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How will Investment in Modern Technology catalyze the growth process of the China Logistics Market?

May 18, 2023
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The Chinese Logistics Market was observed to be in the growth stage during the period of 2015-2020 owing to the expanding manufacturing & retail sector, increasing disposable income, and growing value of exports and imports in the country. As per the Ken research findings, the China Logistics Industry has grown at a CAGR of 5.4% between 2015 and 2020, on the basis of revenue. The market has a high potential to boom in the coming years owing to the rising investments in modern technology. How? Let’s find out together!

1. Despite being the 2nd Largest Economy, China lags behind in the Logistics Performance Index with 26th Rank in 2020

Logistics Performance Index (LPI)

  • China’s Total LPI score increased from 3.49 (2010) to 3.61 (2020).
  • China ranked 24th globally (2020), improving from 26th globally (2018).
  • China receives highest LPI ranking in its Infrastructure & Timeliness.

China’s overall score increased from 3.49 in 2010 to 3.61 in 2020

chart1
    Country Total LPI Score, 2020 Customs Infrastructure International Shipments Logistics Competence Tracking & tracing Timeliness
    Germany 4.2 4.09 4.37 3.86 4.31 4.24 4.39
    Singapore 4.0 3.89 4.06 3.58 4.10 4.08 4.32
    USA 3.89 3.78 4.05 3.51 3.87 4.09 4.08
    New Zealand 3.88 3.71 3.99 3.43 4.02 3.92 4.26
    Australia 3.7 3.9 4.0 4.0 3.7 3.8 4.0
    Canada 3.73 3.60 3.75 3.38 3.90 3.81 3.96
    China 3.61 3.29 3.75 3.54 3.59 3.65 3.84
Source: Ken Research Analysis, World Bank Data 1. Proprietary Database, Ken Research Analysis
LPI World Bank Index: https://www.worldbank.org/en/news/feature/2018/07/24/from-parts-to-products-why-trade-logistics-matter

2. However, China has the highest revenue from the Logistics Industry owing to its High Global Trade and Growth in Express Delivery Services

    Countries China Vietnam Indonesia India Philippines
    Logistics Revenue, 2020
  • US $ ~1.00 Trillion
    		•
  • US $ ~71 Billion
    		•
  • US $ ~63 Billion
    		•
  • US $ ~185 Billion
    		•
  • US $ ~14 Billion
    		•
    Major Players (FF)
  • SF Express
  • Debon Logistics
  • COSCO Shipping Holdings
  • Sinotrans Logistics
  • Yunda Holdings
  • Xiamen Xiangyu
    		•
  • Swine Cold Storage
  • Keppel Logistics
  • Samudera
  • CEVA logistics
  • YUSEN logistics
  • Agility logistic
    		•
  • DHL
  • FedEx
  • Maersk Line Vietnam
  • Damco Vietnam
  • MCC Transport Vietnam
  • SOTRANS Vietnam
  • Gati Ltd
  • VRL
  • TCI
  • Mahindra logistics
  • Om logistics
  • DGFC and many more
  • Airfreight 2100
  • Chelsea Logistics
  • 2GO Logistics
  • PHL Post
  • LBC Express
  • DHL
  • Lorenzo Shipping
    		•
    Major Industries
  • Manufacturing
  • Retail
  • Wholesale
  • Construction
  • Agriculture, Mining
    		•
  • E-commerce
  • Retail
  • Automotive
    		•
  • Manufacturing
  • Retail
  • E-commerce
  • Agriculture
    		•
  • Automotive and Auto Ancillary
  • FMCG and Retail
  • E-commerce
    		•
  • E-commerce
  • Semiconductors and electronic products
  • Retail
    		•
    Growth Drivers
  • Robust growth in express delivery services
  • Development in e-commerce
  • Development of 3PL services as international players entered the market.
    		•
  • Increasing number of new entrants in the logistics industry such as DHL has created a positive impact on the growth of the logistics industry.
  • Rising investment in infrastructure.
  • Increase in number of logistics centers in the country over the years.
  • Free flow of goods, labor, capital, investment and services due to agreement with AEC.
    		•
  • Increasing foreign and domestic investment
  • Booming e-commerce
  • Favourable policies and tax incentives/subsidies
    		•
  • Surging Imports have facilitated the growth of trade.
  • Increase of government expenditure on infrastructure development
    		•
Source: Source: Ken Research Analysis 1. World Bank Report (Logistics Performance Index Report 2. Ken Research Proprietary Database

3. Recently, the Logistics Industry of China has witnessed an increase in Investments from major investors such as 500 Start-ups, Intel Capital, RRJ, and more, over the past 5 years

Investments in the China Logistics Industry have increased with a CAGR of 6.5% in past 5 years

chart2

Investments in the China Logistics Industry have increased with a CAGR of 6.5% in past 5 years

chart2

Key Insights in the China Logistics Industry Investment Scenario

Investment Rounds

JD Logistics (90), SF Express (20), Sunning.com (12) are few logistics companies which have had one of the highest number of Investment Rounds in China.

Recent Funding

In May 2021, Few Companies providing services in Logistics Industry like Feiliu and YunQuNa raised RMB 135 Mn and RMB 650 Mn respectively through funding.

Investor Type

Most of the Investors who invest in Logistic Firms in China are commonly Venture Capitalist like Intel Capital or Accelerator like Y Combinator.

Source: Industry Articles, CRUNCHBASE, Ken Research Analysis

4. High Delivery Costs, Restrictions on Trucks, Unforeseen Delays are some of the major Last-Mile Delivery Problems faced in China which hold back the industry growth

Challenges

Low Efficiency

Several Factors lead to low efficiency in Customer Deliveries in China-

  • Low service level due to less trained delivery management personals.
  • Empty Miles issue (15%-40% of total miles) leading to fuel waste, non-productive emissions, wasted driver hours and more.
  • Risk of damaging products in long haul deliveries affecting the final drop to retail shops.
High Cost of Deliveries
  • The transportation mode is limited when it comes to small size delivery because FTL truck is no longer economical-friendly and environmental-friendly for delivering only several packages to different pin codes.
  • Owing to this companies have to go for other means of transportation such as LTL services which are relatively costly than FTL (Usually 10%-15% higher)
Rural Delivery Issue

The customer delivery in rural pin codes which account for almost two-thirds of China’s land is one of the challenges in the market owing to reasons such as-

  • Poor Infrastructure
  • High Cost due to less delivery density
  • Low Service Level
  • Relatively poor participation of Logistics enterprises.
  • Less efficient logistics information communication mechanism
Unforeseen Delay
  • The varied terrain and diverse travel and weather conditions in China, create an unreliability in the transportation industry , owing to the high probability of unforeseen conditions.
  • Moreover, Traffic congestions, multiple checkpoints, and toll stations add to the woes.
City Entry Restrictions
  • Many cities in China impose strict restrictions on Trucks both in terms of time and roads because of the overwhelming traffic jams and pollution problems leading to issues of late deliveries.
  • For example, many cities such as Foshan, Tongling and more in the eastern provinces of China have completely banned the entry of National Diesel trucks to reduce carbon emissions.
Time Windows
  • Time Windows for Delivery pre-arrangement do not guarantee the timely delivery to the customers owing to several issues such as wait time at different delivery points due to loading/unloading delays, retailer operational issues and more.
Source: Interviews with Industry Experts, Industry Articles and Ken Research Analysis

5. But with the Implementation of Green Technology, Consolidated Shipping, and Move Planning, the players are trying to solve the issues and Improve the Overall Efficiency in the Logistics Market

Adoption of Green Technology
  • Most of the 3PL players are trying to shift towards Green freight technology such as Electric Vehicles (witnessing a two-fold increase in logistics Industry each year) in China so as to avoid the unnecessary delivery delays due to complex environmental regulations and city restrictions in the country.
  • They are also looking towards Fuel-saving technologies such as low rolling-resistance tires, wind deflectors, and energy-saving driving systems to significantly reduce transportation cost.
Continuous Move Planning
  • To solve the issue of empty miles, many 3PL players in China are using the approach of stringing loads together to maximize fleet utilization, offset unprofitable lanes, and make the most of driver time.
  • Bundling low-volume and high-volume lanes together, 3PL players are aggregating lanes across multiple customers and creating closed loop routes that keep freight moving consistently.
  • The above approach is helping shippers receive reduced per-mile rates because they’re making use of the carrier’s empty miles.
Consolidating Parcels
  • Consolidated shipping is a freight consolidation service mainly provided by top freight forwarders. In this service, large quantities of goods are shipped in smaller volumes and further transported after assembly for better rates and safety of goods.
  • For example, many FMCG Companies in China are adopting this strategy of consolidating the goods with other FMCG Companies, even competitors, moving to the same customer by partnering with 3PL players that handle many consumer goods clients.
  • Bansar is one such consolidated shipping company in China which combines goods from several suppliers into a single shipment.
Cross Docking Services
  • Cross docking is another way which Logistic players are adopting to solve delivery issues and move to more of a just in time inventory model in China.
  • Effective Cross docking requires:
    1. Visibility to factory production and inbound freight
    2. Advanced systems to marry orders with inbound freight
    3. Tight and effective coordination with carriers
  • FMCG companies often lack systems and resources to effectively manage the entire process. Hence, well diversified and well equipped 3 PL players with the know how and technical expertise are helping FMCG companies reduce the overall logistics cost.
Source: Interviews with Industry Experts, Industry Articles and Ken Research Analysis

6. Further, wider Investment in Modern Technology is the need of the hour as Embracing Technology will help streamline the process and help the Logistic industry to expand efficiently in China

Role of IoT in improving delivery of goods

    Real-Time Tracking
  • Real-time tracking of fleet enables faster deliveries & monitoring fuel cost.
  • Logistics Service Providers (LSP’s) can also check the performance of their drivers and vehicles.
  • RFID tags can help companies to detect the location of their goods without the help of the staff thus, maintaining 95% accuracy in stock keeping.
    Predictive Analytics
  • Big data can help companies to determine the best routes for fleet as well as improve the efficiency of their drivers.
  • Predictive Analytics will aid Logistics service providers in determining the right time to carry out maintenance on their devices and create more accurate schedules. Additionally it can be used to cut on operational costs.
    Control Tower
  • A Cloud platform that includes the usage of AI and serves as a system of engagement across trading partners and companies to work together in real-time to serve the end consumer.
  • By creating an ecosystem which focuses on transparency, LSPs can have end-to-end visibility in terms of order fulfillment & reducing the risk of potential issues as well as gain data on how to better manage orders.

Adoption of Existing Systems important

    Warehouse Automation
  • Warehouse management systems (WMS) further optimizes and accelerates key warehousing tasks by directing receiving, put-away, picking, packing, shipping and space utilization along optimized routes.
  • Automated mobile data collection enables workforce to increase inventory data accuracy and productivity by eliminating manual capture processes.
  • Inventory management software provides elevated inventory control and real-time visibility and well-managed stock levels, storage locations and product information.

Truck Platooning to lower fuel cost and emissions

    BENEFITS
  • Improves Safety; reduces accidents
  • Reduces labour cost and transports more (quantity)
  • Improves efficiency in supply chain
  • Lowers fuel consumption & CO2 emissions
  • Increases driving range of trucks used in transportation
Source: Industry Articles, Blogs and Press Release, Ken Research Analysis
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