The massive potential of the mainland logistics market has the four leading international logistics companies - DHL, UPS, TNT and FedEx - tripping over one another in their rush to expand facilities and services. Deutsche Post's DHL Express, the leading mainland express company with a 40 per cent share of the international market, saw revenue rise between 50 per cent and 60 per cent last year, making China the company's biggest market for shipments within Asia. DHL, which has invested US$273 million in China over the past three years, has predicted the market will account for as much as 75 per cent of Asia-Pacific revenue within five years, up from the current 45 per cent The company announced in April that its DHL China Priority strategy would see its total mainland investment climb to US$900 million by the end of this year. DHL has agreed to establish an operations centre at Guangzhou's Baiyun airport and also to upgrading existing facilities in Shenzhen, Qingdao, Hangzhou and Chengdu this year. Dutch group TNT has forecast foreign trade will increase income from express services three to four times the country's economic growth rate up to 2010. TNT operates the largest distribution infrastructure in China with 140 operating facilities covering 2.4 million square metres of warehouse space across 600 cities. The company is acquiring China's leading freight and parcels operator, HOAU Logistics Group, which will make it the largest privately owned network for freight and parcels. FedEx is also expanding quickly. It already serves 200 cities and will add 100 more in the next few years. In January, the company started work on its US$150 million Asia-Pacific hub in Guangzhou, which will be the largest FedEx hub outside the United States. Earlier this year, FedEx announced a deal with Tianjin Datian W. Group Co, to acquire the FedEx-DTW International Priority express joint venture and DTW Group's domestic express network for US$400 million. When completed, this will turn the company from a joint venture into a wholly owned subsidiary of FedEx. And now the big four are focusing on the small-mail express business following the country's decision to open its domestic express market. UPS is building a hub in Shanghai that will begin operations next year as part of the company's effort to launch its domestic express delivery service. FedEx is expected to enter the retail market through photocopy store Kinko's network in Shanghai, Beijing, Guangzhou and Shenzhen. All of this is happening to the backdrop of rocketing imports and exports and a booming consumer market. 'What's fundamental to this economic boom is a massive exchange of goods both in and out of China to other countries in Asia, and in and out of China to the rest of the world,' says David Cunningham, president, Asia Pacific of FedEx Express. 'We believe the more economic activity, the greater the need for logistics. Logistics is what enables business, particularly in an enormous import and export market like China.' A report in May by independent market analyst Datamonitor predicted that China would become the sixth-largest express and parcels delivery market in the world by 2010, overtaking Canada. The report, which put China's express delivery market at US$3.5 billion last year, said the driving factor was China's increasing exports to Europe and the US. 'China is increasingly being seen as the manufacturing centre of the world,' said Emilio Pedrinaci, express analyst at Datamonitor, and the author of the study. 'Post-WTO China is also experiencing rapid liberalisation and modernisation as well as rising domestic consumption. Consequently, it has become a strategic partner for global businesses.' Ning Diao, communications manager for TNT China, said growth was creating huge opportunities. 'We estimate that by 2010, China's domestic market will be the world's largest for most consumer durables and electronics,' said Mr Diao. Mr Pedrinaci predicts annual growth for the express market of about 20 per cent over the coming five years, primarily due to strong international volumes. Some industry sources predict that China's air-express market will continue to grow at 30 to 35 per cent for the next three years, three times the global average of 11.2 per cent. Mr Pedrinaci said the main obstacle to growth was that the infrastructure was mainly concentrated in coastal regions and major cities. 'In the interior, however, the logistics infrastructure is far less comprehensive and access is inhibited,' he said. 'In addition, although things are improving, China's infrastructure has not kept pace with the country's rapid industrialisation.' He also pointed to bureaucratic obstacles, such as the large number of operating licences required by foreign companies. 'Oversight of logistics in China lies not with one, but many government departments,' he said. 'Gaining the approval of the right departments is a difficult and unclear process for companies wishing to operate in multiple sectors, as jurisdictions overlap and there is little transparency in the bureaucratic process.' A report by the American Chamber of Commerce in Beijing raised some of the same issues. The paper argued that while China had made significant improvements, especially in opening up the aviation and freight- forwarding sectors, several areas 'remain problematic'. Problems cited include excessive capital requirements for foreign enterprises and local variations in the interpretation and enforcement of regulations.
