Day Breaks in China’s Logistics Industry

MENTION logistics, and perhaps a busy port comes to mind. We may then recall how Rotterdam was unarguably once the world’s busiest port, for 40 years. Yet, in just a few years this logistical crown was usurped by Singapore, among the most thriving of countries in Asia. Soon, Chinese cities such as Shanghai, Ningbo, Shenzhen, Qingdao, Guangzhou and Tianjin also began to contend.

The term “logistics” was first coined in 1927 by U.S. scholar Ralph Borsodi. Yet logistics services actually originated in military usage, and logistics has since come to play a major role in today’s global supply chain. Among all types of logistic services, however, third-party logistics (TPL) first started in the 1980s in the United States. This business expanded by 20 percent each year over the following 20 years. And then TPL in the European countries swiftly came up from behind.

The world was, to a large extent, then soon surprised by the rapid development of the logistics industry in China. Though the industry was exposed to a negative economic environment from 2008 to 2009, during which the world suffered the financial crisis outbreak, it was somehow a wakeup call for international logistic companies, to the fact that Asia, or more specifically China, is where the future of the industry lies.

What’s going on in the industry in Europe and the U.S.A., as compared to China’s current TPL development? There are apparently many differences.


Enormous Investment in an Emerging Industry

In terms of logistics infrastructure, since most business is done through ocean freight, differences may be illustrated by comparing the amount of investment in port infrastructure in China and Europe. After China officially became a WTO member in 2001, international TPL rushed into the Chinese market. A huge investment in China’s TPL has since been evident. In the year 2002, there were only about 10,600 quay berths, yet by 2011-2012, they had almost tripled to 31,000 (2013-2017 China Port Logistic Industry Analysis and Prediction Report data). The amount of investment has continued to increase each year. For example, after gaining great rewards in 2011, the Logistics Management Department of Liaoning Province decided to invest RMB 20 billion in port infrastructure in 2012.

Since Europe became involved in the logistics business earlier than Asian countries, as regards both infrastructure and operation of the logistics industry, European countries have achieved greater maturity. Their investment should therefore not increase as rapidly as in China. However, through specific investment in either channels or bridges to solve small problems, certain cities like Hamburg and Antwerp are still among their greatest ports in Europe.  Moreover, investment in further development never stops in Europe. Rotterdam, as the best port in Europe, absorbed €10 billion (about RMB 80 billion) in investment from government and corporations from 2006 to 2013. And despite being the best in Europe, development of this port has never stopped.


Toward Lower GDP Costs

Observing the logistics costs in percentage terms of GDP in China and in some developed countries, we see there is still much to improve in China’s logistic systems. Logistics costs refer to the costs of transporting and storing products, as linked with charges for transportation methods including train, truck, air and ocean transport. Other logistics costs include fuel, warehousing space, packaging, tariffs and duties.

In 2011-2012, logistics industry costs as percentage of GDP were: U.S.A. – 10.5 percent, UK – 10.6 percent, Netherlands – 11.3 percent, and Japan – 11.4 percent. In 2011-2012 in China, logistics industry costs as a percentage of GDP was about 18 percent – 8 percent higher than in developed countries (China Logistics Club data). Further explanation is required here: lowering such costs as a percentage of GDP is more profitable for businesses. This is because logistics services do not add value to the process. To be specific, the faster and more efficient you are, the more money you make during the process. Unfortunately, an increasing number of logistics companies in China are still struggling for higher profits.

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