China Post expands across Asia-Pac

As Chinese companies continue to invest overseas to expand their businesses, their activity is opening up numerous opportunities for Chinese third party logistics (3PLs) providers. Wong Joon San reports.

China Post, via its logistics unit,China Post Logistics, is a prime example of this development, having expanded in the Asia Pacific region to support its customers investing outside the Mainland.

Speaking at the 4th China 3PL Summit 2008 in Shanghai recently, Tian Xuejun,business director at China Post Logistics said some of China Post’s customers extended their businesses to Hong Kong, Macau and other countries in the AsiaPacific region. “So, we set up warehouses in Hong Kong and Vietnam, among other areas, and have also extended our freight forwarding services,” he said.

China Post’s activities are supportedby Shanghai-based China Postal Airlines,a 51/49 per cent joint venture between China’s State Post Bureau and China Southern Airlines.

In February this year, the airline started mail and cargo flights between the Chinese coastal city of Yantai, Shandong Province, and Seoul, South Korea. The service, which shortened delivery times between the two cities by at least 12hours, was launched using a B737 to operate the inaugural flight.

It was the first freighter service between South Korea and Shandong, the Chinese city where Korea has its largest investment. South Korea has invested about US$20 billion in the eastern province through 2007, accounting for 27 per cent of its total investments in China.

The new route boosts economic exchange between Shandong and South Korea and gives China Postal Airlines a better footing in the international market.China Postal Airlines operates five times weekly between Yantai and Seoul, while express mail from the province can arrivein Seoul, Gyeonggi and Incheon in South Korea the next day, and a day later in other cities.

The airline boasts a fleet of 13 aircraft and operates 30 flights to a dozen domestic cities. The company’s delivery network covers more than 300 Chinese cities.

Ma Junsheng, director of the Chinese State Post Bureau said recently that 2007 was the fastest growing year of the country’s post industry and the China Post Group saw, “robust growth of postal, financial and express services.” China’s post service business revenue stood at 93 billion yuan (US$12.9 billion) in 2007, up16 per cent year-on-year, he said.

The development goal for the country’s post industry in 2008, includes increasing the total business revenue to 106.5 billion yuan (US$15.61 billion), improving the express service qualities and establishing a post service quality appraisal system.But with soaring fuel prices, China Postal Airlines is not likely to expand much inthe immediate term.

3PL business flourishing Tian said the increased presence of multi national corporations (MNC) in China was driving the logistics out sourcing business in all sectors. Their rapid increase in business activity in the mainland market has also boosted competition, he said, forcing leading Chinese manufacturers to upgrade their own supply chains by utilizing more 3PL services.

“At the second and third tier manufacturing levels, they are also turning to 3PL services which they areweaving into their strategies as operating costs escalate,” he said, adding that services with high potential were export related logistics services and nationwide domestic logistics services.

Aside from China Post, leading Chinese logistics companies are also developing their local businesses and cooperating with foreign counterparts, orthey are simply extending their operations overseas.

Chinese companies , through cooperating with foreign companies, are picking up many skills from them and they can also utilise their partner’s international network. They also have better access to capital, while offering their foreign partners local knowledge to the China market.

Cosco Logistics is an example of a Chinese logistics provider which ishelping big Chinese companies like Haierand TCL to expand to markets in the USA, Europe and Australia. It leverages on its parent Cosco Shipping’s 1,000-odd offices around the world, and targets 50 per cent of its revenue from international logistics by 2010.

Tian said as China Post did not havesuch a wide network like Cosco, it is focused only on the Asia Pacific andtried to meet customers’ requirements for regional supply chain optimisation.

Tough times
As competition is stiff and the margins are low, the recent soaring fuel costs don’t help as trucking comprised up to35-40 per cent of operating costs, he said, adding that it is difficult for small companies to survive in such a tough environment.

The average margin of logistics companies in 2007 decreased to less than 10 per cent from 30 per cent in 2002, he said. Looking ahead at logistics trends this year, Tian said the scale of logistics operations in China will increase and the structure will improve along with the country’s economic growth. The industryis to centralise and re-organise because of strong competition from foreign and domestic logistics firms.

Tian believes that in the near future, industrial and commercial companies will pay more attention to supply chain management and increase logistics outsourcing. He said cooperation among regional logistics companies will speed upand more logistics clusters are expected to grow. In addition, logistics companies will put more pressure on resources which are already facing a shortage.

Operation costs will also rise, Tian said, adding that 3PLs will focus onvalue-added services, innovative services and customised services to increase their profit margins. Tian warned that if companies continued only to provide basic services, they would find it difficult to survive in the longer term.