Day Breaks in China’s Logistics Industry

Yet, it is worth mentioning the case of Qingdao, a city doing so well in logistics that it sets a good example for other cities in China. In 2008, the cost of logistics in Qingdao was only 9.8 percent of GDP, comparable to developed countries. The city mainly developed its port, supplementing airfreight and rail transport. It has thus focused on its specialty – ocean freight. In this regard, reduction of logistics costs requires companies to specifically focus on an industry and offer proper logistics services at the same time.

Clear Norms and Standards Required

There is a famous saying among the Chinese, “Nothing is accomplished without norms and standards.” This works in the logistics industry, too. Logistics management standardization refers to national regulations and standards in the industry, the assortment of types and sizes of companies, the business process, and so forth. To manage an industry well, to a large extent, entails a well-established management system.

The United States was the first country in the world to organize a national logistics management department – the National Council of Logistics Management (CLM).  In the 1980s, rules and regulations (around 1,200 terms) were drafted for airways, waterways, railways and highways, which ensured the quality of logistics services in the country. It is the same in Europe. DHL, Kuehne & Nagel, DSV, Panalpina, CEVA – all these companies are excellent performers in the market. The key reason is that people know what they are doing every day and why they do what they do. Everyone is clear about standards and norms.

As for Chinese logistics standards, of course companies must follow rules from the Ministry of Commerce, the Ministry of Transport, and the General Administration of Customs. However, these are all very general rules. And although there are local logistics organizations in China, for example, the China International Freight Forwarders Association being one of the biggest, such organizations have yet to devise specific rules. There are thus no detailed rules and regulations for Chinese logistics companies to follow.

In this regard, I have two sets of advice for Chinese logistic organizations. Firstly, I would recommend that Chinese logistics organizations, especially local ones, cooperate with each other by holding events and networking activities. In this way, logistics organizational networks would expand effectively. Through merging local logistics organizations toward a larger scale, amalgamation could approach the level of international logistics organizations. Another point is to increase standards for companies wishing to join logistics organizations. Normally companies who are members of the organization are given logistics certificates. I think if China divides the certification system into the three levels of basic, good and excellent, some truly fine logistic companies would be more willing to join such organizations.

Market Segmentation

As client needs may vary quite significantly, logistics services could be divided into many types: by industry, geographic region, product, clientele, time duration, service, and interest return. In freight forwarding, for example, the basic service is transport from port to port. Other companies offer added-value services – transport from door to door. The market is thus based on service type. Market segmentation among big international companies in Europe is fully developed. They offer services for ocean imports and exports, containers, contract logistics, and so forth. Customized services have become one of the core ideas for running businesses in today’s world.  Moreover, there are logistics companies offering services to only one or a few select industries, such as in automotive and consumer products, or chemicals.

Development in China’s logistics market segmentation is still at entry level. At the beginning, a lot of logistic companies provide the same services. Problems appear at a later stage when profits begin decreasing at a rapid rate. Companies, therefore, have to think about how to make the pie bigger before getting their slice. A few of the better logistic companies, such as COSCO Logistics and CNPL, are performing well through the market segmentation process, based on geographic region, industry type, as well as the size of client companies.  

The point of comparing the industry in China to that in Western countries is not to let everyone down. Though there are disadvantages for China right now, with the above improvements, business will get better sooner or later. There is no doubt that, during the past decade, the development of the logistics industry has been amazing.

When the Netherlands was still king of the logistics industry, Asian ports and logistics companies were left far behind. China took but a few years to catch up, and then take the lead. With the country’s rapid economic growth, I am confident that China will unleash a logistics industry gold-rush in the near future. 

RUBEN VAN DEN BOER is RMG Selection consultant.