2. China Logistics Past, Present and Future Yang Wang Georgia Institute of Technology Atlanta, GA30332 U.S.A The Logistics Institute-Asia Pacific National University of Singapore Singapore wang@math.gatech.edu

4. Survey on distribution infrastructure of goods and service efficiency (The World Competitiveness Yearbook 1999) 10=Very Efficient 1=Very Inefficient

5. Cross-Country Logistics Cost Comparison (1999) Country Logistics Cost/GDP Logistics activities performed by 3 rd party /Logistics activities China16-20%<10% US9.9%57% Europe10%30%-40% Japan11.37%80%

8. The People’s Liberation Army (PLA) was the first organization in the post-revolution China to understand the importance of modern logistics. It learned the lesson painfully in the Korean War, after devastating defeats during the Fourth & Fifth Campaigns. Its logistics operations must be able to withstand constant aerial bombardment by the U.S.

9. A separate logistics unit was established. Gen. Hong Xuezhi was appointed the commander of the logistics unit, in charge of all logistics operations. Gen. Hong trained his unit to be agile, creative and opportunistic. The logistics operations improved markedly. The improved logistics was credited by several Korean War historians as one of the key factors that the PLA fought the mighty U.S. to a standstill.

11. The Dawn of Modern Logistics (1985-1995) MNCs are beginning to set up JVs in China. The Association of China Logistics is founded (1984). Heightened awareness of logistics barriers and their impact on industrial modernization. First highway opened (1988, 20km). Increased demand for international and inter- province distributions.

12. State control of transport and warehousing in China

13. The Dawn of Modern Logistics (1985-1995) Ignorance of modern logistics persisted into early 90’s. More and more 2PLs, but no 3PLs yet. The logistics operations were plagued by: o Limited air, waterway, road capacity o Completely unreliable railway services o Virtually nonexistent IT support o Poor facility and equipment o Local protectionism o Rampant corruptions o Unpredictable “ road blocks ” o Others Many of these problems still exist today.

14. Toward WTO (1995-2001) In 1995, PG Logistics took over the supply chain management of Procter & Gamble, becoming the first true 3PL provider in China. In 1998, Danzas became the first foreign company to be granted a “Class A” license by MOFTEC, allowing it to operate international freight forwarding. 3PL market with annual growth over 30%. “Class A” license granted to major international freight forwarders and shipping companies.

15. Toward WTO (1995-2001) Major investments by the government in infrastructures: Highway network Container Harbors Airports Information networks Logistics hubs Major investments by MNCs and some domestic companies in: IT support Qualified supply chain management personnel Modern equipment and facility

16. Toward WTO (1995-2001) Commitment by the government on: Fighting corruptions Removing many barriers Reducing red-tapes Naming logistics a “strategic sector”

17. Toward WTO (1995-2001) Changes fueled by: China becoming the manufacturing center of the world Fast growing domestic market Industry consolidations Demands by MNCs and key domestic companies for quality operating environment and services

18. China’s Industrial Output (RMB 100 million Yuan)

19. Cargo Transportation Breakdown in Year 1999 Transportation mode Transported cargo volume (10,000 tons) Average distance (km) per ton transported Railway167196760 Road99044458 Waterway1146081855 Air1702670 Pipeline20232310

20. Length of Transportation Lines in Year 2000 （ Unit ： 10,000 km ）

22. Container Throughput of Top Ten Container Terminals (1998-2000)

23. China Highway Development Plan to 2006

24. China Railway

25. Road (km) Year Total Length High- way 1 st grade 2 nd grade 3 rd grade 4 th grade Others 199511570092141958084910207282606841246255 1996118578934221177996990216619617608239371 19971226405477114637111564230787635737228909 19981278474873315277125245257947662041209231 199913516911160517716139957269078718380194955

28. Barriers and Challenges Entering WTO Infrastructures and hardware limitations. Intermodal transportation capability poor. Qualified personnel scarce. IT adoption slow. Government slow to adopt uniform standards. Local protectionism. Absence of rule by law. Corruptions. Fragmentation, no quality LTL services. Dirt cheap labor slows down modernization. Razor thin margin. Others.

29. Comparison of Cargo and Container Throughput (1999) Port Cargo throughput (’000 tonnes) Container throughput (’000 TEUs) PSA325,902.215,945 Port of Hong Kong 168,83816,211 Shanghai186,4104,216

30. Proportion of types of warehouse owned (2000 market survey on logistics)

32. Inbound Logistics Activities of Manufacturing (2000 market survey on logistics)

34. Types of International Standard Pallets  Europe: 1200mm  1000mm; 800  1200mm  Australia: 1140mm  1140mm  America: 40 Feet  48 inches  Japan and other Asian countries: 1100mm  1100mm China: all of the above types of pallets with 1000mm  1200mm most widely used.

35. Key Logistics Players: SOEs Former monopolies, mostly asset-based and gigantic 2PLs. Sinotrans, COSCO, China Rail, CMST, China Post, etc. Assets may be out-dated; lack skill and experience for integrated logistics management. 3PLs as SBUs of 2PLs and manufacturers. Sinotrans Logistics and Development, COSCO Logistics, Haier Logistics, CMST Logistics, etc. Local providers.

36. Key Players in Logistics: MNCs, JVs, Private Pure 3PL ST-Anda, PG Logistics, etc. 3PL/Freight Forwarder Danzas AEI, Exel, EAS, etc. Container Shipping Company Maersk Sealand, APL, NYK, OOCL, P&O, etc. They are landing. Express Parcel Companies DHL, FedEx, TNT, UPS.

37. SOEs v.s MNCs and JVs SOEs: Competitive pricing, local connections, less barriers to policy protections. Customers are mostly SOEs or private domestic companies. MNCs: Extensive global network, IT integration, quality services and management, brand name. Customers are mostly network MNCs from parent company. Some JVs: Somewhere in between.

38. Post WTO Outlook In 4-5 years, almost all policy barriers will be removed. The battlefield will not be leveled then – it will be tilted in favor of MNCs and JVs. Consolidation; M&A Global players acquiring well managed domestic player is a winning formula. Major restructuring by asset-based SOE 2PLs to stay alive – spin offs.

39. Post WTO Outlook: Route to Success M&A 3PL+3PL, 3PL buys 3PL. Express buys 3PL. 2PL+2PL, 2PL buys 2PL. Domestic 2PL forming partnership with foreign 3PL. Winners are likely to have extensive global network, and offer integration, cost optimization and value- added services through a combination of technology, skill and physical assets.