Global players' woe over logistics boom
The rapid expansion of the domestic logistics market on the mainland will spur the growth of mainland logistics companies, and their expansion will pose serious competition to the big global logistics players, analysts say.
'In 10 years or less, a Chinese company will emerge that will challenge the big logistics multinationals like DHL, UPS and FedEx, in the China market,' said the China partner of the financial advisory firm KPMG, Jeffrey Wong.
'Further down the road, the increased financial strength of some large Chinese logistics firms will help them go global and some may challenge the big logistics multinationals in global markets,' Wong said.
Until recently both mainland and foreign companies were focused on supporting mainland exporters, but both were now looking at the domestic logistics market. 'Now it's not just about moving goods from a factory to a port. It's more about moving goods across China.'
One indication of the rapid growth of the domestic logistics market was its e-commerce business, which nearly quadrupled from 130 billion yuan (HK$160 billion) in 2008 to 476 billion yuan in 2010, Wong said.
It was only in 2008 that delivery companies started collecting payment for goods delivered through e-commerce, thereby kicking off a fast-growing logistics business, KPMG said in a recent report. 'From almost nothing in 2008, e-commerce has grown to a point where China's biggest online business provider, the Alibaba Group, is planning to invest US$4.5 billion to set up its own logistics firm.'
In 2009 and 2010, international express deliveries from the mainland grew 40 per cent, but this was beaten by the growth of domestic express services, up 57 per cent, the report said.
'China's move to a more consumption-driven economy, combined with the improved accessibility of inland regions, has directed the logistics industry's focus from being externally oriented towards new internal markets,' the report said.
Anthony Wong, past president of the Hong Kong Logistics Association, said: 'A lot of Chinese logistics companies have developed really fast, while multinationals have problems expanding in China. The chief reason is difficulties in finding human resources.'
In its report, KPMG said that a decision by DHL to divest its domestic express joint venture seemed to be an indication that the domestic delivery market would remain largely the preserve of local companies.
'For domestic distribution within China, Chinese companies are the choice. They are able to do the job more effectively,' Wong said.
Logistics costs accounted for 18 per cent of mainland GDP, higher than in many developed countries, the KPMG report said. Logistics costs doubled to 6.1 trillion yuan in 2009 from 3 trillion yuan five years earlier, according to the Hong Kong Logistics Association.
One reason for high logistics costs on the mainland is the fragmented nature of the sector, involving a mix of foreign, state-owned and domestic private players, the KPMG report said.
Companies that span different parts of the supply chain must pay multiple taxes to different bodies, and tolls levied by local governments account for one third of trucking costs. 'The outcome is an industry in which it is tough to survive,' KPMG said.
Jeffrey Wong added: 'Logistics needs a wide network to be successful. Regional differences and provincial protectionism makes building that wide network more difficult.'