Logistics upgrade needed to support China's e-commerce boom
In the wake of Alibaba's US listing plan, companies see huge potential in helping the mainland's weak warehouses reach world-class standards
Reuters in Hong Kong
Alibaba's plans for a giant initial public offering in New York highlight vast potential for e-commerce in China - and the weak link the logistics industry must fix if explosive growth projections are to be reached.
The ageing warehouses that supply goods to customers across the world's second-largest economy are already creaking under the strain, lacking the automation and state-of-the-art technology that has fuelled the rise in the United States and Europe of Amazon.com
By 2020, China's e-commerce sector will be larger than those of the US, Britain, Japan, Germany and France combined, consultancy KPMG said in a recent report.
To cope with the China surge, as much as US$2.5 trillion may need to be invested in buying land and constructing warehouses alone over the next decade and a half, according to one builder.
That is drawing the attention of global private equity firms such as Blackstone and Carlyle as they seek to benefit from an anticipated investment boom.
"Over the next 15 to 20 years, the real cost of building warehouses is going to be staggering," said Jeff Schwarz, co-founder of Global Logistic Properties, the biggest foreign builder of logistics facilities in China.
With each new facility the size of several large sports stadiums, that translates to about 2.4 billion square metres of new warehouses - an area close to two-thirds of the total land mass of Taiwan.
And Global Logistic estimates the US$2.5 trillion needed over the next 15 years will still only increase per capita fully automated modern warehouse space to just a third of that in the US.
Alibaba controls 80 per cent of all online retail in China, and its logistics partners delivered five billion packages last year from deals struck on its internet marketplaces.
While transport infrastructure has kept pace so far with Alibaba's rise, warehousing is a key to the supply chain across the e-commerce industry that logistics specialists say is in serious need of a makeover: Boston has more modern warehouses than the whole of China, says Stuart Ross, head of Industrial at property consultancy firm JLL China.
Less than 20 per cent of China's warehouses are categorised as modern, with fully computerised tracking systems and the latest in retail technology, according to Global Logistic and other warehouse builders.
Many facilities serving Alibaba and its peers are in areas that are tough for trucks to access. They often lack raised loading bays to let packages simply roll off conveyor belts into the back of trucks: instead, trucks are loaded and unloaded by manual labour.
That is a headache that can cut into profits for e-commerce firms. Despite China's wages being much lower than in the US, it can cost more than twice as much to transport goods in China, Global Logistic said.
Improving the logistics of China's warehouses has been prioritised by none other than Alibaba co-founder Jack Ma Yun. Last year, Alibaba announced a plan to lead a consortium to invest US$16 billion in the first phase of building a national logistics business, a unit of Alibaba to be chaired by Ma.
Beijing has also made a modern supply chain a priority as it looks to build a consumer-driven economy.
Since the beginning of last year, about US$22 billion has been earmarked by buyout firms, including Blackstone and Carlyle, and private companies to buy land and build new warehouses in China.