Development of Logistics Industry in China

Development of Logistics Industry in mainland mainland chinaw atomic number 18Chapter 1Introduction1.1 BackgroundWith the expansion of the globularization and the quick exploitation of the education Technology (IT), the logistics industriousness has sire adept of the most master(prenominal) industries in the 21st century. The scope and occasion of logistics study changed dramatically over in the raw yrs. In the past, logistics played a sup fashionive situation to primary activities such(prenominal) as market placeing and manufacturing. Now logistics has expanded from its traditional aspects fascinateation and reposition to purchasing, distri furtherion, storage steering, packaging, manufacturing and customer service. More im behaviorantly, the role of logistics has changed from address absorbing to an important of competitive benefit for logistics companies. Modern theory of logistics in mainland chinawargon was introduced in 1980s. Since its economic reform ed and opened up in 1978, chinaw bes economy clasps booming, with a harvest-feast gait of nearly 10% in annual gross domestic product which has become a global manufacturing centre. (App completeix 1) After china joined the origination Trade Organization (WTO) in 2001, irrelevant companies were al poored to invest in china at the beginning but only in form of reciprocal ventures that Chinese partner took up the majority. At the end of 2005, this restriction was all in all phased out. At present, state-owned, private, and foreign logistics companies atomic number 18 all equally allowed to entry and struggle in logistics persistence in china.Chinas logistic manufacturing has been experiencing fast harvest-home be shake up of sustainable economic festering. The logistics manufacturing reported an annual bristleth dictate of 31% in 1999, 35% in 2000, and 55% in 2001, and was pass judgment to continue to expand chop-chop in the future. (LI FUNG RESEARCH CENTRE, 200 8) gibe to designate 1, the average annual growth rate of the logistics application in China was 22.2%, added harbor has stumbleed to RMB 1.4 bingle million million in 2006 up 13.9% over 2005 and in 2007, the added value even reached to near 1.7 trillion up 20% over 2006. It is pass judgment that Chinas logistics market value go out continue to maintain an annual growth of 20% in 2010.Exhibit1 congeries volume and growth of Chinas logistics industry1.2 Total logistics market sizeThe gross domestic product of China was above RMB 10 trillion in 2002 that achieved a real growth of 8%. In the tenth Five-year send off, China government is forecasting an average growth rate 7% per year from 2002-2007. According to the forecasts by State Development Planning directionsing (SDPC), the GDP will be quadruple, about US$4.3 Trillion by 2020. In a detailed survey by the China partnership of Logistics and Purchasing (CFLP), the total logistics market was estimated at RMB1, 788 billio n, 20% of the GDP in 2000. In 2002, it was estimated that the total logistics market of China were about RMB 2 trillion. According to HK Trade Development Council, leading logistics companies in China such as UPS, FedEx and DHL-Sinotrans turn out all recorded annual growths in over 30% on ope balancens in China and there atomic number 18 more(prenominal) outsourcing contributes to the growth of professional logistics companies.1.3 Players in the China Logistics MarketChinas logistics market is fragmented. judicature registration shows there argon about 700,000 logistics companies in China and some(prenominal) of them be small, ridiculously managed with fundamental understructure and technology. (Alan Dixon, 2008) Those of the players are inadequacy of nationally competences and customer target is narrow which mainly focus on frank acid and entrepot activities. Competition is intense, especially in the low-end market. Traditionally, Chinas logistics market is rule by th e state-owned enterprises (SOEs) which provide 90% of the logistics go in China.1.3.1 State-Owned PlayersThere are m each state-owned players in China logistics market. Before China joined WTO, Chinas logistics industry was a monopoly industry which could only be managed by state-owned enterprises (SOEs), mostly for transpiration and warehousing. The characteristics of the SOEs are small- outperform local enterprises, slow product renovation, poor management, production plans by-line from motley government agencies. Because of government enthronement and monopolistic operation, these enterprises obtained large assets and became comparatively large-scale phone line organizations. Relying on their sufficiency large(p) and existing market share, these enterprises became leaders in China logistics industry at that clip. The undermentioned is a list of SOEs that ranked top 5 in 2008 in China logistics industryChina Ocean Shipping (Group) Company (COSCO)China railroad Express C ompany control (CREC)China Post Logistics Company Limited (CPLC)China Railway Container Transport Company Limited (CRCTC).COSCO LogisticsCOSCO Logistics is a separate of China Ocean Shipping Company (COSCO) which was open in 2002. Because of the existing market share and emolumentd infrastructure, it ranked number 1 in China logistics companies from 2002 to 2008. (Cen, 2005) COSCO Logistics has 300 logistics facilities, covering 90% of the China market and the competitive reward is shipping transport.1.3.2 Private PlayersSince the mid-1990s, Chinas private domestic logistics firms started to develop themselves such as St-Anda, PGL, China Overseas logistics and so on. The private logistics companies are in medium-size which keeps the rapid growth in the market because of achieving in readiness and effectiveness and they are more foc employ on geographies, service and customers. precisely they are wishing of sufficient financial supporting for market expansion and ineffective management to support high growth and profitability. (Fu. and Gwi, 2004)EAS International Transportation Ltd (Shanghai).This company was established in 1985. In the past twenty years, EAS has acquired wonderful achievement in designing the unique operation platform to develop ultramodern logistics blood according to the demand of customers.1.3.3 International Logistics Players (ILCs)Although the domestic companies dominate the general China logistics market, ILCs are likewise playing a very important role and their market shares are increasing rapidly. The most famous international logistics players in China are DHL, TNT, UPS, FedEx and so on.DHLDHL entered China in 1981 and in 1986 it used joint venture with Sinotrans, one of the biggest SOEs in China logistics industry. DHL-Sinotrans has the biggest market shares in courier service. In the past twenty years, DHL has invested about $273 million in China. (Cen, 2005)Nowadays, many foreign logistics organizations have built good alliance with Chinese logistics companies by using joint ventures. Foreign companies have competitive expediency in technology and management, when they are integrated with experiences and existing service web of Chinese firms that they could be brought into full play. Therefore, Chinese logistics companies usually face link up and acquisition (MA) risk. Many inland Chinese cities offer lots of commercialised opportunities to foreign logistics companies but it contain period for foreign companies to fully penetrate into the Chinese market.1.3.4 Third political party Logistics companies (TPLs)Third Party Logistics companies (TPL) is a new concept for most of the Chinese companies. A TPL company unremarkably provides make-base go rather than a function-base logistics service, which generally toward to the integration and fully control of a part or entire process of customers logistics network. (Fu. and Gwi, 2004) Because small or warmness sized companies may not always achieve economics of scale in operating, which is even one of the advantages for tierce-party logistics companies. neverthe little due to the fundamental infrastructure of China logistics industry and developing technology, the TPLs are hush up need time to further improve the internal management in order to be expert in handling business.1.4 Major modes of Transport in ChinaAfter enter 21st century, the construction of transport infrastructure keeps rapidly increasing in China.1.4.1 PortsSince China government opened ports to foreign investment companies in 2002, Chinese port facilities had taken huge steps that tremendous increased the expertness. In 2003, the total investment in Chinese port construction was US$2.2 billion, and in 2004, the Ministry of Communication has reported this figure was to reach nearly US$4.3 billion. Currently, Chinas coastal cities such as Dalian, Tianjin, Qingdao, Shanghai, Guangzhou and Shenzhen, which dominant regional logistics centres are compl eted new berths building. (Exhibit 2) In Shanghai for example, in 2003 the container throughput are 11.28 million Twenty-Foot Equivalent Units (TEUs) that is expected to increase to 14.5million TEUs in 2004 and in 2005, the TEUs of capacity has expanded 2M more. (Richard Brubaker2005) Although such huge investment and abroad expansion, Chinese ports need to keep up with the increasing demand by use foreign terminal operators more.Exhibit 2 Logistics hubs in China.Source Beijing Readies Logistics Stimulus, 20081.4.2 trackChina government heavy invests on China transport infrastructure, so the road transport becomes the prior choice for inland distribution. During the Five-year Plan from 2001 to 2005, transport infrastructure has been built signifi bumtly including 250,000 kilometers of highways and 24,700 kilometers of expressways. (Fu. and Gwi., 2004) By the end of 2006, the total space Chinese highway has reached 3,457,000 kilometers and 77,000 kilometers of railways.1.4.3 RailCo mpare with China road and port infrastructure, Chinas railway infrastructure has received relatively low take aims of investment. The Ministry of Railways plans to increase Chinas existing rail network from 72,000 km to 100,000 km by 2020. (Woosir, 2009) Use of the Chinese rail scheme increased 6% year on year from 2003 to 2004, the modest increase is because the weak demand of rail point. There are many problems cause the weak demand for logistics companies, such as poor handling practices, delays, unpredictable speech communication times, theft and a general lack of infrastructure. However, despite these issues exist, the heavy subsidization motionlessness makes Chinas railway become the cheapest transportation compare with shippers.1.4.4 Inland WaterwaysThe most signifi canistert Infrastructure on inland waterways is the Yangtze River, which increased 8% from 2003 to 2004. (Richard Brubaker2005) Yangtze River can handle ships up to 6000 tonnes totally, however, the capacity of canals and low bridges are relative in low level because of the teetotal season in China. There are many waterway projects such as Gorges Dam which can serve to extent dry seasons and keep water levels low.1.4.5 Air freightChinas airfreight sector is real rapidly which has become the second-large domestics airfreight market in the world. According to Boeings World Air Cargo Forecast, the market has grown at more than 20 percent annually since 1991. (Richard Brubaker2005) The airports are fast developed by cardinal economic zones the Yangtze River Delta (YRD), the Pearl River Delta (PRD), and the capital city of Beijing. Moreover, the agreement amid China mainland and Hong Kong gives Hong Kong airlines greater opportunities that access to the mainland. But the China airfreight is limited by insufficient infrastructure. In the coastal cities, the airfreights are more developed than that in inland cities.1.5 Statement of the ProblemsSince China fit WTO, the logistics industry d eveloped rapidly. But there are lots of problems during the information here the interrogationer mainly focuses on court, productivity and expansion of China logistics industry.1.5.1 High CostSince China became one of the members in WTO, China logistics industry developed rapidly which kept high growth among all the industries. But the most important factor that slow down the ontogeny of China logistics industry is the high logistics exist. Chinas logistics expenditures took up 20% of the GDP in 2000 whereas logistics disbursement accounted for 10.3% of get together Statess GDP, 14% of Japans GDP, and 10% to 13% of European Unions GGP. (Exhibit 3) The annual growth rate of total logistics expenditures is 10.29% in 2002, 12.99% in 2003, 16.76% in 2004 and 12.86% in 2005. (Song H. and Wang L., 2004) Statistics promulgated by China Federation of Logistics and Purchasing shows that Chinas total logistics spendings reached RMB3.8414 trillion in 2006, up 13.5% year on year at cur rent price, a growth 0.6 role points higher(prenominal) than in 2005. The rate of total logistics expense of GDP was 18.3%, 0.2 dowry points lower than in 2005. In 2007, the total logistics bell increased by 18.2% to 4540.6 billion yuan compare with 2006.Exhibit 3 Cost of moving and storing goods (as share of GDP).The total logistics court in China generally includes tether cost components transportation, inventory storage and management cost. In 2004, the total cost amounted to US$ 352 billion, grew by 16.6% compare with 2005. Of this total, transportation cost took up the largest portion which accounted US$ 200 billion and had the highest growth rate which was 56.9% of total. On the other hand, inventory storage and management cost were US$ 102 billion and US$ 49 billion, accounting for 29.1% and 14% of the total logistics cost respectively (Exhibit 4).Exhibit 4 Total logistics cost and its composition, 2003-2007.Source CFLP, 2007Adding the be of packing, transport, storage and damage cost, the ratio of total logistics be to total industry production ranges from 40% to 60% in China logistics industry, whereas in the United States this plowshare is close to 20% (Zhang Z.Y. and Andres M.F., 2006). So general speaking, the transportation be in China logistics industry are twice as pricy as in developed countries such as US. Japan and European countries.1.5.2 Low in productivityThe ratio of total logistics cost to GDP represents the efficiency of logistics operation in the economy which means the productivity of logistics industry. It is withal used as an indicator to the level of festering in logistics industry. In general, the higher the percentage, the less efficient is the logistics industry. Exhibit 5 shows the total logistics cost as a percentage of GDP in the 10th Five-year Plan menstruation (2000-2005) in China. Although the total logistics cost as a percentage of GDP has a downward trend that decreased from 19.4% in 2000 to 18.57% in 2005 a nd the total cost nest egg in the 10th Five-year Plan period are 109 billion RMB according to exhibit 3, the logistics cost are higher than that in US, Japan and developed countries which means China logistics industry is still in high inefficiency. As predicted by the CFLP, the ratio of total logistics cost in China to GDP will continue higher which endpointing inefficiency of modern logistics industry. CFLP predicted that total logistics costs during the 11th Five-year Program period (2006-2010) will grow at 10% annually, 2% higher than that of the 10th Five-year Plan period. It also forecasted that the total logistics cost will reach 5,400 billion RMB in 2010, the ratio of total logistics cost to GDP at around 16.8% and cost savings yield during the period will be around 435 billion RMB. (Ling Feng research centre, 2006)Exhibit 5 Total logistics cost as a percentage of GDP, 2000-2005.1.5.3 Slowly expansion/outsourcingOne of the most significant drivers of growth in the global logistics industry is the trend of mergers and acquisitions. Although many big China logistics companies have established overseas offices from the 1980s and 1990s to support their international transportation, their businesses are heavily depend on agents which means the Chinas global logistics network is still weak. For example, Sinotrans has business in nearly 200 countries, but there are only 40 overseas offices and most of the international businesses are through with(p) by the agents. In this situation, the expansion for China logistics industry is very slow. So, the global market share of China logistics industry is still relative low. As Contrill claimed, dont expect a wave of Chinese 3PLs to land on horse opera shores soon. The pace of change in China is slow by western sandwich standards and there is much to do in the home market. (Cen Xuepin, 2005)1.6 look objectiveThe objective of this research is twofold.To understand the development of China logistics industry in th e last decade.To investigate the factors stiring the development of China logistics industry and recommend the solutions to improve on the problems to further develop logistics industry in China.On meeting the two objectives, this make-up will develop a modeling to address the factors that repair the development of China logistics industry.1.7 Research questions trey questions will be discussed in this article1 analyse the development of logistics industry in China in last decade?2 What are the factors that affect the development of China logistics industry?3 How to thrash the current problems to further improve logistics industry in China?1.8 conditional relation of studyIn this article, the reference introduces the development of China logistics industry in last decade. Also, this paper will contribute by indicating and analyzing some of the problems that affect development of China logistics industry according to questionnaires and inter view by managers in logistics comp anies in China. The theoretical framework is based on an extensive retread of the hypo thesis in literature review (Chapter 2) to ensure the main factors that affect development of China logistics industry. After that, the searcher will give readers recommendations that learn the problems in China logistics industry.1.9 Limitations of the researchBecause of time restriction (from September to November, 2009), this thesis will be undone within 3 months, the research will cover the detail of logistics management (Transportation, Warehousing and IT supporting) as specific as possible.Because of the location of sampling in Shanghai, China, the researcher has to come to China but only around 1month, so it is time limited to the questionnaire distributing and receiving which may cause low response rate.There are many problems that influence the development of logistics industry in China in this paper, the author only focus the above 5 main problems.Because some logistics companies are not universal listed companies, it is difficult to find the info from the current annual reports released by these companies, so the researcher may analyze info in these companies using the preceding(prenominal) annual report. (Eg Annual Report of company A in 2006 or 2007)Some of the questions in questionnaires are directly think to the internal scheme of company management, so managers may do not want to act which will cause the low response rate also.1.10 Chapter OutlineChapter one Introduction This provides the readers with background information of the study which creates a pictorial be assumption of the main research, research objectives, background of study, problems and significance as well as the limitations faced by the researcher are clearly stated in this chapter.Chapter two Literature review This chapter explores relevant literature it basically dealt with clever literature on problems of current China logistics industry with discussions on think research variables such as government policy and regulations, transportation cost, warehousing and storage, IT supporting and infrastructure. Also, 3 indicators to development of China logistics industry are given to be as dependent variable when analyzing the correlation with independent variables.Chapter collar Methodology and Data collection This chapter describes the research design used to accept this research. This chapter will further disclose the ways used in analyzing data collected, limitations of the methods used and how the data are collected. This section concludes with discussions of the data gathering techniques and the data analysis procedures that are used to answer the hypotheses and research questions to readers. Also, theoretical framework is given to show the relationship between independent variables and dependent variables.Chapter intravenous feeding Results and discussions This chapter outlines results of data analysis, provides discussion of research findings an d builds bridges between objectives, findings and relevant literature. The result section summarizes the analysis of the data and present findings of the study with respect to the guesswork and research questions, while the discussion section reviews the findings of the study in the stage setting of the theoretical framework of the study.Chapter five Conclusions and recommendations are provided in this chapter together with discussions on the future of the study. This chapter concludes the research and documents the implications of the study with recommendations for future research.Chapter 2Literature Review2.1 Definition of logisticsLogistic is the process of planning, implementing, and controlling the flow and storage of goods, services using related information from their point of origin to point of speech for the purpose of fulfilling customer requirements in efficient and effective way. (Raymond F. B. and Wm. B. M. Jr, pp 45-55, 2004). Luo Wenping and Christopher Findlay (2 002) verbalise that the provide of logistics services requires inputs from a number of service providers including the providers of transport and warehousing as well as other value-adding activities. Basically, logistic is business flow that connects packaging, distribution, storage and warehousing integrated Information Technology (IT) to transfer goods and service to the end users to satisfy their requirements.The concept of logistics has undergone many significant changes. Luo Wenping and Christopher Findlay, (2002) divided the development of logistics into three stages compass point 1 Physical distribution or outbound logistics system (during 1960s and 1970s). Organizations attempted to systemically manage a set of interrelated activities including transportation, distribution, warehousing, finished goods, inventory levels, packaging, and materials handling to delivery finished goods to customers in efficient way. level 2 Integrated logistics management (during the 1970s and 1980s). Firms began to recognize the additional opportunities for savings by combining the inbound side (materials management) with the outbound side ( somatogenetic distribution). Initially, this provided capability savings by having a single transportation manager who could unionise inbound and outbound transportation. Companies also become aware of the opportunities to view the self-coloured process, from raw materials to work-in-process inventory to finished goods, as well as managing the self-colored process from a systems perspective which could lead to more efficient operation. Stage 3 Supply Chain Management (from 1980s to 1990s). Logistics management is one of the parts of Supply Chain Management (SCM) that companies expanded their purpose on the logistics processes to include all the firms involved, making use of partnerships/alliances between manufacturing companies and their suppliers/vendors, customers (channels of distribution), and other related logistics parties such as transportation and public warehousing companies.2.2 Third Party Logistics (TPLs)Third party logistics and related concepts are most often developed by researchers or consultants in collaboration with businesses demanding or offering third party services. Thus, the definitions reflect the phase of third party cooperation (Tage Skjoett-Larsen, 2000).Alessandra Marasco, (2008) used the side by side(p) definition Third-party logistics involves the use of external companies to perform logistics functions that have traditionally been performed within an organization. The functions performed by the third party can encompass the entire logistics process or selected activities within that process. According to this definition, third party logistics includes any form of externalization of logistics activities previously performed in-house. Through interviews with a number of conjugation European third party service providers, Prabir K, B. and Helge V. (1996) have pointed out the fo llowing definition A logistics alliance indicates a close and long-term relationship between a customer and a provider encompassing the delivery of a wide array of logistics needs. In a logistics alliance, the parties ideally opine each other as partners. They collaborate in understanding and delimit the customers logistics needs. Both partners participate in designing and developing logistics solutions and measuring execution. The intent of the relationship is to develop a win-win arrangement. This definition emphasizes the strategic symmetry of the concept and presupposes that several characteristics are fulfilled before the relationship between buyer and seller of logistics functions can be characterized as TPL. These characteristics include accredited duration, joint efforts to develop further cooperation, a customerization of the solution, together with a bring together sharing of benefits and risks.2.3 Measurement the development of logistics industryLogistics has drama tically evolved from a appurtenant role characterized as passive and cost absorbing, to a primary role and critical factor in competitive advantage (Fu Chinchin and Gwi Ok Kim, 2004). Companies experiencing increment pressure to reduce costs and provide better service can improve their logistics by outsourcing to third-party logistics (3PL) firms, an option that can improve both efficiency and effectiveness, so logistics outsourcing has become a rapidly expanding source of competitive advantage and logistics cost savings.2.3.1 ProductivityAlan Stainer (1997) believe that, in measuring logistics performance, a blanket(prenominal) strategy of measurement is necessary for the successful planning, realization and control of the assorted activities which comprise the business logistics function. He also pointed out that, there should be a family of measures. This is a balanced collection of four to six performance measures, usually including productivity, quality and customer satisfa ction, which together furnish an all-inclusive view of results but, individually, also provide a diagnostic value.Within this performance scenario, productivity can be seen as a measurement of resource utilization, including the time element. Alberto G. Canen and Ana Canen, (2002, number 2.pp 73-85) points out, the productivity philosophy and its improvement has been a high priority, in the first instance, in manufacturing, then in marketing, and later in physical distribution and materials management. Thus, the time is now ripe to focus on the whole logistics process. The term productivity is often ill-defined but, basically, its measurement is that of a plus output to the resources consumed.It can be divided into three main types incomplete measures be a ratio relating output to a single input, such as labour, materials or capital.Total factor or value-added productivity macrocosm based on sales less bought-in goods, materials and services.Total productivity measures being a ra tio of total output to total input.There is a clear link between productivity and performance improvement, as purported by Lynch and Cross (1995, pp. 63-91). They show performance as a pyramid which is filtered down from the corporate vision, with market and financial measures as the main resultants, support by customer satisfaction, flexibility and productivity as core business processes. Despite this emphasis on performance, previous research by the author (Stainer and Stainer, 1995), based on a survey of both manufacturing and service industries in the UK, France and Germany, suggests that the implementation of formal productivity programmes is still marginally behind that of the US a decade ago. Further analysis of the survey divulges the use of these three productivity measures for all respondents, as well as for those respondents employing productivity measures in the field of logistics.2.3.2 CostThe total Logistics cost as a percentage of GDP has widely been used as an indica tor of the development level of the Logistics industry in many developed countries. In general, the higher the percentage, the less efficient is the Logistics industry, which means the cost affect the development of logistics industry.The costs associated with logistics activities normally consist of the following components transportation, warehousing, order processing/customer service, administration, and inventory guardianship (e.g. Lambert et al., 1998 Saccomano, 1999). Not surprisingly, total logistics costs often represent a large portion of total supplement chain costs, especially when the supply chain is extended to the global market. As more organizations are outsourcing their products or services to global suppliers, it becomes increasingly critical to understand and evaluate the various logistics cost components in order to assure the profit margin.2.3.3 Expansion /outsourcingElliot Rabinovich, Robert Windle and Martin Dresner, (1999) said that the outsourcing of logist ics functions to partners, known as third-party logistics providers, has increasingly become a powerful preference to the traditional, vertically-integrated firm in logistics industry. A growth in the number of outsourcing partnerships has contributed to the development of more flexible organizations, based on core competencies and mutually undecomposed longer-term relationships. Overall, some 60 per cent of Fortune 500 companies report having at least one contract with a third-party logistics provider.Such buyouts and mergers enable logistics players to build up their infrastructure and service scale, both of which are critical to remain competitive. By merging their operations and collaborating on technology, complementary services partners can also scale up their logistics capability without having to invest heavily in infrastructure. The result is lower cycle-time, streamlined business processes and lower manpower costs, which in turn boosts companies productivity and profita bility.The development of logistics outsourcing broadly defined in this paper as long and short-term contracts or alliances between manufacturing and service firms and third-party logistics providers has been largely based on the needs that companies have to obtain cost savings and to concentrate on their core competencies. They also indicated that, the market and firm characteristics influence the decision to contract multiple combinations of third-party logistics services. These services range from single transportation activities to integrated warehousing, distribution, and information management activities.Also several authors have indicated that across many industries logistics outsourcing has become a rapidly expanding source of competitive advantage and logistics cost savings in logistics industry. For example, Elliot Rabinovich, etl (1999) reported that some firms routinely have achieved up to 30 per cent to 40 per cent reductions in logistics costs and have been able to greatly streamline global logistics processes as a consequence of outsourcing. Other studies, however, have indicated that some logistics outsourcing arrangements are not successful. These