1 Impact of CEPA on Logistics Industry Presented by Anthony Lau Chairman & Chief Executive BALtrans/Jardine Logistics Group 12 December 2003

2 Definition of Logistics Logistics is that part of Supply Chain Management that plans, implements, and controls the efficient, effective forward and reverse flow and storage of goods, services, and related information between the point of origin and the point of consumption in order to meet customers' requirements. Council of Logistics Management

3 Drivers of Logistics Industry Globalization / global sourcing Need for Supply Chain Management Increasing logistics outsourcing Bottom line and competitive pressure

4 Hong Kong Logistics Industry 4.8% of GDP. Total number of logistics related establishments are over 12,000. Total number of employees in logistics industry are some 80,000. A world class airport linking with 130 points around the world by over 70 international airlines and handling 2.5 million tonnes in The world’s busiest container port with record throughput of 19.1 million TEU’s in 2002.

5 Hong Kong Logistics Industry (cont’d) The best airport and seaport in PRD. Over 1,000 professional and experienced freight forwarding agents operating in a well established international network. Well developed financial and legal services. One of the four pillar industries supported by government.

6 China Logistics Industry The world factory which triggers  A growth market for logistics  Transportation and logistics expenditures were US$230 billion in 2001, or approx. 20% of GDP, double the level of the US.  An average annual growth of 25% between 2000 and 2005 is expected.  Exponential 3PL growth  3PL penetration rate is estimated to be 2%, much lower than the US (8%) and Europe (10%).  Forecasting 16% to 25% annualized growth for 3PLs for the next 10 years.

7 Opportunities Created by CEPA Asset based logistics industry  Airlines, including integrators and couriers  Shipping lines  Warehouse operators  Trucking companies  Cargo terminal operators Non-asset based logistics industry  Forwarding agents  Third party logistics service providers (3PLs)  Fourth party logistics service providers (4PLs/ Lead logistics service providers)

8 Comparison of WTO with CEPA SectorWTOCEPA Logistics Services  Not committed under WTO to allow wholly foreign owned logistics companies  Currently wholly foreign owned logistics companies allowed to provide services only in bonded zones.  Minimum registered capital requirement is US$1,000,000.  Allow wholly owned from 1 Jan 2004 (approx 1 year ahead WTO commitment).  Minimum registered capital requirement to be determined. Freight Forwarding Agency Services  Currently foreign majority ownership in JV allowed up to 75%.  JVs are restricted to international freight forwarding business only.  Minimum registered capital requirement: -Currently US$1,000,000. -Committed to reduce by 11 Dec  Allow wholly foreign owned by 11 Dec 2005  Allow wholly owned from 1 Jan 2004 (approx 2 years ahead WTO).  Not explicitly restrict to international freight forwarding.  Minimum registered capital requirement is RMB 2,000,000 (approx US$242,000). Storage and Warehousing Services  Currently wholly foreign owned enterprise allowed to provide services only in FTZ’s.  Minimum registered capital requirement is from US$200,000 to US$1,000,000 depending on location and business scope.  Allow wholly foreign owned by 11 Dec 2004  Allow wholly owned from 1 Jan 2004 (approx 1 year ahead WTO)  Minimum registered capital requirement is RMB 2,000,000 (approx US$242,000). Transport Services  Currently foreign majority ownership in JV allowed up to 75%.  Allow wholly foreign owned by 11 Dec 2004  Allow wholly owned from 1 Jan 2004 (approx 1 year ahead WTO commitment).  Minimum registered capital requirement to be determined.

9 Supplementary Arrangement Government should help expedite the processing of license application procedures Extending the zero tariff to more products Simplifying and shortening customs clearance procedures and time Open air freight market

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