China s Logistics Industry Update May 2011 Li & Fung Research Centre

Transcription

1 China s Logistics Industry Update 2011 May 2011 Li & Fung Research Centre

2 In this issue: 1. Industry overview p.3 2. Challenges p Government Policies p Hot spots p.66 2

3 1.Industry overview (1) Market size (2) Logistics efficiency (3) Outsourcing of logistics functions (4) Development of transport infrastructure (5) Performance of logistics enterprises 3

4 (1) Market size Logistics value Logistics demand coefficient Value-added of logistics industry The market size of logistics industry in China has been growing: The logistics value reached a record high of 125,400.0 billion yuan in 2010, up by 29.7% year-on-year. 4

5 Logistics value According to the China Federation of Logistics & Purchasing (CFLP), the total logistics value is defined as the total value of products being produced in or entering the country during the recording period The figure reflects the market size of, and total demand for logistics services of a country The total logistics value reached a record high in 2010: 125,400 billion yuan, up by 29.7% year-on-year (yoy) The stunning growth was largely due to the global recovery in 2010 Manufacturing sector remained key to China s economy the logistics value of industrial products accounted for a gigantic share of 90.2% of the total logistics value in

6 Logistics value (cont d) China s total logistics value, , , ,000 80,000 60,000 40,000 20, , % 26.2% 89, , , % 59, % 7.4% % 30% 25% 20% 15% 10% 5% 0% Total logistics value (billion yuan) Growth % yoy Source: China Federation of Logistics & Purchasing (CFLP) 6

7 Logistics value (cont d) China s total logistics value by category, 2010 Value (billion yuan) yoy growth Share Agricultural products 2, % 1.8% Industrial products 113, % 90.2% Imported products 9, % 7.5% Recycled materials % 0.4% Commercial and personal products % 0.2% Total 125, % 100.0% Source: CFLP 7

8 Logistics demand coefficient It refers to the logistics value-to-gdp ratio The higher the coefficient, the larger the logistics market The logistics demand coefficient in 2010 was 3.2, up from 2.8 in 2009 The figure suggested that the logistics market in China recovered from the global financial crisis 8

9 Logistics demand coefficient (cont d) The logistics demand coefficient, Source: CFLP 9

10 Value-added of logistics industry The larger the value-added, the larger is the market The value-added has been rising steadily in the past five years, denoting a growing logistics market The value-added was 2,700.0 billion yuan in 2010, up by 16.7% yoy The share of the total value-added of the logistics industry in GDP and China s tertiary industry has been stable in the past five years, indicating that the logistics sector has managed to grow as fast as the tertiary market as well as the national economy 10

11 Value-added of logistics industry (cont d) The total value-added of the logistics industry, Year Total value-added (billion yuan ) yoy growth Share in the tertiary industry Share in GDP , % 16.7% 6.7% , % 16.6% 6.7% , % 16.4% 6.8% , % 16.1% 6.9% , % 16.0% 6.9% Source: CFLP 11

12 1.Industry overview (1) Market size (2) Logistics efficiency (3) Outsourcing of logistics functions (4) Development of transport infrastructure (5) Performance of logistics enterprises 12

13 (2) Logistics efficiency Logistics cost to GDP Average inventory period of industrial and commercial enterprises World ranking: Logistics Performance Index Logistics market in China is in general inefficient and there is huge room for improvement. 13

14 billion yuan Logistics cost The total logistics cost recorded 7,100.0 billion yuan in 2010, up by 16.7% yoy The total logistics cost and its composition, ,000 6,000 5,000 4,000 3,000 2,000 1, management cost inventory storage cost transportation cost Share in logistics total cost Management 13.2% 12.7% 12.7% 11.9% 12.1% Inventory 32.1% 32.9% 34.7% 32.8% 33.9% Transportation 54.7% 54.4% 52.6% 55.3% 54.0% Source: CFLP 14

15 Logistics cost to GDP The ratio of total logistics cost to a country s GDP reflects the efficiency of the logistics industry The lower the ratio, the more efficient is the logistics sector The ratio decreased from 18.3 % in 2006 to 17.8%in 2010 However, the ratio is still twice the ratios observed in most developed countries (e.g. USA: 7.7% in 2010) The efficiency of China s logistics industry still has huge room for improvement 15

16 Logistics cost to GDP (cont d) The total logistics cost as a percentage of GDP, % Source: CFLP 16

17 Average inventory period of industrial and commercial enterprises Industrial enterprises: days in 2009, improving from days in 2008 Commercial enterprises: days in 2009, improving from days in

18 Average inventory period of industrial and commercial enterprises (cont d) Average inventory period of industrial and commercial enterprises, 2009 Proportions of enterprises with average inventory Year Average inventory period (days) <10 days days days 1-2 months 2-3 months > 3 months Industrial enterprises % 10.6% 23.4% 28.9% 15.4% 12.2% % 9.9% 21.7% 27.6% 16.1% 14.9% Commercial enterprises % 21.3% 20.1% 29.8% 9.3% 8.1% % 19.8% 20.1% 28.8% 10.7% 9.5% Source: National Development and Reform Commission (NDRC) & Nankai University 18

19 World ranking: Logistics Performance Index The Logistics Performance Index by World Bank measures the logistics performance of different economies In the 2010 exercise, China ranked 27 among the 155 assessed economies, taking the lead among the lower-middle income countries Developed or high-income countries such as Germany, Singapore and Sweden topped the chart 19

20 World ranking: Logistics Performance Index (cont d) Logistics performance in 2010 Rank Economy 1 Germany 2 Singapore 3 Sweden 4 Netherlands 5 Luxembourg 6 Switzerland 7 Japan 8 United Kingdom 9 Belgium 10 Norway 11 Ireland 12 Finland 13 Hong Kong SAR, China 14 Canada 15 United States Source: World Bank Rank Economy 16 Denmark 17 France 18 Australia 19 Austria 20 Taiwan, China 21 New Zealand 22 Italy 23 Korea, Rep. 24 United Arab Emirates 25 Spain 26 Czech Republic 27 China 28 South Africa 29 Malaysia 30 Poland 20

21 1.Industry overview (1) Market size (2) Logistics efficiency (3) Outsourcing of logistics functions (4) Development of transport infrastructure (5) Performance of logistics enterprises 21

22 (3) Outsourcing of logistics functions Outsourcing rate of industrial and commercial enterprises by volume Proportion of logistics functions outsourced Types of logistics service outsourced Number of logistics service suppliers The outsourcing rate of logistics function has been on the rise. 22

23 Outsourcing rate of industrial and commercial enterprises by volume According to the National Development and Reform Commission (NDRC) and Nankai University, the outsourcing rate of logistics operations of Chinese industrial and commercial enterprises has been rising over the last few years The outsourcing rate reached a record high of 61.2% in 2009, meaning that a growing number of Chinese enterprises saw the benefits of outsourcing such non-core functions as logistics operation 23

24 Outsourcing rate of industrial and commercial enterprises by volume (cont d) Outsourcing rate of Chinese industrial and commercial enterprises, % Source: NDRC & Nankai University 24

25 Proportion of logistics functions outsourced According to the NDRC and Nankai University, over 70% of surveyed industrial and commercial enterprises outsourced more than 50% of their logistics functions by volume in 2009 Over 40% of the surveyed enterprises even outsourced over 80% of their logistics functions to professional logistics service providers It reflects that enterprises are becoming more receptive to the idea of outsourcing and are more willing to outsource a significant proportion of their logistics functions 25

26 Proportion of logistics functions outsourced (cont d) Proportion of logistics functions outsourced to total logistics volume, % 9.1% 10.8% 9.2% Outsourced 0-10% of the logistics functions Outsourced 11-30% of the logistics functions Outsourced 31-50% of the logistics functions 29.8% Outsourced 51-80% of the logistics functions Outsourced % of the logistics functions Source: NDRC & Nankai University 26

27 Types of logistics service outsourced Traditional functions such as transportation and distribution were the most popular services the surveyed enterprises outsourced When asked which services the surveyed enterprises would consider to outsource in the future, logistics information management and logistics system design were the most mentioned It reveals that Chinese enterprises are becoming more open to outsourcing more advanced logistics functions 27

28 Types of logistics service outsourced (cont d) Types of logistics services outsourced, 2009 Proportion of industrial and commercial enterprises surveyed Transportation 42.6% Distribution 38.3% Logistics information management 15.6% Note: multiple responses allowed Warehousing 15.5% Logistics system design 10.7% Packaging & processing 13.5% Inventory management 5.4% Others 2.1% Source: NDRC & Nankai University 28

29 Types of logistics service to be outsourced Types of logistics services under consideration to be outsourced in the future, 2009 Proportion of industrial and commercial enterprises surveyed Logistics information management 37.5% Logistics system design 24.0% Packaging & processing 16.7% Warehousing 12.5% Inventory management 8.3% Distribution 8.1% Note: multiple responses allowed Transportation 4.2% Source: NDRC & Nankai University 29

30 Number of logistics service suppliers Enterprises which outsource their logistics functions to an optimal number of logistics service suppliers could reduce transaction cost and still contain risks involved in outsourcing According to the NDRC and Nankai University, over 70% of the surveyed industrial and commercial enterprises selected 2 to 5 logistics service suppliers 30

31 Number of logistics service suppliers (cont d) Number of logistics service supplier(s) hired by industrial and commercial enterprises surveyed, % 15.8% 11.2% Outsource to 1 logistics service supplier 43.6% Outsource to 2-3 logistics service suppliers Outsource to 4-5 logistics service suppliers Outsource to over 6 logistics service suppliers Source: NDRC & Nankai University 31

32 1.Industry overview (1) Market size (2) Logistics efficiency (3) Outsourcing of logistics functions (4) Development of transport infrastructure (5) Performance of logistics enterprises 32

33 (4) Development of transport infrastructure Fixed assets investment in the logistics industry Capacity of transport infrastructure The capacity of the transport infrastructure in China is improving. 33

34 Fixed assets investment in the logistics industry Improving transport infrastructure has always been a priority for the government in China The total fixed assets investment in the logistics industry grew by 19.4% to 3,070.0 billion yuan in 2010 Investment in transportation accounted for 75.7% of the total fixed assets investment in the logistics industry in

35 Fixed assets investment in the logistics industry (cont d) China s fixed assets investment in four major modes of transport, Fixed assets investment (billion yuan) Mode of transport Highway ,055.8 Railway Water Air Source: National Bureau of Statistics of China (NBS) 35

36 Capacity of transport infrastructure The networks of the 4 modes of transport (road, railway, water and air) have been expanding over the past several years Achievements China s length of navigable inland waterways ranked 1 st in the world (~124,000 km in 2010) The length of high-speed railway in China ranked 1 st in the world (~8,300 km in 2010) The total length of expressway in operation in China ranked 2 nd in the world (~74,000 km in 2010) Length of highways, navigable inland waterways, and railways in operation, Length (thousand km) Highway 3, , ,980.0 Navigable inland waterways Railways in operation Source: NBS, CFLP 36

37 Capacity of transport infrastructure (cont d) Both passenger and freight traffic recorded steady increases in the recording period Road remained the major mode of transport to dispatch both passengers and freight in China Among the 4 modes of transport, air had the most impressive growth rates in terms of passenger traffic ( 19.7% yoy in 2009) and total passenger- kilometers ( 17.1% yoy in 2009) As for freight traffic and freight tonne-kilometers, the growth rates of the road transportation were the highest: 11.0% yoy and 13.1% yoy in 2009 respectively 37

38 Capacity of transport infrastructure (cont d) Passenger traffic and total passenger-kilometers of the four major modes of transport, Source: NBS Total passenger traffic (million persons) Total passenger kilometers (billion passenger-km) Mode of transport Road 26, , , ,351.1 Railway 1, , Water Air Freight traffic and total freight tonne-kilometers of the four major modes of transport, Total freight traffic (million tonnes) Total freight tonne-kilometers (billion tonne-km) Mode of transport Road 19, , , ,719 Railway 3, , , ,524 Water 2, , , ,756 Air

39 1.Industry overview (1) Market size (2) Logistics efficiency (3) Outsourcing of logistics functions (4) Development of transport infrastructure (5) Performance of logistics enterprises 39

40 (5) Performance of logistics enterprises Top logistics enterprises in China Foreign players expansion in China Performance of Chinese logistics companies against global counterparts Performance of Chinese 3PL companies in the world Profitability of logistics enterprises Utilization rate of vehicles Utilization rate of warehouse 40

41 Top logistics enterprises in China CFLP ranked the top 50 logistics enterprises in China in terms of annual sales revenue in 2009 Total revenue of the top-50 reached billion yuan in 2009, down by 5.3% yoy All of the top-50 players had their annual sales revenue exceeding 1 billion yuan 41

42 Top logistics enterprises in China (cont d) Scale of the Top 50 logistics enterprises in China, Number of logistics enterprises with sales revenue Exceeding 1 billion yuan Exceeding 2 billion yuan Source: CFLP Exceeding 3 billion yuan

43 Top logistics enterprises in China (cont d) Top 20 logistics enterprises in China, 2009 Ranking Enterprises Sales revenue in 2009 (billion yuan) Ranking Enterprises Sales revenue in 2009 (billion yuan) 1 China Ocean Shipping (Group) Company 中國遠洋運輸集團總公司 Shuohuang Railway Development Co. Ltd. 朔黃鐵路發展有限責任公司 SINOTRANS & CSC Holdings Co. Ltd 中國外運長航集團有限公司 China Railway Container Transport Co. Ltd 中鐵集裝箱運輸有限責任公司 China Shipping (Group) Company 中國海運集團總公司 China Railway Express Co. Ltd 中鐵快運股份有限公司 Kailuan Group 開灤集團國際物流有限責任公司 The S.F. Express Company 順豐速運 ( 集團 ) 有限公司 China National Materials Storage and Transportation Corporation (CMST) 中國物資儲運總公司 Beijing Huayou Natural Gas Co. Ltd, CNPC 北京華油天然氣有限責任公司 Xiamen Xiangyu Group Co. Ltd 廈門象嶼集團有限公司 International Cargo Transport Limited of China 中國國際貨運航空有限公司 China Railway Material Company 中鐵物資集團有限公司 Yunnan Logistics Industry Group 雲南物流產業集團有限公司 Jizhong Energy Group Co. Ltd. 冀中能源峰峰集團邯鄲鼎峰物流有限公司 SINOPEC Pipeline Transport & Storage Co. 中國石油化工股份有限公司管道儲運分公司 China Petroleum Transportation Corporation 中國石油天然氣運輸公司 Shandong International Transportation Corporation Maritime (Group) Co. Ltd 山東海豐國際航運集團有限公司 Henan Coal and Chemical Industry Group Co. Ltd. 河南煤業化工集團國龍物流有限公司 Chongqing Port Logistics Group Co. Ltd 重慶港務物流集團有限公司

44 Foreign players expansion in China Foreign players continue to accelerate their expansion in China FedEx s Asia-Pacific delivery centre in Guangzhou s Baiyun Airport commenced its operation in 2009, and it is the largest one outside the US UPS relocated its intra-asia hub operations from Clark, Philippines to Shenzhen in early 2010 DHL entered into an agreement with the China Merchants Maritime Logistics (Shenzhen) Ltd. in June 2009 to establish a global distribution centre in Qianhai, Shenzhen 44

45 Performance of Chinese logistics companies against global counterparts According to the Alphaliner Top 100 1, a few Chinese logistics companies entered the top-20 list 6th - COSCO Container L. ( 中遠集裝箱運輸有限公司 ) 10th - CSCL ( 中海集裝箱運輸股份有限公司 ) 11th - OOCL ( 東方海外 ) 1 Alphaliner is an information platform designed to serve the needs of the liner shipping industry. It has been updating the ranking on a daily basis since 1996, setting a benchmark for the liner shipping industry. 45

46 Performance of Chinese logistics companies against global counterparts (cont d) Top 20 fleets in operation as of 26 May 2011 Ranking Operator TEU 1 APM-Maersk 2,313,559 2 Mediterranean Shg Co 1,974,659 3 CMA CGM Group 1,270,889 4 Evergreen Line 612,777 5 Hapag-Lloyd 599,982 # 6 COSCO Container L. 599,886 7 APL 583,484 8 CSAV Group 550,047 9 Hanjin Shipping 525,634 # 10 CSCL 497,218 # 11 OOCL 410, MOL 409, NYK Line 407, Hamburg Süd Group 374, Yang Ming Marine Transport Corp. 339, K Line 337, Zim 328, Hyundai M.M. 310, PIL (Pacific Int. Line) 262, UASC 236,747 Source: AXS-Alphaliner # Note: Chinese operators 46

47 Profitability of logistics enterprises According to the 8 th National Survey on Logistics Market by the NDRC and Nankai University, 42.3% of the surveyed logistics enterprises recorded a profit margin of 5-10%, while 27.2% said their profit margin was between 3-5% in 2009 The 2010 National Statistical Survey Report on Logistics of Key Enterprises by the NDRC, National Bureau of Statistics (NBS) and CFLP revealed that the average profit margin for Chinese logistics enterprises was 6.0% in 2009, down by 7.1 ppt yoy Overall, the profitability of logistics enterprises in China is still low 47

48 Profitability of logistics enterprises (cont d) Profit margin of logistics enterprises, % 4.9% 19.5% Logistics enterprises that have profit loss Logistics enterprises that have profit margin of 1-3% 42.3% 27.2% Logistics enterprises that have profit margin of 3-5% Logistics enterprises that have profit margin of 5-10% Logistics enterprises that have over 10% of the profit margin Source: NDRC & Nankai University 48

49 Utilization rate of vehicles In 2009, 70.4% of the surveyed logistics enterprises used over 70% of the capacity of their vehicles, dropping from 73.4% in 2008 Utilization rate of vehicles by logistics enterprises, % 5.5% 24.1% Use less than 50% of the capacity of the vehicles Use 51-70% of the capacity of the vehicles Use 71-90% of the capacity of the vehicles 31.7% Use over 90% of the capacity of the vehicles Source: NDRC & Nankai University 49

50 Utilization rate of warehouse In 2009, 73.9% of the surveyed logistics enterprises used over 70% of the capacity of their warehouses, dropping from 75.0% in 2008 Utilization rate of warehouse by logistics enterprises, % 1.8% 3.1% 21.2% Use less than 30% of the capacity of the warehouse Use 31-50% of the capacity of the warehouse Use 51-70% of the capacity of the warehouse 37.8% Use 71-90% of the capacity of the warehouse Use over 90% of the capacity of the warehouse Source: NDRC & Nankai University 50

51 2. Challenges 51

52 Increasing logistics cost yet with low efficiency As mentioned before, the ratio of the logistics cost to GDP of China remains high when comparing with its counterparts in the developed world Operating costs including fuels, rental, etc. are surging in China Chinese customers become more and more demanding in service quality and time of fulfillment, which leads to higher cost pressure and margin squeeze of the logistics players The utilization rates of vehicles and warehouse for logistics players have been decreasing in recent years 52

53 Specialized logistics services are under developed The demand for high value-added logistics services such as cold chain logistics is increasing These kinds of services require sophisticated technology and advanced facilities. However, the service providers of specialized logistics services in China are not well-equipped with the necessary facilities and technology Service failures including order fulfillment delay and product damage happen frequently 53

54 Poor development of infrastructure Mileage per capita of road transportation in China is around 1/10 of which in the United States. Transport bottlenecks remain common in major cities and in peak seasons like the Spring Festival The infrastructural development in important coastal regions is much more mature than that in central and western China Connections between railway, road and port facilities still have much room for improvement Overcharging of road tolls adds extra cost to logistics service providers 54

55 Constraints on human resources According to the aforesaid survey by the NDRC and Nankai University, logistics enterprises are targeting particularly at talents who have expertise in integrated logistics management, information management, supply chain design, as well as sales and marketing Although more and more universities in China offer programs of logistics, the demand for talents has always outstripped supply in the industry Many practitioners lack modern management knowledge and skill sets to satisfy the increasingly demanding clients 55

56 Local protectionism Most logistics companies in China operate only in their immediate regions and take little initiatives to develop more comprehensive networks The multi-layered distribution system has lowered efficiency and visibility 56

57 Lack of high-level coordination Although the functions of government departments regulating civil aviation, postal services, communications and urban public transportation were consolidated with the establishment of Ministry of Transport in 2008, other departments are still responsible for monitoring different aspects of logistics industry in China The lack of high-level coordination among government departments leads to multiple jurisdictions and limits the development of logistics industry 57

58 In-house mindset As mentioned earlier, the outsourcing rate of logistics function has been on the rise for the past five years However, it still lags behind the rate of the developed countries: The outsourcing rate of the US had already exceeded 80% in 2004 The logistics functions outsourced by Chinese enterprises are still the low value-added ones, such as transportation and distribution The self-management mentality has hindered the development of China s logistics sector 58

59 3. Government Policies 59

60 The Twelfth Five-Year Plan (12 th FYP) According to NDRC, key directives of logistics industry development are revealed under 12 th FYP: Develop 3 rd party logistics Enhance the efficiency, scalability and service of the industry quality with diversified services provided Quicken the logistics development on handling agricultural goods, mineral, industrial goods and necessities Facilitate seamless transition among intermodal transportation Strengthen and integrate logistics infrastructure Provide logistics information sharing platform Promote logistics digitalized and intellectual development and applications Standardize the industry practice Enhance the competitiveness of logistics enterprises in the globe 60

61 The Twelfth Five-Year Plan (12 th FYP) (cont d) According to the NDRC and CFLP, at the end of the Twelfth Five-Year Plan (12 th FYP), i.e The market size of the logistics industry will continue to grow: - The total logistics value will grow at a CAGR of 14% - The value-added of the logistics industry will increase at a CAGR of 15% The efficiency of the logistics industry will further improve: - The ratio of total logistics cost to GDP will decrease to 17.5% 61

62 Medium- and Long-term Plans Chinese government has issued Adjustment and Revitalization Plan of Logistics Industry 物流業調整和振興規劃 after post-financial crisis in The government is now formulating the Medium- and Long-term Development Plan of Logistics Industry, 物流業發展中長期規劃 ( 年 ), the plan will well define the directives and key highlights on the development of logistics industry during the period. 62

63 Medium- and Long-term Plans (cont d) Several specific development plans will be issued soon, including : Development Plan of Logistics Parks in China 全國物流園區發展規劃 Development Plan of Emergency Logistics 應急物流發展規劃 Development Plan of Commercial Logistics 商貿物流發展規劃 Development Plan of Coal Logistics 煤炭物流發展規劃 63

64 Development Plan of Commercial Logistics Commercial logistics refers to the logistics services handling wholesale, retail, residential and catering related activities. In 2011, MOFCOM has issued Development Plan of Commercial Logistics 商貿物流發展專項規劃 with key directives. Build a comprehensive warehousing and distribution network Enhance the infrastructure, including distribution centers, cold chain facilities, logistics parks, information platforms etc Brand the logistics services with professional and integrated service standard 64

65 Development Plan of Commercial Logistics (cont d) Key directives (cont d) Raise the technical application standard, e.g. automation, track and trace, e-transaction platform, Internet of Things Develop pilot works of commercial logistics Provide more policy supports, in terms of infrastructural plan, investment support, training Promote green commercial logistics Establish emergency logistics operation mechanism Promote international cooperation and work closely with Asian trading partners 65

66 4. Hot spots (1) Online retailing and logistics industry (2) The Internet of Things 66

67 (1) Online retailing and logistics industry Market size Logistics demand of online retailing Measures taken by online retailers to enhance logistics efficiency Logistics remains the bottleneck of online retailing development. 67

68 Market size Online retailing has recorded enormous growth in the past 10 years Transaction value of China s online retailing market reached billion yuan in 2010, registering a stunning growth of 89.4% yoy According to iresearch, the transaction value of online retailing is estimated to quadruple its size in 5 years, reaching 1,933.8 billion in

69 billion yuan Market size (cont d) Transaction value of online retailing, Source: iresearch 69

70 Logistics demand of online retailing The robust growth of online retailing generates significant revenue for the logistics sector, especially the 3PL players According to iresearch, the income of express delivery companies brought by online retailing reached 19.3 billion yuan in 2009, up by 59.4% yoy The market will continue to grow at a CAGR of 25.8% in the next 3 years, reaching 44.2 billion yuan in 2012 Revenues of express delivery companies from e-commerce, E % % % 22.1% e 2012e 80% 60% 40% 20% 0% Revenue from online shopping (RMB billions) Growth rate Source: iresearch 70

71 Logistics became the bottleneck of the development of online retailing The huge number of orders brought by online retailing overloads many 3PL companies Delay of delivery and product damage usually happen during peak seasons According to the survey conducted by State Post Bureau in 1H2010, 3PL companies performance on on-time delivery remained dissatisfactory to most of the respondents; over 80% of complaints were related to delay of delivery and product damage Additional services such as payment collection on delivery, return and exchange of unwanted goods are usually required by online retailers. However, many of the existing 3PL companies in China have yet to provide higher value-added services 71

72 Measures to enhance logistics efficiency Most C2C e-commerce sites such as Paipai and Eachnet only partner with 3PL companies for product delivery. However, the service quality of 3PL companies are not consistent To improve the satisfaction of customers about product delivery, some online retailers choose to establish a comprehensive in-house logistics system For example, Taobao, the largest online retailer in China, launched its online logistics platform named Wuliubao ( 物流寶 ) in June 2010 to aggregate demand of logistics-related services Through partnership with different services providers (e.g. warehousing service, package delivery and software solutions, etc), the platform aims to offer one-stop service for its larger-scale online sellers 72

73 Measures to enhance logistics efficiency (cont d) Alibaba Group, the parent company of Taobao, announced in January 2011, to further invest billion yuan in its logistics platform over the medium term, serving its partners in the logistics industry, Taobao sellers as well as independent B2C websites 73

74 Measures to enhance logistics efficiency (cont d) Meanwhile, some online retailers would rather adopt a combination of in-house and outsourced logistics solution to balance service quality and investment For instance, Vancl, a major online apparel retailer, has built its own distribution centers (DCs) in Beijing, Shanghai, Shenzhen and Guangzhou. DCs in 10 other cities are also under construction. Meanwhile, they still employ 3PL companies to augment their in-house network to achieve boarder geographical coverage It is expected that the online retailing in China will see explosive growth once the logistics bottleneck is alleviated 74

75 4. Hot spots (1) Online retailing and logistics industry (2) The Internet of Things 75

76 (2) The Internet of Things Definition The Internet of Things: an evolving concept Applications of the concept The Internet of Things in China Market size Related government policies Internet of Things is gaining importance in China. 76

77 Definition The International Telecommunication Union (ITU) defined the internet of things in its report, ITU Internet Reports: The Internet of Things 2005, as from anytime, any place connectivity for anyone, we will now have connectivity for anything Any TIME Any THING Any PLACE Any ONE 77

78 Definition (cont d) According to McKinsey, the Internet of Things is formed by sensors and actuators embedded in physical objects, linking through wired and wireless networks and using the same Internet Protocol that connects the Internet These networks provide huge volume of data that flow to computers for analysis that allows objects to sense the environment and communicate, to understand complexity and response to it without human intervention RFID tag Portable RFID reader and writer Active RFID reader and Wi-Fi hub 78

79 The Internet of things: an evolving concept The concept of "Internet of Things" was first coined by the founders of the then Massachusetts Institute of Technology (MIT) Auto-ID Center in 1999; at that time, the concept mainly referred to any broad class of identification technologies used in industrial development "Internet of Things" came into limelight again when the ITU published the first report on the subject in 2005 The ITU report adopts a holistic approach by suggesting that the Internet of Things will combine technological developments in item identification ("tagging things"), sensors and wireless sensor networks ("feeling things"), embedded systems ("thinking things") and nanotechnology ("shrinking things"), and the scope of the Internet of Things is widened from industrial to daily life application 79

80 The Internet of things: an evolving concept (cont d) Tagging things Feeling things Thinking things Shrinking things 80

81 The Internet of things: an evolving concept (cont d) At the end of 2008, IBM s CEO Samuel Palisano brought out a new concept smart planet to the world: applying high-tech intelligence to energy, transportation, food, water, even health care an even broader scope of the Internet of Things application Source: IBM 81

82 Applications of the concept Daily life application: the Future Store by METRO Group Electronic shopping list can be sent to the store via Internet before you arrive at the store Present your Future Card at the sensor on the trolley to load your personal shopping list, tailor-made list of discount items and loyalty bonus information The screen on the trolley will show you the most convenient way to get what you want to buy The Comfort Payment system helps calculating the total amount of payment. Self check out shortens the time of queuing Info Terminal shows detailed information of more delicate products Scan the products chosen with the sensor before putting them into the trolley Source: METRO Group 82

83 Applications of the concept (cont d) Commercial application: Inventory control Every product has a RFID tag on it The tag communicates with the main server constantly to update its own location and status The location and status of the products can be traced in warehouse, distribution centre, retail store and even on the way The info handset of shop assistants will show them the location of empty shelves, items out of stock and other information to facilitate refilling or reordering The merchandising management system will then either send the reminder to the shop assistants for follow-up or re-order automatically from the suppliers Smart shelf at retail store will send warning signal to the merchandising management system when it is about to be empty Suppliers will deliver the products to the store after receiving the order 83 Source: METRO Group

84 The Internet of Things in China The development of the global Internet of Things industry has risen to the level of China s national strategy since Premier Wen Jiabao inspected the Wuxi Internet of Things Industrial Base in August 2009 Wen Jiabao followed up with a speech in November 2009 at the Great Hall of the People in Beijing, encouraging breakthroughs in key technologies for sensor networks and the Internet of Things During the National Party Congress (NPC) & Chinese People's Political Consultative Conference (CPPCC) Annual Session 2010, Wen confirmed that China would accelerate the research and development as well as application of the Internet of Things China set up an Internet of Things center in Shanghai in March With a total investment of 800 million yuan, the 170,000 sq.m. center is designed to develop technologies and industrial standards in the field 84

85 Market size According to the the Annual Development Report of China's Radio Frequency Identification (RFID) and the Internet of Things, in 2009, the market size of the Internet of Things industry in China exceeded billion yuan The concept is most applied in the areas of public safety, household safety and transportation According to the Report, the market will expand up to billion yuan by 2015 In fact, the RFID (one of the major components in the Internet of Things) market reached 8.5 billion yuan in 2009 in China, ranked 3 rd in the world 85

86 Related government policies The central government attaches great importance to the development of the Internet of Things After the approval of the concept at the NPC & CPPCC Annual Session in 2010, it is believed that the Ministry of Industry and Information Technology will soon issue a series of policies to facilitate development of the Internet of Things in China Local governments are also actively providing policy support. For instance, Guangdong government issued the Opinions on Accelerating the Development of Internet of Things and Building an Intelligent Guangdong in December 2010 with a view to promoting the development of Internet of Things in the province 86

87 For more information Li & Fung Research Centre 11/F, LiFung Tower, 868 Cheung Sha Wan Road, Kowloon, Hong Kong Tel: Fax: Copyright 2011 Li & Fung Research Centre. All rights reserved. Though Li & Fung Research Centre endeavours to have information presented in this document as accurate and updated as possible, it accepts no responsibility for any error, omission or misrepresentation. Li & Fung Research Centre and/or its associates accept no responsibility for any direct, indirect or consequential loss that may arise from the use of information contained in this document. 87