State of China’s Logistics and
Potential Business Opportunities
BY: KC YOON
GLOBAL CHINA CAPITAL CONFIDENTIAL
Section One-
State of China’s Logistics - Challenges & Future
Growth
State of China’s Logistic Market
Market Characteristics
Understanding the Costs and Challenges
Industry Trends and Drivers
Future Market Potential
Laying China’s Logistic Infrastructure
Current and Future Transportation Infrastructure
Logistic Hub, City and Passage Development
Chinese Government’s Support for Industry
Leading Logistic Players in the Market
Leading Domestic & Foreign Players
Recent Business & M&A
Market size of Logistics industry in China set a new record high in 2010, at US$15.75 billion, with growth of almost 30% Y-o-Y.
China Market Becoming Attractive
Market Size at Record
Manufacturing Bias
Source: KPMG Source: KPMG
Source: National Development & Reform Commission
2009
Value (bn RMB)
Yoy
Growth
Mkt Share
Agricultural products 2,236 43% 18% Industrial Products 113,103 14.6% 90% Imported Products 9,431 22.1% 7.5% Recycled products 446 39.5% 0.4% Comm & Pers Products
198
14.7%
0.2%
Total
125,413 15%
Industrial products has a 90% share of the goods transported.
Logistic market growing and in-transition- offers new business opportunities
Measures logistics
value to GDP ratio, increasing since 2006;recovered from the financial crisis from 2.9 to 3.2 in 2010
Market Demand on Increase
Market Demand Recovering
Expansion of Value-Added
Source: CFLP
Source: CFLP
Logistic value-added showing market expansion since 2006- value-added increasing at rate of tiertary (service) sector
Market for logistic services on the increase with broad-based demand
Logistic Demand Coefficient
Source: National Development & Reform Commission
Transportati
on 55%
Management
12%
Warehouse
8%
Other Storage 25%
Breakdown of China’s Total Logistics Cost
(2009)
Logistic Cost as % GDP High
Transport is Major Cost
Logistic Cost High vs Global Peers
Chinese total logistics cost is high (at Rmb7100Bil in 2010) with low logistics efficiency (China ratio is 17.8% vs USA 7.7%).
Chinese logistics has significant room for cost & efficiency gains..
Transport and labor costs account for typically 60% of Chinese distribution center cost structure vs 8-10% for US/Japan
Source: ATKearney Report Chinese Logistics 2015
China’s Logistic Industry Large but Undeveloped..
Logistic practices not upto global standdards..Foreign companies only
Lack of modern logistic facilities and sufficient Poor penetration by 3PLs;
spend on 3PL only 2.7% in
3PL
3PL
Poor use of logistics i.e. lack
Business Development Needs to Consider -Infrastructure to Planning
Economic Shift – Movement of Manufacturing
Locations to the West
Increasing Land and Labour cost of coastal cities driving manufacturing Source: CB Ellis
Coming Demand & Growth in Logistics due to
shift in Manufacturing to Western China
China’s Strategic Shift towards Consumption Drive Demand
Source: PWC Report on Asia Retail 2010
Demand for sophisticated retail logistics management & warehouse space from Expansion in Online Shopping similarly adds
to demand De-regulated environment allows foreign participation
In China retail Modern Logistic a pillar in “China’s 11th Year Plan”
IMF estimates that by 2025,
retail will dominate 75% of domestic logistics
Asia Retail Forecast 2014
Major consumption centres are building up inland i.e. Strong retail sales for past 3 years in Chongqing, Changsha, Chengdu, Xian where logistics will be
required to transport consumer goods to these cities.
Market in Growth Stage with Increasing Competition Market is fragmented (Top 20 operators with 6% of total revenues); Dominated
Source: ATKearney Report on Chinese Logistics by 2015
Fragmented & Growing market – Opportunity for Consolidation to become
Market Leader
Build-up of Nationwide Transportation Network
Currently China suffers one of the heaviest freight density in the world- driving up
Rail Network brings significant new efficiencies in land transportation;
New hubs will be created
Rail Network 2020
Hubs Hubs
Continued Investment in Transportation Infrastructure Source: China’s Future Transport Infrastructure , Tsinghua University
Market Demands Improvements in Efficiency With increasing market competitiveness, efficiency gains from improved
Advanced SCM Platform eLogistics
Source: Fraunhofer IML
Opportunity to bring world-class SCM capabilities as Value-added
Development of Domestic 3PL +Rise of Outsourcing
Currently only in China 2.7% outsource vs 15.7% global norm but market 2003
2004
2005
2006
2007
2008
2009
2013F
China’s Contract Logistics Market
Contract Logistics Market Forecast (2009-2013)
Geographies
CAGR
Source: NDRC and Nankai University
Outsourcing Rate Increasing
Outsourcing Characteristics
Case Study: Outsourcing Trends
Survey of Chinese enterprises shows outsourcing volume increasing to 61% in 2009 from 35% in 2005 (does not reflect whole market only sample)
Market for more sophisticated 3PLs on the increase..
Enterprises outsourcing more of internal logistics especially transportation & distribution functions; future needs are advanced logistic functions Source: Extracts from NDRC and Nankai Survey
Outsourcing Vol. Domestic Enterprises
70% enterprises surveyed outsourced more than 50% of logistic functions; while
40% outsourced more than 80%
Types of Functions Outsourced
Future Planned Functions Outsourced
China Market to Reach US$ 450 billion Market demand, the development of transportation infrastructure plus
3PL outsource
Consumption-related
Spend will drive 5 key Source: ATKearney Report on Chinese Logistics by 2015
Broad growth in market segments and various transport modes
Section Two-
State of China’s Logistics - Challenges & Future
Growth
State of China’s Logistic Market
Market Characteristics
Understanding the Costs and Challenges
Industry Trends and Drivers
Future Market Potential
Laying China’s Logistic Infrastructure
Current and Future Transportation Infrastructure
Logistic Hub, City and Passage Development
Chinese Government’s Support for Industry
Leading Logistic Players in the Market
Leading Domestic & Foreign Players
Recent Business & M&A
Transportation Network Long Term Goals Transportation Infrastructure Build-up Plan (I) Transportation accounted for 75% of the RMB 3 trillion investments in logistics in 2010.
the manufacturing and export demand. Chinese ports rapidly led in world container traffic
Early Phase
Focus
Source: Research Centre for Modern Logistics Tsinghua University, National Bureau Statistics
Priority on transportation reflects Govt priority on improving logistics
Transportation Capacity
Traffic Capacity by Transportation Modes Road Transportation remained the primary mode for passenger and freight traffic while air
Source: National Bureau Statistics
Current capacity relies on road transportation which is still restrictive
Transportation Network Long-term Goals Transportation Infrastructure Build-up Plan (II) Primary goal from 2010 to 2020 is to ramp up the domestic transportation network to support the
2010 to 2020
Source: Research Centre for Modern Logistics Tsinghua University
Recognising this focus- identify rail/coastal ports for early partnerships
19
Roads and Expressways Network 2020
Multiple Highways & Trucking Hubs (42)
Source: Research Centre for Modern Logistics Tsinghua University
20
Rail Network and Hubs 2020
Railway Container Hubs (18)
Hub
Source: Research Centre for Modern Logistics Tsinghua University