10 years.
For quite some time, one of the biggest questions customers need to consider when outsourcing their logistics in China to a Third-Party Logistics service provider (3PL) was whether to work with a local Chinese 3PL or a multi-national 3PL - each category had their respective strengths and the options were reasonably clear. Whereas the local Chinese 3PL companies had the on-the-ground knowledge, local connections and typically operated on a lower cost basis, the international MNC 3PL service providers such as DHL, CEVA and DB Schenker provide global management expertise and deployed sophisticated technology solutions, together with international best practices and sector specific knowledge and experience. Today the differences between these categories of logistics providers are becoming increasingly blurred – multinationals have extended their market knowledge, sector expertise and geographic reach in China, while local service providers have gained more international exposure and experience and are increasingly investing in technology platforms and solutions. In recent years a few privately owned Chinese 3PLs have grown to become national service providers, however, they tend to be the exception rather than the rule. In the fragmented China logistics industry, servicing nationwide domestic distribution typically involves several third party providers – in some cases shippers are using more than 20 different companies to distribute their goods throughout China.
It is clear that in order for the industry to become more efficient and to meet the market demands, consolidation amongst logistics service providers will continue. More local Chinese companies will group together in alliances to form stronger regional and national networks and we can expect more formal mergers between local Chinese companies. Meanwhile, the international 3PLs will continue to seek acquisitions as a means of expanding their network within China.
Learn more about the exciting developments in China’s Logistics Sector at the 9th China (Shenzhen) International Logistics and Transportation Fair (CILF 2014) taking place in Shenzhen, China during 14-16 October 2014.