china logistics industry_ trends _opportunities_2011

8/3/2019 China Logistics Industry_ Trends _Opportunities_2011

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State of Chinas Logistics and

Potential Business Opportunities


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Section One-State of Chinas Logistics - Challenges & Future

Growth

State of Chinas Logistic Market Market Characteristics

Understanding the Costs and Challenges

Industry Trends and Drivers

Future Market Potential

Laying Chinas Logistic Infrastructure Current and Future Transportation Infrastructure

Logistic Hub, City and Passage Development

Chinese Governments Support for Industry

Leading Logistic Players in the Market Leading Domestic & Foreign Players

Recent Business & M&A


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Market size of Logistics industry in China seta new record high in 2010, at US$15.75billion, with growth of almost 30% Y-o-Y.

China Market Becoming Attractive

Market Size at Record Manufacturing Bias

Source: KPMG

Source: KPMGSource: National Development & Reform Commission

2009 Value(bn RMB)

Yoy

Growth

Mkt

Share

Agricultural

products2,236 43% 18%

Industrial

Products113,103 14.6% 90%

Imported

Products9,431 22.1% 7.5%

Recycled

products446 39.5% 0.4%

Comm & Pers

Products198 14.7% 0.2%

Total 125,413 15%

Industrial products has a 90% share of thegoods transported.

Logistic market growing and in-transition- offers new business opportunities


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Measures logistics value to GDP ratio,increasing since 2006;recovered from thefinancial crisis from 2.9 to 3.2 in 2010

Market Demand on Increase

Market Demand Recovering Expansion of Value-Added

Source: CFLPSource: CFLP

Logistic value-added showing marketexpansion since 2006- value-added increasingat rate of tiertary (service) sector

Market for logistic services on the increase with broad-based demand

Logistic Demand Coefficient


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Source: National Development & Reform Commission

Transportation

55%

Management

12%

Warehouse8%

OtherStorage

25%

Breakdown of Chinas Total Logistics Cost

(2009)

Logistic Cost as % GDP High Transport is Major Cost

Logistic Cost High vs Global Peers

Chinese total logistics cost is high (atRmb7100Bil in 2010) with low logisticsefficiency (China ratio is 17.8% vs USA 7.7%).

Chinese logistics has significant room for cost & efficiency gains..

Transport and labor costs account fortypically 60% of Chinese distribution centercost structure vs 8-10% for US/Japan

Source: ATKearney Report Chinese Logistics 2015


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Challenges faced

Chinas Logistic Industry Large but Undeveloped..

Logistic practices not upto global standdards..Foreign companies only

allowed into sector in 2005 and still not fully plugged-into the market

Lack of modern logistic

facilities and sufficientwarehouses space

Poor penetration by 3PLs;

spend on 3PL only 2.7% in2009 vs 30% for EU

3PL3PL3PL3PL

Poor use of logistics i.e. lack

of cold-chain logistics; poorplanning tools

2009 China Other

% Coldchain 10% US/JPN: 80%

ME: 50%

Number.

refrigerated

trucks

60,000 US: 250,000

JP: 150.000

Source: GZ Cold-chain Logistics Assoc.

Business Development Needs to Consider -Infrastructure to Planning


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Industry Trends (1)..

Economic Shift Movement of ManufacturingLocations to the West

Source: CB Ellis

Increasing Land and Labour cost of coastal cities driving manufacturing

factories to move into the hinterlands- for both YRD and PRD benefiting

new logistic hubs like Wuhan, Chengdu, etc

Coming Demand & Growth in Logistics due to

shift in Manufacturing to Western China


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Industry Trends (2)..

Chinas Strategic Shift towards Consumption Drive Demand

Source: PWC Report on Asia Retail 2010

Demand for sophisticated retail logistics management & warehouse space from

the expansion of global retailers Walmart, carrefour plus other retail/consumer

brands from coastal into rural and inner cities creates demand

Expansion in Online

Shopping similarly adds

to demand

De-regulated environment

allows foreign participation

In China retail

Modern Logistic a pillar in

Chinas 11th Year Plan

IMF estimates that by 2025,

retail will dominate

75% of domestic logistics

Asia Retail Forecast 2014

Coming Demand & Growth in Consumption-Driven Retail Logisticsoffers new business opportunities

Major consumption centres are building up inland i.e. Strong retail sales for

past 3 years in Chongqing, Changsha, Chengdu, Xian where logistics will be

required to transport consumer goods to these cities.


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Industry Trend (3)

Market in Growth Stage with Increasing Competition

Market is fragmented (Top 20 operators with 6% of total revenues); Dominated

by companies with limited scale/limited service scope. M&A Trend as Govt

push to nuture domestic giants; interest from foreign players looking for an

entry into the Chinese market

Source: ATKearney Report on Chinese Logistics by 2015

Fragmented & Growing market Opportunity for Consolidation to becomeMarket Leader


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Industry Trend (4)

Build-up of Nationwide Transportation Network

Currently China suffers one of the heaviest freight density in the world- driving up

transportation cost. In 2009-2010: RMB 1.4 trillion invested in rail network. By

2020- 120,000km highspeed railway network to be completed- dramatically

improve speed of delivery and nationwide access

Rail Network brings significant new efficiencies in land transportation;

New hubs will be created

Rail Network 2020

HubsHubsHubsHubs

Continued Investment in Transportation Infrastructure

Source: Chinas Future Transport Infrastructure , Tsinghua University


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Industry Trends (6)

Market Demands Improvements in Efficiency

With increasing market competitiveness, efficiency gains from improved

logistic management critical to firms remaining competitive; Domestic firms

investing in advanced SCM IT system and online logistics

Source: Fraunhofer IML

Advanced SCM Platform eLogistics

Opportunity to bring world-class SCM capabilities as Value-added


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Industry Trends (7)

Development of Domestic 3PL +Rise of Outsourcing

Currently only in China 2.7% outsource vs 15.7% global norm but market

segment growing at 25% annually vs overall logistics- By 2013 China expected

to be largest contract logistic market in Asia-Pacific reaching RMB183.5 billion

market value.

0

20

40

60

80

100

120

140

160

180

200

2003 2004 2005 2006 2007 2008 2009 2013F

Chinas Contract Logistics Market

Source: Transport Intelligence, Colliers International

RMB billion

Contract Logistics Market Forecast(2009-2013)

Geographies CAGR

Asia 12.8%

Western Europe 6.5%North America 9.8%

Global 9.5%

China 20.6%

Source: Transport Intelligence, Colliers International

Inter Asia Trade Forecast (2010-2015)

2010 30.1 million TEUs

2015 44.1 million TEUs

Potential to build 3PL market hub leader leveraging global skills


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Source: NDRC and Nankai University

Outsourcing Rate Increasing Outsourcing Characteristics

Case Study: Outsourcing Trends

Survey of Chinese enterprises showsoutsourcing volume increasing to 61% in2009 from 35% in 2005 (does not reflectwhole market only sample)

Market for more sophisticated 3PLs on the increase..

Enterprises outsourcing more of internallogistics especially transportation &distribution functions; future needs are

advanced logistic functions

Source: Extracts from NDRC and Nankai Survey

Outsourcing Vol. Domestic Enterprises

70% enterprises surveyed outsourced

more than 50% of logistic functions; while

40% outsourced more than 80%

Types of Functions Outsourced

Future Planned Functions Outsourced


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Future Growth for Logistics Market

China Market to Reach US$ 450 billion

Market demand, the development of transportation infrastructure plus

availability of world-class logistic facilities and systems will support the

overall upgrading of Chinas logistic market

Consumption-relatedSpend will drive 5 key

logistic segments!

Source: ATKearney Report on Chinese Logistics by 2015

Express

Road freight

Air freight

Intl freight fwding

3PL outsource

Broad growth in market segments and various transport modes


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Section Two-State of Chinas Logistics - Challenges & Future

Growth











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Transportation Network Long Term Goals

Transportation Infrastructure Build-up Plan (I)

Source: Research Centre for Modern Logistics Tsinghua University, National Bureau Statistics

Transportation accounted for 75% of the RMB 3 trillion investments in logistics in 2010.

Early phase of transportation network build-up focused on road and deepwater ports in support of

the manufacturing and export demand. Chinese ports rapidly led in world container traffic

Early Phase

Focus

Priority on transportation reflects Govt priority on improving logistics


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Transportation Capacity

Traffic Capacity by Transportation Modes

Source: National Bureau Statistics

Road Transportation remained the primary mode for passenger and freight traffic while air

transportation mode saw the strongest rise. While road traffic capacity has increased

MILEAGE PER CAPITA CHINA VS US ONLY 10%

Current capacity relies on road transportation which is still restrictive


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Transportation Network Long-term Goals

Transportation Infrastructure Build-up Plan (II)

Source: Research Centre for Modern Logistics Tsinghua University

Primary goal from 2010 to 2020 is to ramp up the domestic transportation network to support the

growing, broadening and deepening of the domestic consumption-focused economy

2010

to

2020

Recognising this focus- identify rail/coastal ports for early partnerships


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Roads and Expressways Network 2020

Multiple Highways & Trucking Hubs (42)



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Rail Network and Hubs 2020

Railway Container Hubs (18)

Hub



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Case Study: China Rail

Opportunity and Challenge

Source: Research by Zheng Wan , University of CaliforniaXiang Liu, University of Illinois Urbana-Campaign

Major passenger carrier

2007: 1.4bn pax;3.2bn tons goods 2007-2012: US$300bn invested

Using Force Field Analysis as decision-tool - Insights into future development of

the Chinese rail transport system appears to be positive

Growth of China Rail

Energy SavingMost energy efficient

transport mode cpr to

Japans rail system3

5

4

5

Social DemandAlready high load density

but demand outstrip supply.Need further expansion

Container TransportDevelopment crucial for

inland economy; increase

share of land transport

Govt SupportFinancial & policy support

plus independent Ministry

of Railway

17

CompetitionIntense competition from

other transport modes esp.

road with heavy investment

Poor FinancingHigh construction capex

funded through domesticbonds; l imited flexibility

Limited ProfitabilityProfit margin 1-2%; Low

pricing esp passenger as

viewed as public service

Strict ControlViewed as strategic asset

with semi-military control;

lacks market flexibility

3

3

4

413VSVSVSVS

Driving Force Restraining Force


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Coastal and Large-Scale Ports

Vibrant World-class Port Network

World Ranking of Container Ports



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Civil Airport Network in 2020

Core Hub Formed by BJ, SH, GZ Airports


Sub-hubs in each Geographical area with

International, Regional and Trunk Airports

North-West HubNorthern Hub

China Eastern Hub

China Southern Hub

South east Hub



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Current Developments -Logistic Hub/Pks

Total of 1300 + Logistic Parks have been Developed

85% supported by local govt

Govt build infrastructure Special tax incentives for tenants

Cluster development

Value of land increase primary

motivation for investment

Overcapacity- only 40% utilization.

Corruption contract allocation Design not meet business needs

Lack multimodal transport

A Crowded market.. Need to offer unique proposition

to stand out against Competition


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Logistics Hubs Bloom Across China

5 Major Logistic Hubs Across China

Broadly classified into 3 categories (1) Primary hubs are the leading coastal cities

of Shenzhen/Guangzhou; Shanghai and Beijing/Tianjin (2)Secondary hubs are

extensions from the primary (3) Emerging hubs are in the inland and have risen

priomarily due to strong retail/consumption story



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Examples of Primary Hubs

Primary Hubs are formed from the Early Economic Zones

A significant number of logistic parks and warehouse facilities have already co-

located within these hubs

Harbor City Tianjin-Bohai Bay

Shanghai Hub

PRD Hub



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Logistic Cities

City Locations with Logistic Potential

State Council designated Cities due to being part of air, land or sea transportation

nodes; State Council also identified 10 logistic passages with key traffic volume

Need for in-depth study to study opportunities offered by cities

21 Nationwide Junction cities 17 Regional Junction cities

Source: LiFung Research

Recent Chinese Policies Supporting


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Recent Chinese Policies Supporting

Logistics Market

1. To reduce tax burden for all logistics companies effectively2. To increase support for Logistics Land Policy

3. To promote and facilitate convenient passages for transportation vehicles

4. To improve management of logistics enterprises

5. To encourage integration of logistics facilities and resources

6. To promote innovation and application of logistics technology

7. To increase investment in logistics industry

8. To promote development of agricultural logistics.

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Under 12th Five Year Plan by NDRC- Logistics Key Focus

Leverage on Chinese Govt Support to Drive Growth of Logistic Hub

Eight key preferential terms for logistic market

Targets set by NDRC& CFLP by 2015

Total Logistics value grow at CAGR 14% Logistics Value-added increase at CAGR 15%


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High-Level Co-ordination Still Weak..

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G to G efforts would be required to ensure nation-wide co-ordination

Lack of co-ordination among Govt Dept leads to multiple jurisdictions and limits development

of logistic industry; provincial level authority still exerts influence and impacts industry

Re-Org of Govt. DeptConstraints at Provincial

Level

Functions of government

departments regulating civil

aviation, postal services,

communications and urban

public transportationconsolidated under

establishment of Ministry of

Transport in 2008

Other dept still responsible

for monitoring different

aspects of logistics industry


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Section Two-State of Chinas Logistics - Challenges & Future

Growth











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Leading Logistics Enterprises..

Performance of Domestic Logistic Business for 2009

Revenues of Domestic Enterprises

Low profitability opens partnership and profit improvement opportunities

Profitability in 2009

Source: NDRC and Nankai University

Average profit margins of domestic

enterprises was 6% in 2010 down by

7.1% yoy


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Leading Logistics Enterprises..

Foreign Logistic Enterprises Continue to Expand

Foreign enterprises seek to enter China also opens partnership opportunities

Market share of foreign logistic players still small but growing especially in the land freight

and air express freight segments

1. Fedex Asia-Pacific delivery center in Guangzhou Baiyun Airportcommenced operations in 2009- largest outside the US.2. UPS relocated its intra-Asia hub from Clarke in Philippines to Shenzhen in

2010

3. DHL entered agreement with China Merchants Maritime Logistics in June

2010 to establish a global distribution center in Qinghai, Shenzhen4. TNT established and invest EUR 170M in a wholly-owned road

transportation subsidiary in Hangzhou

5. In 2010 Japans largest logistic co. Yamato Holdings will setup cold-chainland transport company in YRD with aim to reach 30 bn yen in 5 years

d l


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Logistics Real Estate Developers:

- Government Ind/Log Parks, Local and Central SOEs.

- Private Co.: GLP (Prologis), AMB, Goodman, Ascendas, Mapletree Log. etc.- Funds: A-Reit, ING Real Estate, Cache (ARA-CWT), PingAn,

Equity Intl, China Inv Corp, Canadian Pension Fund etc.

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Portfolios of Key Private Developers: (sqm by 2009) (Lease rates) 2010/11 New Devt. On hand & underconstruction

- 44000

150,000 270,000

300,000 850,000

- 96,000

40,000 82,000

- 220,000

60,000 170,000

1000,000 2,800,000

300,000 500,000

1,850,000 5,100,000

Leading Logistic RE Players..

Gaining Interest from Foreign RE Developers and Funds

R t N B i St t


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Recent New Business Starts..

Large sports retailers: eg. Nike & Adidas. E-commerce: eg Alibaba, DangDang, Amazon.

Retailers: eg. Carrefour, Tesco, Watson etc.

Automobile & Car components: eg. Benz, BMW; GiTi, Faurecia.

Food Industry: eg. Havi LC (McDonald) vs YLC (Yum! KFC)

Cold chain logistics: eg. Americold, China Merchant Log, PFS.

Others: Medical Pharma, Chemical logistics. eg. CWT, Kerry Log.

SERVICE PROVIDERS:

3PLs: moving from freights (DHL, Fedex, UPS) to Contract Logistics:

eg. APL- Hanes, Legend; YCH- Dell; Schenker- BMW.

3PLs-Shippers: eg. CEVA, Maersk, K+N, Samudera.

SCM / BPO: eg. Banks- CitiBank, DEM/OEM- Hi-P, Eternal Asia.

Market Developments focused on Specialist Sectors

Knowing the Market Needs and Trends..to identify opportunities

Retail and consumer brand enterprises have been aggressively expanding and

building logistic capabilities- in-house and through 3PL partnerships; Automotive

logistic has also been a sector targeted by foreign enterprises

R t M k t M&A


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Recent Market M&A..

M&A Driven by Foreign Logistic companies.

World Class centres needed to support world class players logistics needs


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Section Two-Identifying Business Opportunities in China

Scoping of Opportunities

Screening Attractive Market Segments

Case Examples

i f i i


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Identify Possible Market Segment Opportunity

Screen Potential of Market Landscape & Competitiveness; Analyse

Opportunity Transportation Mode vs Industry Segment

Road/Rail

Freight

AirFreight

AirExpress

IntlFreight

Remark

Non-Food

Retail

Logistics

Vol + Margins

(Luxury gds

strong Margins

Import

Pharma

Logistics

Domestic Market

only

Domestic Market

onlyGd. Margins

Hi-tech/Auto

Logistics

Efficient SCM

required; Export

Food + Agro

Logistics

Domestic Marketonly

Domestic Marketonly

Niche Cold Chain

logistics Gd

Margins

Large Mkt

Med. Mkt

Small. Mkt

Retail & Hi-Tech/Auto Logistics Looks like good opportunities

Source: Various, Internal Analysis

S i f O i i


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Identify Possible Market Segment OpportunityScreen Potential of Market Landscape & Competitiveness; Analyse

Opportunity Transportation Mode vs Logistic Segment

Non-Food

Retail Logistics

Pharma

Logistics

Hi-tech/Auto

Logistics

Agro-Food

Logistics

Remark

Transportation

Outsourcing

trend

Distribution

Outsourcing

trend

Warehousing

Outsourcing

trend

Packaging &

Processing

Logistic IT &

Mgt Systems

Future demand

Large Mkt

Med. Mkt

Small. Mkt

Transportation, distribution & warehousing current hot Sectors

Source: Various, Internal Analysis

S i f O t iti


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Scoping of Opportunities..

Identify Possible Market Segment OpportunityScreen Potential of Market Landscape & Competitiveness; Screening

Opportunity by Transportation Mode vs Location

Road/Rail

Freight

River

Freight

Air

Freight/Exp

Intl Remark

Western

Chengdu

Chongqing

Mega-hub

Central

Wuhan

Eastern

Shanghai

NortheastBohai-Tianjin

Southern

GZ-SZ

Larger Opportunities in emerging logistic hubs

C E l L i ti F ti


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Case Examples- Logistic Function

Overview of Warehousing Investments

Recent continued investments continue into warehousing sector

As land &labor costs increase in the coastal cities, warehousing expansion continues

in 2nd / 3rd tier cities with need for better, quicker and more accurate deliveries

demanded by customers- hence opportunity for foreign investments

Source: Tomkins International Survey 2009

State of Chinese Warehouses Foreign Investments

Current automation levels low

Only 5% have good IT systems Existing warehouse in populated areas

which restricts trucking

Foreign investments concentrated inBeijing,

Shanghai and Guangzhou hubs Warehousing focus for retail, apparel, auto,

pharma, electronics and tobacco sectors


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Case Examples Location Investments


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New Inland Hubs away from the Coast

Pop. GDP Transport

Nodes

Economic

Drivers

Competitive

Edge

Wuhan

(Central)

8.9M RMB

456bn

4th Aviation

Hub

Road/Rail hub

Largest inland

River port

Hi-tech

Biotech

Auto- Honda, PSA

Logistic TNT,

DHL

Large pool U grads

Strong IT foundation

Rel. low land/labour costs

Strategic centre of Chinas

transport network

Wuhan is identified as the Central Logistic and Transportation hub and

provincial capital of Hubei province

Wuhans 1+8 Cluster of surrounding

cities offers multiple re-development

opportunities

Source: Chinese Govt. Sources



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New Inland Hubs away from the Coast

Pop. GDP Transport

Nodes

Economic

Drivers

Competitive

Edge

Chengdu

(Southwest)

11.4M RMB

450bn

Aviation Hub

Asias largest

rail container

hub

Largest rail

network

Hi-tech and IT

BPO hub

Biotech

Food processing

Logistic TNT,

DHL

Large pool U grads

Strong IT foundation

Rel. low land/labour costs

Strategic centre of Chinas

transport network

Chengdu will become Chinas Southwest logistic hubs to drive economic

development further inland

Emerging Hubs appear to offer broader investment opportunities

Source: Chinese Govt Sources

china logistics industry_ trends _opportunities_2011

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