LSPs chase the Chinese dream

This week’s Automotive Logistics China conference in Shanghai left little doubt that China is the true land of opportunity for the automotive industry and its suppliers during the global recession. Carmakers and tier ones such as FAW Group, Dongfeng, Geely and Magna called for expanded logistics services including milkruns and railway transport. But the logistics sector remains fractured into small players, often owned by domestic OEMs and, partly as a result, perceived as sluggish and inefficient. Few global LSPs, meanwhile, have yet to penetrate the Chinese automotive market in a substantial way. 

 

Spurred by government incentives, Chinese domestic car sales grew around 3% in the first quarter, reaching a record 2.68m sales and 2.57m in production, outpacing the US as the world’s largest new car market. And the demand for logistics services remains steady – a survey at the conference revealed that 55% of respondents said that the current market is prompting increased levels of logistics and supply chain outsourcing, quite a different message to the news that emerged last month at the Automotive Logistics Europe conference, where OEMs appeared to be bringing more services in-house and cutting contracts.

But while the market is buoyant compared to Europe or the US, the automotive logistics industry has still been severely impacted in China by the financial crisis. Firstly, car sales growth is modest by Chinese standards. And according to government official Wei Yong, Division Chief for Transport and Logistics at the National Development and Reform Commission, the growth in the logistics sector declined by 30% this year, with 60% of logistics companies experiencing a contraction. Port throughput is significantly down, following the drop in exports. Richard Ma, from the Port of Tianjin, told Automotive Logistics that car volumes were down around 50% at that port to 30,000 units through the first two months of the year.

 

The Chinese government incentive programmes have helped, however. Sales tax has been halved for smaller cars – raising sales more than 20% in this segment. The government has also unveiled a plan to help the logistics industry with infrastructure developments, special logistics zones and multimodal transport. But Mr Wei offered few details and little about the timing of the strategy (read more).

 

The pressing issue remains a lack of consolidation among Chinese LSPs, many of which are subsidiaries of OEMs. These companies have been slow to develop value-added services, such as pre-assembly or returnable packaging systems. According to Xing Jianming, Deputy General Manager, Anji Automotive Logistics (itself born out of SAIC), the ownership structures have led logistics companies to be more passive in China, and for OEMs to focus only on price. “The quality of the operations is looked upon only secondly,” he said.

 

But these companies are changing, particularly as they partner with global LSPs and carmakers. Anji was moved out of the SAIC Group earlier this year to become independent. Changchun Lujie Logistics, part of the FAW Group, is also looking to expand. “Changchun Lujie also has to look behind FAW, and try to speed up the cooperation with other carmakers and industry players,” said Li Wang, Toyota Lujie’s Vice President, a joint venture with Toyota. “The FAW Group encourages this independence as well.”

 

While global LSPs such as DHL, Agility and Expeditors are present in the market, and somewhat more trusted by international companies, they own few assets themselves and rely often on local providers. “In that way [the global LSPs] performance is our performance,” said Robert Jiang, General Manager from Dajin Logistics, a Chinese company doing aftermarket logistics for the automotive sector. “Otherwise, they distinguish themselves mainly through more sophisticated commercial and marketing strategies.”

 

George Ho, Senior Logistics Manager, Geely International, said there is not enough recognition of logistics importance among carmakers. “If we promote the awareness of logistics in corporate management [of Chinese carmakers] then the people will not just stay focused on price,” he said.

 

Such recognition appears to be growing. Dr Feng Junxia, Logistics Department Manager for FAW outlined how the carmaker had followed a Toyota strategy of delivering to the assembly line all the parts to each car in one container, freeing space in the production area. Jing Wei, a logistics manager for Dongfeng, said the company was expanding its use of 3PLs, as well as using KPIs to better measure logistics performance.

 

Other highlights included news that rail investment is extensive, with plans to add 18 railway logistics centres and special station for automotive rail, according to Fu Qinchao, Executive Deputy General Manager, China Railway Special Cargo Automotive Logistics. There also appears to be a greater push toward improving packaging standards. Chep’s Jean-Luc Guenard hopes to see the country move toward a scenario where nationwide container pooling would be possible, and Ford China’s MP&L Director, Carroll E Picket, said she hoped to see all OEMs able to agree to common, rigorous packaging standards. “It’s not worth going cheap for packaging when you’ve got a supply chain 10,000 miles long,” she said.