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China’s logistics

China’s logistics industry to deliver all-round growth in the coming decade NEWS AND MARKETS In this report, we take an overview of the logistics sector in the world’s largest manufacturing economy, China; and assess the country’s competitive landscape, industry’s latest developments and major challenges of the logistics market. China is the second largest economy in terms of GDP and the world’s largest economy in terms of purchasing power parity, with a population of around 1.4 billion, it is also the world’s fastest growing consumer market. Over the last few decades, China has heavily focused on industrialization and has become the largest manufacturer and exporter of goods in the world. China’s economic growth has been accompanied by the ever-increasing demand for Author: Sushen Doshi, International correspondent for World of Industries logistics services. With increasing GDP every year, the Chinese government has invested more and more to build a robust infrastructure system in terms of its roads, urban transportation systems and railway networks. However, the country’s logistics capabilities still remain at an early stage of development, with a number of unresolved challenges. Having said that, a number of foreign and local logistics companies continue to expand into the Chinese market, and the government is pushing to improve the logistics capacities and efficiencies. Accordingly, it is right to predict that the logistics sector is set to maintain a steady and robust growth over the coming years. Driven by the demanding industrial sector and widening domestic consumer market, China’s logistics industry registered solid growth from 2010 to 2016. Total value-added of the logistics industry reflects the size of the market. The larger the value-added, the larger is the market. Total logistics value rose from around 175 trillion Yuan in 2010 to more than 225 trillion Yuan in 2016. Since China is a manufacturing economy, the logistics value of industrial products accounts for more than 85 % of the total value, followed by imported products and agricultural products with a share of 5 % and 2 % respectively. As the market for China’s logistics sector WORLD OF INDUSTRIES – INTRALOGISTICS & DISTRIBUTION 5/2017

keeps on increasing the, the costs associated with logistics activities also keeping on increasing. According to the data from China’s Federation for Logistics and Purchasing, transportation is responsible for around 50 % of the entire logistics costs, inventory management services which includes the cost of warehousing and other services are responsible for around 30-35 % of the entire logistics costs. The ratio of total logistics costs to GDP was 18 % in 2012, almost similar to the 18.1 % in 2008. This ratio is almost twice that observed in other developed countries. Since 2012, with significant steps taken by the government and industry players, they have managed to bring down this number below the 16 % mark. According to the National Development and Reform Commission (NDRC), by reducing the ratio of logistics costs to the GDP by 1 percentage point, China helps its industrial businesses save more than 900 billion Yuan or roughly around $ 135 billion. China’s Logistics Prosperity Index (LPI), a performance para-meter launched by the China Federation of Logistics and Purchasing (CFLP) in 2013, compiles the data from survey responses by nationwide logistics enterprises regarding their logistics activities and inventory levels of the each month. In 2017 so far, China’s logistic activities were recorded all in the expansionary territory, i.e. a reading above 50 indicates expansion from the previous month, while a reading below 50 indicates contraction. To gauge the performance of China’s logistics industry, LPI takes into consideration multiple parameters such as business volume, new orders, the average inventory, capacity utilization at the warehouses, operating costs and profits, investments and employment generated in the sector. Apart from the operating profits and employment, all other sectors are well above 50 point mark, showcasing a strong robust and expansionary logistics sector. The drop in employment and operating profits point towards a significant increase in investment in advanced equipment and technologies. Scattered across the value chain China’s logistics market is fragmented. Basically, the value chain of logistics can be divided into three kinds of third party logistics companies: freight forwarders, warehousing agents, and express companies. Road transport enterprises account for the largest market share in terms of the number of enterprises. According to a Logistics Development Report, published by the CFLP, there were an estimated 800,000 road transport companies in the country. The top 20 WORLD OF INDUSTRIES – INTRALOGISTICS & DISTRIBUTION 5/2017