China Warehousing Perspectives. Charles Guowen Wang, Ph.D

Size: px

Start display at page:

Download "China Warehousing Perspectives. Charles Guowen Wang, Ph.D"

Dwayne Ramsey
6 years ago
Views:

1 China Warehousing Perspectives Charles Guowen Wang, Ph.D

2 Agenda China logistics overview China Warehousing Industry The gap from traditional warehouse and DC Opportunities and challenges for MNCs 2

3 2005 China Logistics Overview Logistics Value-added RMB1.2Trillion ($149Billion) Logistics Cost as Percentage of GDP From 18.8% in 2005 to 18.5% in 2005 (adjusted from 21.5%-21.3%) 3PL Market 33% average annual increase expected From RMB 40Billion ($5 Bil) in 2004 to RMB 230Bil( $28Bil) in 2010 Source: China Logistics Information Center, CPLF, 2005, Beijing 3

4 China Warehousing-History Origin planned economy Major old style one-story warehouses owned by large manufactures, foreign trading co, material supply systems, food and grain systems, transportation, postal services In rural area, warehouses are owned by Supply and Sale System in the suburb of cities Reform in 1980s Material Supply Departments in cities become major owners of warehouses 4

5 China Warehousing-2005 Overview Growth rate in 2005 Cargo volume handled: 10% (-10%) Warehousing income: 19% (-1%) Rent income: 16% Distribution: 69% Loading and discharging: 5% Inventory Increased with cycle time increased Inventory: +16% over 2004 Inventory cycle: 11.45/year (-2.15 over 2004) 5

6 China Warehousing-2005 Overview More DCs Constructed Over 300 logistics parks (hubs) being developed (ports and airports) More specialized DCs for Iron & steel, tobacco, medicine, food, plastics More warehouses being build even under strict policy control Warehouses better equipped More multi-staking frames 70% increase in forklift More specialized tank warehouses, liquid storage facilities and DG cargo facilities 6

7 China Warehousing-Overview In China, the concept of warehouse and distribution center are not clearly defined Old style warehouse are designed for the only function of storage Almost years undeveloped comparing with international standard 7

8 Demand and Supply Over supply of traditional warehouse Shortage of distributional center Traditional warehouse located downtown need to be relocated, re-build in city suburb The case of Changchun 8

9 Warehousing Information Maps 9

10 Railroad Warehouses 10

11 One-story old style warehouses 11

12 China Warehousing-Overview Less IT systems deployed 5% (China Logistics Report, 2002) Human operation Operation % Manually Operated Machinery operated, no IT system Fully machinery operated Source: Report of China Logistics Development,

13 Different Operation 13

14 Booming Infrastructure Construction 1990s Booming construction in warehousing and logistics hubs by local government and industry 60% logistics hubs are still empty 90 Strict control in 2004 More strict control in land use Large scale warehouse becomes limited resource as sea port terminals Monopoly resource 14

15 Warehousing Industry Reasons that China s warehouse can not meet demand of clients Cost High Lack of Professoinals Percentage Can not Meet Special Demand Equipment Unavailable Out of Date Percentage Capacity Limit Source: Chart by Charles Wang basing on data from China Warehouse Association,

16 Warehousing Industry Industry Structure Small and medium enterprises in competitive market Competition in price based instead of service quality Large enterprise in transformation From traditional warehousing to modern logistics China Chengtong Group - the biggest warehousing in China Warehousing area 13 million sqm, 114km railways, cargo handling 42 million MT Owns 2 pulic listed companes: China Chengtong Development (HK 0217), CMST (shanghai ) 16

17 Warehousing Industry-Modern DC 17

18 Warehousing Industry-New Business Development of national service networks Combination of investment company with warehousing companies New services From warehousing to 3PL services EH Epson VMI Financing services Warehousing bill mortgage 18

19 Business opportunities Logistics infrastructure and property investment DC and local government incentive policies 3PL management networking Connecting with international network and cooperation WMS and IT implementation logistics consultant and education Financing, M&A of state-owned and private logistics firms 19

20 Critical Issues-Institutional cost Institutional cost is the larges portion of all cost to do business in China. After 25 years of reform, it is almost the same government system in the planned economy. Government agencies are still the center of all economic activities. 20

21 Institutional Cost Administrative systems vs. logistics and supply chain the overlapping functions and institutional cost, Central government level and local government level as well. Government controls planning and operation of logistics infrastructure, energy and resource, market entry and administrative regulation, taxation and incentive policies All government documents or regulations have binding force as the same as law. Legislation in China is lagged far behind economic practice, regulations come to take up the role of law. 13 yrs of closed-door negotiation with WTO 21

22 Taxation System Dispute and misleading when difference sector of logistics apply different tax rates transportation, loading and unloading and lifting - 3% storage, distribution and agency are taxed at 5% The current 3% and 5% tax levels are too high The gross margin is only 4%-5% and net profit is only 1%-2%. Redundant taxation in outsourcing New reforms on hopefully on the right track Testing of taxation reform in

23 Critical Issues-Culture China has a proud history of 5000 years. Guanxi the connection is vital Back-doorism. Government agencies tend to have several doors. Some are prepared for strangers. Marketing is only effective on one to - one basis. Entertainment Or even bribery 23

24 Critical Issues - Creditability Problems of Lacking Creditability in China Legislation and creditability are foundation of market economy Losses due to lacking of creditability is huge in China bil yuan, 10-20% of GDP, 37% of China s national fiscal income. 400 case of stolen cargo in Changchun Giving room for illegal and low service quality 24

25 Creditability Issues Lacking of creditability system It is especially important when a TPL signs contract with a manufacture. The creditability investigation will need a long time and energy Supply Side lacking of uninformative service standard There various service level companies in market Demand side: Price and cost priority when outsourcing 25

26 The Trend Policy change 2006 State asset out of transportation, MOC Customs regional unification systems-prd, YRD, Bo Hai Sea Rim, the rule will apply on warehousing except stragic grain storage Technological change in Shenzhen customs RFID and wireless, 3G The trend WTO free market entry leading MNCs into China Schneider, Ryder, C. H. Robinson M & A TNT acquired Huayu FedEx obtained Datian 26

27 MNC Invasion China Economic Weekly Caterpillar Story Caterpillar began to set up JV with Xuzhou Machinery Group in It merged Shandong Machinery Group after obtained share of Xuzhou. It is now aiming Xiamen Machinery Limited and Sany, Liuzhou and Xuanhua machinery companies Caterpillar is aiming all industrial leaders in China Caterpillar is aiming to buy the whole industry Source: Bai Jinfu, China Economic Weekly, Vol. 08,

28 Strategies to take Impacts of MNCs to China Logistics Market Capital 70.6% Management Capability 92.3% Cost Controll 22.4% Human Resource 40.2% MIS 5.9% 0.0% 20.0% 40.0% 60.0% 80.0% 100.0% Source: 2004 Logistics Survey Report, by SDPC and Nankai University 28

29 Strategies to take Strategies to take Localization vs. globalization Local talents Local partners Buy China? Strategic investment M & A 29

30 Thank you! Charles Guowen Wang, Ph D Peking University China Development Institute wangc@gsm.pku.edu.cn cwang@cdi.com.cn wangc@cscmpchina.org 30

China Warehousing Industry Report, Aug. 2011

China Warehousing Industry Report, 2010-2011 Aug. 2011 This report Analyzes the environment and development of China warehousing industry. Focuses on the sub-sectors and Logistics Park Projects under Construction