China’s logistics industry: a mixture of challenges and promise

Via China Daily comes a rather long but interesting article that breaks down the good and the bad facing China’s logistics industry.

The challenges:

With energy costs persistently on the rise and mounting inflationary pressures, China’s logistics sector is suffering a steady fall in profit margins that may herald a possible reversal of the past decade’s growth momentum.

Gone are the days when a transportation company with only 20 people and half a dozen trucks could make 2 to 3 million yuan a year. The average profit margin of the transportation sector, according to statistics of China Federation of Logistics and Purchasing (CFLP), has been squeezed to no more than 2 to 3 percent, plunging as quickly as oil prices surge.
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Deteriorating US demand and the slowdown in the world economy has further dented the industry’s outlook, as China’s export sector is noticeably down with a slackened growth rate and disturbing implications for the logistics sector.

China’s trade surplus in the first half of this year fell 11.8 percent to $99 billion from a year ago amid declines in international trade growth triggered by the global economic slowdown as well as the government’s efforts to curb exports of resource-intensive and heavily polluting products. For related logistics service providers, the impact has been acute.

Some of the positives:

By stepping into the planning and designing spheres of a company’s supply chain management, covering purchasing and manufacturing to information and other distribution processing services, PGLogistics is geared toward meeting the new market demand for highly integrated and efficient supply chain solutions, Xie says.

“Although the current market share of one-stop, third-party logistics outsourcing in China is only 2 percent, the trend is quite obvious as about 42.6 percent of enterprises chose to outsource at least a part of their logistics services in 2006, compared with 37 percent in 2005.”

One obvious advantage with such integrated logistics service providers is that they have a greater chance of shielding against the impact of volatile oil prices, says Bao Wenqing, director of the marketing department of the Shenzhen-based Eternal Asia Supply Chain Management Ltd (EA). It’s a professional supply chain solution provider offering one-stop supply chain services for some of the world’s top 500 companies like GE, IBM and Philips.

Sales revenue from energy-sensitive logistics services takes up less than 10 percent of the company’s revenues, Bao says. But Chinese manufacturing companies still have a long way to go before they can fully realize the significance of efficient supply chain management, he adds. Bao says there is noticeable lack of cooperation between Chinese manufacturing and logistics companies, which has severely hindered the development of the logistics outsourcing industry.

But not all are bent on becoming bigger. Specialized logistics services that cater to the needs of individual sectors are also seeing a boom in China, driven by the demand for professional services.

Read the whole thing.