University of Montreal Logistics Presentation v2

Logistics in China: 

Logistics in China China to Canada : How to manage the transportation challenges par Eric Allard Schenker Canada

Slide2: 

China – General Information ( as of April 06 ) Population : 1.3 billion GDP : 2.26 billion US$ ( + 9.5 compared to 2005 ) Urban unemployment rate : 4.2% ( same as 2005 ) Inflation rate : 1.9 % ( 2005 : 3.9 % ) Economic Growth : 9.4% p.a.

Logistics in China – General Information: 

Logistics in China – General Information Logistics Cost around 20% of GDP ( 2-3 times higher than in “developed countries” Logistics account for around 90% of production cycle time and around 40% of general production cost ( United Nations Development Programme estimate ) Approx 90% of the logistics market in China are controlled by State Owned Enterprises 2.6 million road haulage operators with 5.1 million vehicles The share of contract logistics is at only 2% 3 Major logistic regions : Pearl River Delta ( South China including Hong Kong ), Yangtze River Delta ( Shanghai, Wuxi, Suzhou,Hangzhou, Ningbo ) and North Delta ( Beijing, Tianjin )

3 Main Gateways into China: 

3 Main Gateways into China

Main Industries: North Delta – Beijing/Tianjin: 

Main Industries: North Delta – Beijing/Tianjin

Main Industries: Yangtze River Delta: 

Main Industries: Yangtze River Delta Strong impact of the international Multi Fibre Arrangement (MFA) which restricts imports of clothing and textiles due to low-cost advantages. Estimation that China’s share of the world textile market could increase to over 50% by 2007, up from only 17% in 2003.

Main Industries: Pearl River Delta: 

Main Industries: Pearl River Delta

Logistics in China-Challenges: 

Logistics in China-Challenges Up until 2005 Joint Venture with chinese company needed 600 000 logistics experts needed, currently around 60000 available Regulations ( Import / Export customes , bonded-non bonded zones ) Infrastructure

China 3PL Market:Current Outsourcing Of Logistics: 

Although the majority of shippers outsource direct transportation services, only about 50% of shippers outsource logistics. 88% 48% 0% 20% 40% 60% 80% 100% Direct transportation Logistics % of respondents Outsourcing rate Rate of outsourcing of logistics by type of shipper China 3PL Market: Current Outsourcing Of Logistics

China 3PL Market:Current Outsourcing Of Logistics: 

Under pressure to reduce costs, many shippers look to their 3PL providers for industry and operations experience in order to reduce logistics costs. China 3PL Market: Current Outsourcing Of Logistics

China 3PL Market:Current Outsourcing Of Logistics: 

About 30% of shippers, particularly MNCs, would prefer to outsource to foreign providers, while more than 20%, particularly Chinese, would prefer Chinese providers. Who prefers Chinese providers? Who prefers foreign providers? No preference 48% Prefer foreign provider 30% Prefer Chinese provider 22% 30% of all shippers 37% of MNCs 15% of Chinese shippers 22% of all shippers 19% of MNCs 31% of Chinese shippers China 3PL Market: Current Outsourcing Of Logistics

China 3PL Market:Current Outsourcing Of Logistics: 

Reasons to outsource to Chinese providers are lower price and local knowledge, whereas foreign providers have a strong IT system and professional know-how. IT system Industry/operational experience Standardized operations International network Logistics talent Financial position Integrated logistics capabilities Advantages of foreign providers 51% 44% 31% 13% 10% 5% 79% 0% 20% 40% 60% 80% 45% 34% 27% 14% 9% 5% 75% 0% 20% 40% 60% 80% Lower price Local knowledge Domestic network coverage Relationship to central /local government Ownership of some strategic assets Flexibility of operations Policy protection Advantages of Chinese providers China 3PL Market: Current Outsourcing Of Logistics

China 3PL Market:Providers’ operations: 

Import Export Domestic 60% Revenue split between import, export and domestic Chinese providers focus more on domestic logistics opportunities due to lack of overseas network; foreign providers draw most of their revenue from import and export logistics as they focus on serving their global accounts. China 3PL Market: Providers’ operations

China 3PL Market:Providers’ operations: 

Multinational companies with national logistics requirements are the main target clients for all 3PL providers, although Chinese providers have a higher proportion of Chinese clients. 0% 20% 40% 60% 80% 100% All providers Chinese providers % of revenues Revenue by client nationality 67% 56% 33% 44% 98% 2% Foreign providers China 3PL Market: Providers’ operations

China 3PL Market:Challenges To Growth: 

While government restrictions in clearly the top issue for foreign providers, all players are facing the challenge of finding qualified people at all levels. 40% 24% 20% 12% 2% 2% 0% 10% 20% 30% 40% Government restrictions Finding qualified people Ambiguity of policy Client rigidity/ unrealistic expectations Incompatible culture IT systems/ development costs Challenges for foreign providers % of respondents 29% 23% 23% 17% 8% 0% 0% 10% 20% 30% Finding qualified people Ambiguity of policy Government restrictions IT systems / development costs Client rigidity/ unrealistic expectations Incompatible culture % of respondents Challenges for Chinese providers China 3PL Market: Challenges To Growth

China  Canada Challenges: 

China  Canada Challenges Capacity Air/Sea Rates

China  Canada General Info: 

China  Canada General Info Import/Export Ratestructure Nature of goods