The Logistics Institute – Asia Pacific

• Premier Asia Pacific Logistics Educational Venue• Dual MS Degree Program

– MSc in Logistics & Supply Chain Management (NUS)

– MS in Industrial Engineering (Georgia Tech)• Industrial Outreach Programs

– Leaders in Logistics– Student Sponsors– Partners in Research

Website: www.tliap.nus.edu.sg

China LogisticsPast, Present and Future

Yang WangGeorgia Institute of Technology

Atlanta, GA30332U.S.A

The Logistics Institute-Asia PacificNational University of Singapore

Singapore

wang@math.gatech.edu

Survey on distribution infrastructure of goods and service efficiency (The World Competitiveness Yearbook 1999)

10=Very Efficient 1=Very Inefficient

2.34

3.48

5.3

5.5

6.36

6.91

7.76

8.42

8.49

8.74

9.31

India

Indonesia

Thailand

China

Taiwan

Japan

USA

HongKong

France

Germany

Singapore

Cross-Country Logistics Cost Comparison (1999)

Country Logistics Cost/GDP

Logistics activities performed by 3rd party /Logistics activities

China 16-20% <10%

US 9.9% 57%

Europe 10% 30%-40%

Japan 11.37% 80%

The People’s Liberation Army (PLA) was the first organization in the post-revolution China to understand the importance of modern logistics.

It learned the lesson painfully in the Korean War, after devastating defeats during the Fourth & Fifth Campaigns.

Its logistics operations must be able to withstand constant aerial bombardment by the U.S.

A separate logistics unit was established.

Gen. Hong Xuezhi was appointed the commander

of the logistics unit, in charge of all logistics

operations.

Gen. Hong trained his unit to be agile, creative

and opportunistic. The logistics operations

improved markedly.

The improved logistics was credited by several

Korean War historians as one of the key factors

that the PLA fought the mighty U.S. to a standstill.

The Dawn of Modern Logistics (1985-1995)

MNCs are beginning to set up JVs in China.

The Association of China Logistics is founded (1984).

Heightened awareness of logistics barriers and their impact on industrial modernization.

First highway opened (1988, 20km).

Increased demand for international and inter-province distributions.

State control of transport and warehousing in China

A irlines

C A A C

R oadT ranspo rt

C O S C O

W ate rT ranspo rt

M in is try ofC om m un ica itons

C h ina R a il

R a il T ranspo rt

M in is try ofR a ilw ays

S ino trans

F o re ign Investm ent

M in is try o f Fo re ign T radeand E conom ic C oope ra tion

C M S T

C om m erc ia l W arehous ing

W ho lesa ling & R e ta iling

M in is try of In te rnalT rade

S ta te C ounc il

T ra ff ic O ffice F o re ig n Tra d e a ndE co no m y C o m m ittee

B u rea u o f In te rna l Tra de M u n icip a l F in a n cea n d T ra de O ffice

L icen ses

B u ild in g R e g u la tio ns

P ro v inc ia l G o ve rnm e nt

The Dawn of Modern Logistics (1985-1995)

Ignorance of modern logistics persisted into early 90’s.More and more 2PLs, but no 3PLs yet.The logistics operations were plagued by:o Limited air, waterway, road capacityo Completely unreliable railway serviceso Virtually nonexistent IT supporto Poor facility and equipmento Local protectionismo Rampant corruptionso Unpredictable “road blocks”o Others

Many of these problems still exist today.

Toward WTO (1995-2001)In 1995, PG Logistics took over the supply chain management of Procter & Gamble, becoming the first true 3PL provider in China.

In 1998, Danzas became the first foreign company to be granted a “Class A” license by MOFTEC, allowing it to operate international freight forwarding.

3PL market with annual growth over 30%.

“Class A” license granted to major international freight forwarders and shipping companies.

Toward WTO (1995-2001)Major investments by the government in infrastructures:

Highway networkContainer HarborsAirportsInformation networksLogistics hubs

Major investments by MNCs and some domestic companies in:

IT supportQualified supply chain management personnelModern equipment and facility

Toward WTO (1995-2001)

Commitment by the government on:

Fighting corruptions

Removing many barriers

Reducing red-tapes

Naming logistics a “strategic sector”

Toward WTO (1995-2001)

Changes fueled by:

China becoming the manufacturing center of the world

Fast growing domestic market

Industry consolidations

Demands by MNCs and key domestic companies for quality operating environment and services

China’s Industrial Output (RMB 100 million Yuan)

Year Total Output SOEs Collective Private Others1980 5154 3916 1213 1 24

1985 9716 6302 3117 180 117

1990 23924 13064 8523 1290 1047

1991 26625 14955 8783 1287 1600

1992 34599 17824 12135 2006 2634

1993 48402 22725 16464 3861 5352

1994 70176 26201 26472 7082 10421

1995 91894 31220 33623 11821 15231

1996 99595 36173 39232 15420 16582

1997 113733 35968 43347 20376 20982

1998 119048 33621 45730 20372 27270

1999 126111 35571 44607 22928 32962

Cargo Transportation Breakdown in Year 1999

Transportation mode

Transported cargo volume (10,000 tons)

Average distance (km) per ton transported

Railway 167196 760

Road 990444 58

Waterway 114608 1855

Air 170 2670

Pipeline 20232 310

Length of Transportation Lines in Year 2000 （ Unit ：

10,000 km ）

5.79

135.17

11.65

152.22

2.490

20

40

60

80

100

120

140

160

Rail

Road

River

Air

Pipeline

Container Throughput of Top Ten Container Terminals (1998-2000)

1998 1999 2000 Annual % inc

Shanghai 3066 4216 5612 35%Shenzhen 1952 2824 3959 42%Qi ngdao 1213 1543 2116 32%Ti anj i n 1018 1302 1708 30%

Guangzhou 846 1120 1426 30%Xi amen 654 848 1034 26%Dal i an 526 736 1008 38%Ni ngbo 353 601 902 60%

Zhongshan 384 415 457 9%Fuzhou 252 318 400 26%

contai ner termi nal

Container Throughput (,000 TEUs)

China Highway Development Plan to 2006

Toufenhe

HarbinManzhouli

BeijingHuhehaote

Lanzhou

ShanghaiNingbo

Hangzhou

NanjingHefei

Xining

Urumqi

Keshi

Kunming

Zhanjiang

Fuzhou

XiamenShenzhen

JinanYantai

Dalian

Shenyang

QingdaoLianyungang

Chongqing

Datong

Wuhan

Luoyang

Chengdu

YinchuanKuerle

Geermu

Qinhuangdao

Baotou

Xian

ChangshaGuiyang

Nanchang

Zhengzhou

GuangzhouLiuzhou

Nanning Zhuhai

Tianjin

ShaoguanHuaihua

Taiyuan Shijiazhuang

Lasha

Hekou

Erlianhaote

Tongjiang

Dandong

Ruili

Huoerguosi

China Railway

Road (km)

YearTotal Length

High-way

1st grade

2nd grade

3rd grade

4th grade

Others

1995

1157009

2141 9580 8491020728

260684

124625

5

1996

1185789

34221177

996990

216619

617608

239371

1997

1226405

47711463

711156

423078

763573

722890

9

1998

1278474

87331527

712524

525794

766204

120923

1

1999

1351691

11605

17716

139957

269078

718380

194955

1990 1993 1995 1998 1999 Total 970620 1115771 1234811 1264361 1289631

Rai l 150681 162663 165855 161243 164177Road 724040 840256 940387 976004 990444Water 80094 97938 113194 109555 114608Ai r 37 69. 4 101. 1 140. 1 170. 4

Pi pe- l i ne 15750 14845 15274 17419 20232

Rai l 15. 5 14. 6 13. 4 12. 8 12. 7Road 74. 6 75. 3 76. 2 77. 2 76. 8Water 8. 3 8. 8 9. 2 8. 7 8. 9Ai r 0 0. 01 0. 01 0. 01 0. 01

Pi pe- l i ne 1.6 1. 3 1. 2 1. 4 1. 6

YearTransported Cargo Volume (10,000 tonnes)

Proporti on (%)

1990 1993 1995 1998 1999 Total 26208 30511 35730 37841 40273

Rai l 10622. 4 11954. 6 12870. 3 12312. 2 12615. 5Road 3358. 1 4070. 5 4694. 9 5483. 4 5724. 3Water 11591. 9 13860. 8 17552. 2 19405. 8 21262. 8Ai r 8. 2 16. 6 22. 3 33. 5 42. 3

Pi pe-l i ne 627 608 590 606 628

Rai l 40. 5 39. 2 36 32. 5 31. 3Road 12. 8 13. 3 13. 1 14. 5 14. 2Water 44. 4 45. 4 49. 1 51. 3 52. 8Ai r 0. 03 0. 05 0. 06 0. 09 0. 11

Pi pe-l i ne 2. 4 2 1. 7 1. 6 1. 6

YearCargo km-ton (100 million km-tons)

Proporti on (%)

Barriers and Challenges Entering WTO

Infrastructures and hardware limitations.

Intermodal transportation capability poor.

Qualified personnel scarce.

IT adoption slow.

Government slow to adopt uniform standards.

Local protectionism.

Absence of rule by law.

Corruptions.

Fragmentation, no quality LTL services.

Dirt cheap labor slows down modernization.

Razor thin margin.

Others.

Comparison of Cargo and Container Throughput (1999)

Port Cargo throughput (’000 tonnes)

Container throughput (’000 TEUs)

PSA 325,902.2 15,945

Port of Hong Kong

168,838 16,211

Shanghai 186,410 4,216

Proportion of types of warehouse owned (2000 market survey on logistics)

29.0%

19.0%

5.0%7.0% 6.0% 5.0%

2.0%4.0% 4.0%

19.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

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Inbound Logistics Activities of Manufacturing (2000 market survey on logistics)

3PL21%

Supplier71%

in-house8%

Types of International Standard Pallets

Europe: 1200mm 1000mm; 800 1200mm

Australia: 1140mm 1140mm

America: 40 Feet 48 inches

Japan and other Asian countries: 1100mm

1100mm

• China: all of the above types of pallets

with 1000mm 1200mm most widely

used.

Key Logistics Players: SOEsFormer monopolies, mostly asset-based and gigantic 2PLs.Sinotrans, COSCO, China Rail, CMST, China Post,

etc.Assets may be out-dated; lack skill and experience for integrated logistics management.

3PLs as SBUs of 2PLs and manufacturers. Sinotrans Logistics and Development, COSCO

Logistics, Haier Logistics, CMST Logistics, etc.

Local providers.

Key Players in Logistics: MNCs, JVs, Private

Pure 3PLST-Anda, PG Logistics, etc.

3PL/Freight ForwarderDanzas AEI, Exel, EAS, etc.

Container Shipping CompanyMaersk Sealand, APL, NYK, OOCL, P&O,

etc.They are landing.

Express Parcel CompaniesDHL, FedEx, TNT, UPS.

SOEs v.s MNCs and JVs

SOEs: Competitive pricing, local connections, less barriers to policy protections.

Customers are mostly SOEs or private domestic companies.

MNCs: Extensive global network, IT integration, quality services and management, brand name.

Customers are mostly network MNCs from parent company.

Some JVs: Somewhere in between.

Post WTO Outlook

In 4-5 years, almost all policy barriers will be removed.

The battlefield will not be leveled then – it will be tilted in favor of MNCs and JVs.

Consolidation; M&AGlobal players acquiring well managed domestic player is a winning formula.

Major restructuring by asset-based SOE 2PLs to stay alive – spin offs.

Post WTO Outlook: Route to Success

M&A3PL+3PL, 3PL buys 3PL.Express buys 3PL.2PL+2PL, 2PL buys 2PL.Domestic 2PL forming partnership with foreign 3PL.

Winners are likely to have extensive global network, and offer integration, cost optimization and value-added services through a combination of technology, skill and physical assets.