Chinese logistics costs in the first half of 2011 have risen to 18% of the country’s GDP, an increase of 0.1% since last year according to a report by the China Federation of Logistics and Purchasing (CFLP). The rise comes at a time when logistics costs in Europe and North America, typically about half the Chinese figure, appear to be stagnant or even declining.
The total cost of China’s logistics rose by 18.5% in the first half to RMB 3.7 trillion ($575 billion), with the CFLP citing the rising price of raw materials, labour and lending rates as reasons. Transport costs rose by 15.5% to RMB 1.9 trillion, storage costs soared 22.7% to RMB 1.3 trillion, while interest expenses jumped 24% to RMB 531 billion. The CFLP pointed to China’s rapid industrialisation and urbanisation as the main drivers, but also to a poor corporate capital utilisation. The report pointed out that the high ratio is damaging to many small- and- medium-sized companies.
China’s logistics costs are more than double the average in Western Europe, Japan and the US. According to a report by the CSCMP, US logistics costs in 2010 were $1.2 trillion, or 8.4% of GDP. Although this represented an increase of $114 billion from 2009, when costs were a record low 7.7% of GDP, the figures are only at 2005 levels and far off the 10% ratio to GDP seen in the past.
For 2011, the overall logistics costs for the main markets of Europe and North America have seen some inflation as a result of fuel and raw material price rises, however experts suggest that overall costs are unlikely to have increased much, particularly as rates have remained stagnant or declined in 2011 compared to 2010.
“Although it depends on what period we are talking about, we have not seen an usual rise in logistics cost,” said Thomas Cullen, an analyst at the consultancy Transport Intelligence.
Cullen said that the European picture is complicated. “Road freight costs have increased somewhat, but have barely recovered the rates seen before the recession. There may be some inflation, for example in Germany, but surely this is modest,” he said.
Likewise, recovery in the Russia market this year has also led to rises in rates for road transport. Carmakers and logistics providers have reported rate increases of 200-300% for vehicle logistics . But weaker markets in Western Europe have suffered declines.
Cullen added that container-shipping rates have been soft. With more capacity coming online and utilisation dropping, sea freight rates between Europe and Asia, for example, have fallen significantly from July 2010, while other major lanes have also suffered. The three major Japanese carriers, NYK, MOL and K-Line, each recorded losses in the past quarter.
Airfreight rates have been stronger than for road or sea, mainly because of tighter capacity rather than significantly improved volumes. “Certainly the leading companies such as Lufthansa have been very profitable, but this is as much to do with better utilisation,” said Cullen.
With the earnings reports of major carmakers pointing to rising material and supply chain costs as threats to their profits, the question is whether logistics providers might be able to use the opportunity to increase their margins. The weak rate scenario would suggest otherwise, and Cullen said he has seen little evidence of this. “But that is not to say it is not happening,” he said.
But the low rates are also benefiting freight forwarders and brokers, who purchase transport on behalf of shippers. The most recent earnings reported by European and American logistics providers have suggested reasonably strong profits and improvements to business performance as providers took advantage of strong US demand earlier in the year and opportunities in emerging markets. UPS, Ryder, CH Robinson and Pacer International all reported at least double digit increases in earnings.
The DHL Group reported earnings more than double that of last year for the second quarter to €562m, including solid performances across its freight forwarding, express and supply chain divisions. While revenue actually dropped for its supply chain division, mainly because of exchange rate costs, earnings more than doubled.
Other European providers, including DSV and Norbert Dentressangle, also reported strong results. Gefco, the logistics subsidiary of the PSA Group, saw its profits increase by 17% in the first half of 2011 even as the automotive division saw it’s profits dive around 23%.
Uncertainty in the second half of the year in the American and European economies, however, including for vehicle sales, has cast doubt on the direction of business and logistics rates.
But in China the situation appears very different. Even with vehicle sales growth predicated to slow somewhat, the CFLP highlights more favourable than negative factors, with the logistics sector expected to increase by 13%.
