00304-Industry Article：Logistcs in China.pdf

Logistics in C h i n a C h i n as importance in the global marke t p l a c e increases steadily. A special focus on logis- tics and supply chain management in that country is helping to spur this growth. For the second year in a row, a special delegation of logistics professionals from China visited the U. S. and attend- ed the Warehouse of the Future event, held this past June in Atlanta Le a d i n g this years 16-member delegation was M r. Zhang Jian Wei, Executive Director and Vice President for Lo g i s t i c s Development at the China National Foreign Trade Transportation (Group) Corp., or SINOT R A N S. He is also deputy director for all transportation in China. The following discussion is based on a presentation made by Mr. Zhang at WoF 2001. T o d a y, China is greatly con- cerned with and enthusias- tic about the logistics i n d u s t r y. It could be said that logistics has become a new industry of great vitality, and has caused high attention from vari- ous aspects of society including government institutes, manufac- turers, wholesalers, logistics ser- vice providers, educational organi- zations, and research institutes. G e n e r a l l y, the Chinese logistics m a r ket has the following four c h a r a c t e r i s t i c s . 1. Early Stage of Development Presently there is a large gap between Chinese logistics devel- opment and international logistics standards. Modern logistics requires that suppliers of raw materials, manufacturers, whole- salers, retailers, logistics opera- tors and end users be finally l i n ked together. From this per- spective the present Chinese logistics system and network is still at the stage of initial develop- ment. A general transportation system has been basically formed of rail- ways, highways, waterways, air transport, and pipeline transmis- sion. There has been relatively good progress in developing transport lines, freight stations, transport vehicles and equipment, p a c k i n g, and shipping facilities. In the telecommunications area, digi- Industry Article: 3 2 D B M J 3 3 tal transmission artery networks have been developed using opti- cal cables, digital microwaves, and satellites, forming the technical basis for the exchange, manage- ment, and control of logistics i n f o r m a t i o n . Nevertheless, the general scale of the Chinese communications infrastructure is still very limited. For instance, by the end of 2000, although the total length of Chinese expressways had reached 16,300 kilometers (the third longest in the world), highway density was merely 14.6 kilome- ters per square kilometer (as against the 177 kilometers in Germany and 64 kilometers in the United States). And for every 10,000 people, there was a trans- port network of merely 10.43 kilo- meters. Besides, the communica- tions networks are not evenly dis- tributed in the country, but are concentrated mainly in the coastal regions. Much more development is needed in terms of internal river channels, ports, berths, railways, airports, and transport equipment. In addition, China lacks modern facilities for logistics operations. Information technology is not yet broadly applied, administrative management lacks centralization, transportation cost is high, and enterprise management is poor. At present, the raw material inven- tory period for Chinese manufac- turing enterprises is as long as 20 days, 51 days for finished prod- ucts, and 34 days for commodi- ties of commercial enterprises. Cargo damage exceeds 2%. Timely distribution is lower than 90% on average, indicating a big gap between Chinese supply chain management and that of the developed countries. 2. Great Potential for Rapid Development Although today China is relatively backward in logistics capability, at the same time it presents a great potential for rapid improvement. It is estimated that a 2% reduction in Chinese logistics costs in the next five years would result in a savings of $120 billion (U. S. ) . ( C u r r e n t l y, Chinese logistics costs account for about 20% of GDP as compared to 9.7% in the U. S. ) And, in the next few years, the m a r ket growth rate of Chinese logistics is expected to be over 20% annually. Currently third-party logistics providers account for a minority of logistics transactions in China. H o w e v e r, much more outsourcing is expected to be conducted in the near future. The growth of the Chinese logis- tics market is closely related to the growth of the Chinese econo- m y. Over recent years, China has maintained its economic growth rate at 7%-8%. In the next few years, Chinese import and export trade is expected to increase from the present $400 billion to $600 billion. What is even more impor- tant is that the growth of foreign capital investment in China is expected to continue at a relative- ly a high rate. Currently 90% of the top 500 enterprises of the world have invested in China. These foreign- funded enterprises, along with s i n o-foreign joint ventures, have the greatest need for logistics ser- vices. Domestic enterprises also are developing greater need for logis- tics services. With the develop- ment of high technology, e-c o m- merce, and supply chain manage- ment, the production, sales, and operating methods of Chinese enterprises are experiencing pro- found change. Many corporations have started to integrate their sup- ply chains and adopt Just In Ti m e operations. With B2B and B2C becoming gradually more popular, logistics outsourcing is expanding f u r t h e r. 3. Integral Part of the International Logistics M a r k e t With economic globalization and information technology develop- ment, the integration of interna- tional logistics becomes more and more obvious. Chinese logistics will be a part of this global integra- tion process. Multinational cor- porations set up in China are inte- grating their global supply chains, and therefore global integrated logistics and supply chain man- agement are being extended to China. International logistics cor- porations are also entering the Chinese market. Thus, companies such as Ry d e r, Exel, Pi n a l p i n a , U P S, FedEx, APL, and Maersk have established branches in China. As with most other industries, logistics is increasingly becoming multinational . Geographical limita- tions and regional separation have been replaced with integration of global logistics. And Chinese logistics is gradually becoming one integral part of the global logistics market. With China s access to the World Tr a d e Organization (WTO) more foreign logistics enterprises will come to China, expanding the scope of exchange and cooperation. between Chinese and foreign logistics enterprises. 4. Strong Government Support C u r r e n t l y, the Chinese govern- ment has determined logistics to be a strategic industry and includ- ed it into the 10th five-year devel- Chinese Delegation tours the Warehouse of the Future. D B M J 3 4 opment plan. And in certain areas, local governments are giving it high priority as well. Related State institutes and the local govern- ments of Shanghai City, Shenzhen C i t y, Guangzhou City, Beijing City, Tianjin City, Shenyang City and Shandong Province have formed and issued related policies and measures encouraging and push- ing forward the development of logistics. In March of last year, the State Economic setting for the first time the directive thought and general goal of Chinese logis- tics development, and put for- warding a series of views on actively cultivating the Chinese logistics market, creating an appropriate environment for mod- ern logistics development, strengthening planning and con- struction of the logistics infrastruc- ture, promoting information tech- nology and new technological invention, broadening the opening of the logistics market, and step- ping up training of logistics per- sonnel. In the same month, the Ministry of Communications had also issued a document encourag- ing development of integrated logistics services by Chinese transport enterprises. About SINOT R A N S The China Foreign Tr a d e Transportation (Group) Corporation, or Sinotrans, was founded in 1950. H i s t o r i c a l l y, it has concentrated on foreign trade transportation. Now it is also moving toward becoming a modernized international corpora- tion offering integrated logistics s e r v i c e s . C u r r e n t l y, Sinotrans has devel- oped 47 fully funded branch corpo- rations and 263 joint and coopera- tive corporations. Overseas, it has developed 48 fully owned branch corporations and joint ventures, and 8 representative offices. Its major activities include freight for- warding; sea-borne, air, and over- land transport; warehousing; and logistics services. Sinotrans is the largest freight forwarder in China, including air freight. It is a major factor in sea- borne transportation and in ship- p i n g. Currently, logistics has been a major factor for Sinotrans. The service scope ranges from ware- housing management through cargo collection and cargo distribu- tion, to third party logistics opera- tions. If Sinotrans was regarded in the past more as a forwarder and carri- er in China, then today, it would assume a more important identity, that is, as a Chinese integrated logistics provider. Its aim is to lower customersoperating costs, and to provide them with safe, t i m e l y, accurate, economical, con- venient, and satisfactory logistics services. Current customers include multi- national corporations in China such as Motorola, Philips, Pa n a s o n i c , S a m s u n g, Coca-Cola, Ericsson, and Acer. Services provided i n c l u d e : ·Internal transport ·JIT distribution ·Warehousing and inventory m a n a g e m e n t ·DC management ·Pa c k i n g, draft, repair, and information feedback To make further use of its con- centrated network resources, intensify project management, and upgrade grassroots operation q u a l i t y, Sinotrans has set up departments of logistics at 16 of its coastal branch companies. They are in special charge of logis- tics projects like logistics marke t- ing and operation control. and are aimed to achieve breakthroughs in logistics organization, logistics operation standardization, logistics operation efficiency and general logistics service quality. Soon, it would set up departments of logistics at the rest of 14 local branch companies. Meanwhile, Sinotrans steps up training of logistics personnel. It organized a number of training classes for managers and professional per- sonnel and over 100 people had t a ken part in such programs. So Sinotrans has developed a team of logistics professionals with high personal quality and rich work experience. As is the case with logistics development in general in China, logistics development at Sinotrans is also at the initial stage. And there remains a big gap between it and internationally advanced logistics corporations. Exactly because of this gap, Sinotrans is working hard to learn, to practice, and to improve its logistics ser- vice expertise in a relatively short period of time. Hence the impor- tance of missions such as the recent one to the U. S. and Wo F 2001. The delegation participated fully in conference events, exhibits, and workshops, with the goal of improving their knowledge and expertise, so as to help improve Chinese logistics capabili- ties upon their return. Chinese Delegation members pose with Circle of Excellence Award Winner (From L-R: John Thorn, Chairman of the Board, DBM Association, James Coker, interBiz a division of Computer Associates, Rob Caseria, Group VP Demand Fulfillment, Coors Brewing Company, General Al Hansen, President and CEO, EMS Technologies; Ming Lam, President, South East World Wide, Ltd., Zhang Jian Wei, Executive Director and VP, Sinotrans.