Western 3PLs

Flock to China’s

Big and Bustling

Logistics Market

BY JEAN V. MURPHY

Aggressively positioning themselves to take advantage of China’s economic boom and huge logistics

market, these providers aren’t coming to the party empty-handed. They bring much-needed investment

capital and expertise.

Like most things in China, the logistics market is big, bustling and bursting with potential—and Western third-party logistics providers are getting in on the action.

As of last December, nearly all of the brand-name global 3PLs had at least a toehold in China’s logistics market, according to China Business Services, an independent consultancy based in Beijing, and more 3PLs have entered this year. While many are following the migration of specific customers to the “world’s factory,” others simply find the market’s growth too compelling to resist (See box).

Moreover, 3PL penetration levels in China are low, says Francis Bassolino, managing director of Alaris Consulting, Shanghai. Of the 19 percent of China’s total GDP spending that is allocated to logistics, he says, only around 5 percent goes to 3PLs, much lower than in the U.S. and Europe.

“However, as the demand for 3PL services increases, their market share is expected to increase to 20 percent by 2010,” he says.

And China’s logistics market is hungry for Western-style know-how. By some estimates, logistics accounts for 40 percent of the cost of goods sold and four-fifths of production-cycle time in China. This compares with around 10 percent of the cost of goods sold in the U.S. and underscores the tremendous opportunity for efficiency improvements. 3PL providers will be the central players in achieving better efficiency and meeting the future needs of China’s booming economy, says Bassolino.

Importantly, the Chinese government also has recognized that logistics is vital to the country’s continued economic growth. That recognition, coupled with requirements of China’s entry into the World Trade Organization, has led to fewer restrictions on logistics companies

entering the market. While still far from simple, foreign entrants now are allowed to operate wholly-owned subsidiaries in China, without a local partner, and the approval of foreign-invested commercial enterprise (FICE) licenses has been decentralized and moved to the provincial level, greatly expediting the process.

Marene Yu, regional managing director of TNT Logistics China, notes that government efforts to improve the logistics environment go beyond licensing. “The 10th Five-Year Plan called for deregulation and massive infrastructure improvements and the 11th Five-Year Plan (2006-2010) again gives high priority to logistics,” he says. As one example, a ministry level council was formed last year “to break the bureaucracy and coordinate logistics development.” Still, foreign-owned 3PLs “will face a lot of challenges without local experience and knowledge,” he says.

44 OCTOBER 2006