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ChinaLogisticsIndustry_Trends_Opportunities_2011

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

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