Chinese Logistics – From Big To Robust

Investigations Reveal How Chinese Logistics Should Expeditiously Move From Big To Robust

Christopher Ludwig showcases a review of the automotive market after an all exclusive industry gathering that saw automotive logistics providers in China (The current biggest market) say all the right things, however it’s been noted that the business lacks vagueness in a lot of areas…

When it boils down to reforms and development in their business, the Chinese automotive and logistics corporations’ executives all speak one language, as difficult as it is to sieve out reality from aspirations.

During the just concluded China Automotive Logistics Association (CALA) conference held in Wuhan, almost every speaker representing the China Federation of Logistics and Purchasing (CFLP) was heard using words such as; Innovative Model and Transformation in reference to the Next Stage of Economic Development.

Being a significant government association (The CFLP), its vice-President Cain Jin was quick to add how China’s dream was similar to that of the automotive industry, the dream being the shift from being big to being strong.

His opinion is that the Chinese have to revitalize their nation and the innovation model is the heart that steers economic growth in the stage they are in now. The same perspective and views match those of The People’s Republic of China President Xi Jinping, not forgetting China’s central government’s pointing at a slower, robust growth platform.

In the Chinese Republic, this kind of oratory from the government trickles down to both privately owned and State owned corporations.

Executives gathered in Wuhan linked innovation talk to ecommerce and online retailing as this is another great pillar of the new Chinese Economy. This as you would imagine wasn’t a surprise as the conference took place after the “Single’s Day’ also known as China’s Guanggun Jie that took place on November 11th which is currently the biggest online shopping event worldwide.

Executives from the Logistics platform spoke candidly and universally about the critical importance of using mobile technology and extensive internet usage for purposes of improving automotive logistics.

The Rotating Chair of CALA (2015) and also the Vice-General Manager of Dongfeng Motor (Ouyang Jie) took the stand and touched on Revolution and A New Mentality for utilizing the internet in sales and logistics as well as automotive manufacturing.


Anji Automotive which is a subsidiary of the State Owned SAIC Automotive group Managing Director Yu De, stated how greater internet and mobile phone use is, when it comes to the control of swift and accountable transport and storage operations in the future.

More Executives representing logistics firms such as; FAW Logistics, Changjiu Logistics and China Capital Logistics all echoed his sentiments. That said however, when it comes to technology and investments being pursued in their logistics businesses to make such transformation a possibility, Executives were a bit vague.

Sources derived from China’s passenger vehicle manufacturers admit to the fact that providers are stile infantile at the domestic market. There are factors that back up such claims such as; Equipment being too old and there being the extremely slow approach to electronic messages and paperless systems.

Maintenance of Facilities and fleets are two platforms that prove the wide berth in standards. Plenty of Chinese based firms blame aggressive pricing and reduction costs as the two top OEMs which limit their potential hence the reason why they result to equipment that is sub-standard.


Scale Still an Underlying Question

Speaking boldly; as executives join in arms with party committee members, and in unison they speak of shifting from scale to quality and innovation, automotive providers in a majority of ways contending with matching growth on volume which is set to go up to 24 million motor vehicles this year.

Bothe materials and vehicle volume moved by trucks by many providers has experienced exponential growth, similarly, multimodal logistics has increased rather slowly. Changjiu, Anji Automotive and Changan Minsheng which are all large based automotive logistics corporations have large truck fleets and either own or are in control of vessels which move vehicles and containers.

These are corporations that have robust joint ventures with the railway line to move both vehicles and parts. In China approximately 1.5 vehicles move yearly through railway and over 2 million units are shipped via the river and costal routes.

A majority of these firms have ventured into the entire automotive supply chain through the expansion of their services and assets. Such ventures make these firms broader than some of their European and American Counterparts.

Changan Minsheng Logistics, Vice-minister Dr Chen Zhigang pointed out the ways in which the corporation he represents has transformed from just being a purely based transport provider into a full-cycle logistics corporation.

The company now handles; In-plant handling, vehicle and spare part distribution, storage and inbound transport.  The corporation covers Changan’s production as well sales in China more so for Changan Ford’s plants set in up Chongqing.

On the other hand, Changan’s joint venture with Changan Minsheng APLL (CMAL), APL Logistics is a firm that is listed publicly.

The gauge in the industry today makes it possible for other corporations to magnify their investments and operations that allow more room for stronger role in the capital markets in the automotive logistics.

Fengshen Logistics that is partially owned by Dongfeng, its minister one Wu Xin predicted that there will be plenty of mergers and acquisitions as well as stock offerings across the industry.

Moreover Logistics Companies in China are progressively increasing international ambitions. Changan Minsheng’s Chin explains how the firm has plans to expand its business in Iran, Russia and Brazil.

Chan contributes that the corporation has put into place an action plan dubbed “Go Global” Policy that demands that they have the best quality and a high capacity. It’s important for them to highlight time delivery and fully satisfying the demands of their clients.

Moreover, there are certain corporations that have begun winning business while others are already setting up branches outside China. Sinotrans is one corporation that now moves materials from export hubs setup in Europe delivering them to China based Western Car manufacturers.

Chnagjiu Logistics has setup branch offices in Germany and offers services (Internationally based) to China.


Violation and Open Secrets

One thing is certain however, modernisation rhetoric and signs are incapable of hiding the flaws witnessed in the Chinese automotive logistics sector. Some of the industry’s worst (dirty) kept secret include the use of oversized and overloaded trucks covering both outbound and inbound logistics.

Signs show that the automotive logistics sector is capable of grinding to a halt should the government introduce tougher laws of official vehicle dimensions.

Tianjin Anda, the current Vice General Minister (Zheng Yuqian) has asked the government to work hand in hand with the CALA together with the vehicle logistics industry so that they can come up with standards that are equitable enough to assist corporations with effective load factors without compromising product quality.

He was quick to add that without quality corporations in this industry will be unable to act and it is such an embarrassment. He made his appeal to the government as well as the authorities associated with the industry to come up with substantial standards as the industry cannot wait any longer.

On the other hand, the CALA advised that currently a review board is advising the government which is inclusive of majority logistics members together with equipment manufacturers such as France’s Lohr that has presented a number of European-length trainers unto the Chinese government to consider them when it makes its decision.

Various other sources also pointed out at the lack of transparency witnessed across the logistics industry. For certain logistics firms, more so Western Brands trying to expand their business in China, it’s not clear to them when Strong networks and relationships (Guanxi) comes to an end and where corruption starts.

A certain executive from a provider pointed a finger at the thriving culture of bribes prevalent in the industry. This is an issue that has been realized and singled out at the highest levels in China by government efforts that are aimed at curbing and ending graft ousting out corrupt officials.

There are certain parts of the sector that are deprived of professionalism as well. Corporations have the tendency of exaggerating their operations, there is no clarity of the extent to which figures or fleet details are in the picture and whether they are reliable.

According to a certain executive, a provider may claim that it has been in business with a certain corporation even if the firm had done a little more that take part in a bid. He also noted that there are a number of Western Logistics providers that exaggerated their capabilities and connections in China.

Tianjin Anda’s Zheng Yuqian also added that the lack of standards makes the corporations fill the feet of prisoners waiting to be called for trial albeit being stuck in perpetual jail custody.

Executives from the Logistics industry that addressed journalists added yet another area which is wanting in transparency is the vehicle damages and repair rates. Logistic providers often times make arrangements with dealers to have their vehicles that have been damaged during transport repaired without informing the OEM.

Deals as such (Side) raise questions concerning indirect costs to the supply chain, not mentioning the quality of repairs and replacement parts sources.


Quanxi’s (Incumbent) Power

The wide use of incumbent logistics benefactors for Chinese based automotive groups plays a critical role in China’s automotive logistics business. That said; Anji including its subsidiaries and joint ventures are the chief in-plant, inbound and vehicle logistics benefactors for SAIC corporations including; Shanghai GM and Shanghai Volkswagen.

On the other hand, FAW Logistics is liked up to the FAW Group and Finally Changan Minsheng is linked to Changan.

Private logistics corporations covering foreign firms such as; NYK, DHL and Gefco and a plethora of Chinese based firms such as Tianjin Anda and Changjiu gain business with the largest OEM groups that are involved in joint ventures with incumbent benefactors, taking up the role of subcontractors or by serving separately controlled import and export businesses for vehicles and parts.

Both Gefco and NYK have gained contracts for European import vehicles for the likes of BMW and Volkswagen Group. BLG and WWL boast of port processing operation covering both imports and exports.

Even without any ownership links, the size and the power of these firms are extremely hard to compete against. Case in point, leasing or constructing a warehouse as well as creating a distribution hub space in China is something that can be extremely difficult due to the varying Government ownership regulations.

Larger, state-owned providers often times are reliant on their own links with Government and municipal agencies to either lease or acquire land. Such results have seen such providers setup numerous warehouses and vehicle depots all over China that puts the firms at a competitive advantage more so over Western Based Logistics Corporations or private ones that has less Quanxi.

Often times, logistics providers make arrangements with dealers to repair vehicles which might have been damaged during transport without the knowledge of the OEM. Such side dealings raise a-lot of questions concerning indirect costs to the supply chain, not forgetting sources of the quality of repairs and replacement parts.

The above statement shouldn’t mislead you to thinking that China doesn’t offer opportunities to both private and foreign companies, Similar to OEMs, providers have landed big business in the domestic Chinese market thanks to their joint ventures.

Ventures such as; Dongfeng Gefco, Anji-Ceva and CMAL are thriving. The robust growth in this sector means that large providers now work increasingly with sub-contractors. In practise however, Chinese car groups are decentralized highly and there are plenty of plants or divisions which work with separate firms.

Moreover, relatively new and brand new entrants in the market, the likes of; Qoros, Chery JLR and many others have joined hands with larger groups both Chinese based and Western Based not forgetting Joint Venture Capitalists.

That said; there are still a bit of frustrations amongst providers whose executives have a feeling that till when the market is open more for private 3PLs, Chinese automotive logistics stands to struggle to make transformations desirable.

During the CALA conference, the Group Chairman of Tianjin Anda Group, (Hong-Jin) was heard quoting private third party providers such as his corporation as “Secondary Citizens” in the industry more so for the finished Vehicle logistics.

His statement showed his want for more opportunities for 3PLs to improve logistics and gain business in China. Cui was heard saying that he did not believe that finished vehicle logistics has spread to the third party provider era as it stands, there are first and secondary citizens.

Speakers go on and on about dreams of 3D printing and innovations, however speakers ought to come back down to earth and trail their focus on improving operations and bettering the costs of integrating logistics.

Hong-Jin on behalf of secondary citizens, he called on industry leaders to take care of them as third party providers devote their whole existence on providing services to them. He concluded his speech by indicating that regardless of the technology the firm has, if it fails to work, then 3PLS will not conduct good business in China.