china logistics industry

China’s Logistics Industry Update 2011

May 2011

Li & Fung Research Centre

22

1. Industry overview p.3

2. Challenges p.51

3. Government Policies p.59

4. Hot spots p.66

In this issue:

2

3

1.Industry overview

(1) Market size

(2) Logistics efficiency

(3) Outsourcing of logistics functions

(4) Development of transport infrastructure

(5) Performance of logistics enterprises

33

4

(1) Market size

Logistics value

Logistics demand coefficient

Value-added of logistics industry

The market size of logistics industry in China has been growing: The logistics value

reached a record high of 125,400.0 billion yuan in 2010, up by 29.7% year-on-year.

4

55

Logistics value

According to the China Federation of Logistics & Purchasing

(CFLP), the total logistics value is defined as the total value of

products being produced in or entering the country during the

recording period

The figure reflects the market size of, and total demand for

logistics services of a country

The total logistics value reached a record high in 2010:

125,400 billion yuan, up by 29.7% year-on-year (yoy)

The stunning growth was largely due to the global recovery in

2010

Manufacturing sector remained key to China‟s economy – the

logistics value of industrial products accounted for a gigantic

share of 90.2% of the total logistics value in 2010

5

66

Logistics value (cont’d)

59,597.6 75,228.3

89,990.7 96,650.0

125,400.0

24.0%26.2%

19.6%7.4%

29.7%

0%

5%

10%

15%

20%

25%

30%

35%

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

2006 2007 2008 2009 2010

Total logistics value (billion yuan) Growth % yoy

China’s total logistics value, 2006 - 2010

Source: China Federation of Logistics & Purchasing (CFLP)

6

7

Logistics value (cont’d)

China’s total logistics value by category, 2010

Source: CFLP

Value

(billion yuan)

yoy

growth Share

Agricultural products 2,236 4.3% 1.8%

Industrial products 113,103 14.6% 90.2%

Imported products 9,431 22.1% 7.5%

Recycled materials 446 39.5% 0.4%

Commercial and personal products 198 14.7% 0.2%

Total 125,413 15.0% 100.0%

7

8

Logistics demand coefficient

It refers to the logistics value-to-GDP ratio

The higher the coefficient, the larger the logistics

market

The logistics demand coefficient in 2010 was 3.2,

up from 2.8 in 2009

The figure suggested that the logistics market in

China recovered from the global financial crisis

8

99

Logistics demand coefficient (cont’d)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2006 2007 2008 2009 2010

The logistics demand coefficient, 2006-2010

Source: CFLP

9

10

Value-added of logistics industry

The larger the value-added, the larger is the market

The value-added has been rising steadily in the past five

years, denoting a growing logistics market

The value-added was 2,700.0 billion yuan in 2010,

up by 16.7% yoy

The share of the total value-added of the logistics

industry in GDP and China‟s tertiary industry has been

stable in the past five years, indicating that the logistics

sector has managed to grow as fast as the tertiary

market as well as the national economy

1010

1111

Value-added of logistics industry (cont’d)

The total value-added of the logistics industry, 2006-2010

Year

Total value-added

(billion yuan )

yoy

growth Share in the tertiary industry Share in GDP

2006 1,412.0 15.1% 16.7% 6.7%

2007 1,792.5 22.5% 16.6% 6.7%

2008 2,152.8 20.1% 16.4% 6.8%

2009 2,310.0 7.3% 16.1% 6.9%

2010 2,700.0 16.7% 16.0% 6.9%

Source: CFLP 11

12

1.Industry overview

(1) Market size





1212


13

Logistics cost to GDP

Average inventory period of industrial and

commercial enterprises

World ranking: Logistics Performance Index

Logistics market in China is in general inefficient and there is huge

room for improvement.

13

1414

Logistics cost

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2006 2007 2008 2009 2010

bill

ion

yu

an

management cost inventory storage cost transportation cost

The total logistics cost and its composition, 2006-2010

Source: CFLP

The total logistics cost recorded 7,100.0 billion yuan in 2010, up by 16.7% yoy

Share in logistics total cost

2006 2007 2008 2009 2010

Management 13.2% 12.7% 12.7% 11.9% 12.1%

Inventory 32.1% 32.9% 34.7% 32.8% 33.9%

Transportation 54.7% 54.4% 52.6% 55.3% 54.0%

14

Logistics cost to GDP

15

The ratio of total logistics cost to a country‟s GDP

reflects the efficiency of the logistics industry

The lower the ratio, the more efficient is the

logistics sector

The ratio decreased from 18.3 % in 2006 to

17.8%in 2010

However, the ratio is still twice the ratios

observed in most developed countries (e.g. USA:

7.7% in 2010)

The efficiency of China‟s logistics industry still

has huge room for improvement

15

1616

Logistics cost to GDP (cont’d)

17.0

17.2

17.4

17.6

17.8

18.0

18.2

18.4

18.6

18.8

19.0

2006 2007 2008 2009 2010

%

The total logistics cost as a percentage of GDP, 2006-2010

Source: CFLP16

Average inventory period of industrial

and commercial enterprises

17

Industrial enterprises: 48.94 days in 2009,

improving from 51.95 days in 2008

Commercial enterprises: 40.11 days in 2009,

improving from 42.26 days in 2008

17

1818

Average inventory period of industrial

and commercial enterprises (cont’d)

Proportions of enterprises with average inventory

Year

Average inventory

period (days)

<10

days

10-20

days

21-30

days

1-2

months

2-3

months

> 3

months

Industrial

enterprises 2009 48.94 9.5% 10.6% 23.4% 28.9% 15.4% 12.2%

2008 51.95 9.8% 9.9% 21.7% 27.6% 16.1% 14.9%

Commercial

enterprises 2009 40.11 11.4% 21.3% 20.1% 29.8% 9.3% 8.1%

2008 42.26 9.1% 19.8% 20.1% 28.8% 10.7% 9.5%

Average inventory period of industrial and commercial enterprises, 2009

Source: National Development and Reform Commission (NDRC) & Nankai University

18

19

World ranking: Logistics Performance Index

The Logistics Performance Index by World Bank

measures the logistics performance of different

economies

In the 2010 exercise, China ranked 27 among the

155 assessed economies, taking the lead among

the lower-middle income countries

Developed or high-income countries such as

Germany, Singapore and Sweden topped the chart

19

2020

World ranking: Logistics Performance Index (cont’d)

Logistics performance in 2010

Rank Economy

1 Germany

2 Singapore

3 Sweden

4 Netherlands

5 Luxembourg

6 Switzerland

7 Japan

8 United Kingdom

9 Belgium

10 Norway

11 Ireland

12 Finland

13 Hong Kong SAR, China

14 Canada

15 United States

Rank Economy

16 Denmark

17 France

18 Australia

19 Austria

20 Taiwan, China

21 New Zealand

22 Italy

23 Korea, Rep.

24 United Arab Emirates

25 Spain

26 Czech Republic

27 China

28 South Africa

29 Malaysia

30 Poland

Source: World Bank20

21

1.Industry overview

(1) Market size





2121


22

Outsourcing rate of industrial and commercial

enterprises by volume

Proportion of logistics functions outsourced

Types of logistics service outsourced

Number of logistics service suppliers

The outsourcing rate of logistics function has been on the rise.

22

Outsourcing rate of industrial and

commercial enterprises by volume

23

According to the National Development and Reform Commission (NDRC) and Nankai University, the outsourcing rate of logistics operations of Chinese industrial and commercial enterprises has been rising over the last few years

The outsourcing rate reached a record high of 61.2% in 2009, meaning that a growing number of Chinese enterprises saw the benefits of outsourcing such non-core functions as logistics operation

23

2424

Outsourcing rate of industrial and commercial enterprises by volume (cont’d)

0

10

20

30

40

50

60

70

2005 2006 2007 2008 2009

%

Outsourcing rate of Chinese industrial and commercial enterprises,

2005-2009

Source: NDRC & Nankai University 24


According to the NDRC and Nankai University, over 70% of surveyed industrial and commercial enterprises outsourced more than 50% of their logistics functions by volume in 2009

Over 40% of the surveyed enterprises even outsourced over 80% of their logistics functions to professional logistics service providers

It reflects that enterprises are becoming more receptive to the idea of outsourcing and are more willing to outsource a significant proportion of their logistics functions

2525

2626


(cont’d)

9.1%10.8%

9.2%

29.8%

41.1%

Outsourced 0-10% of the

logistics functions


logistics functions


logistics functions


logistics functions

Outsourced 81-100% of

the logistics functions

Proportion of logistics functions outsourced to total logistics volume, 2009

Source: NDRC & Nankai University

26

27

Types of logistics service outsourced

Traditional functions such as transportation and

distribution were the most popular services the surveyed

enterprises outsourced

When asked which services the surveyed enterprises

would consider to outsource in the future, logistics

information management and logistics system design

were the most mentioned

It reveals that Chinese enterprises are becoming more

open to outsourcing more advanced logistics functions

27

2828

Types of logistics service outsourced (cont’d)

Proportion of industrial and commercial

enterprises surveyed

Transportation 42.6%

Distribution 38.3%

Logistics information management 15.6%

Warehousing 15.5%

Logistics system design 10.7%

Packaging & processing 13.5%

Inventory management 5.4%

Others 2.1%

Types of logistics services outsourced, 2009


Note: multiple responses allowed

28

2929

Types of logistics service to be outsourced

Types of logistics services under consideration to be outsourced

in the future, 2009

Proportion of industrial and

commercial enterprises surveyed

Logistics information management 37.5%

Logistics system design 24.0%

Packaging & processing 16.7%

Warehousing 12.5%

Inventory management 8.3%

Distribution 8.1%

Transportation 4.2%


Note: multiple responses allowed

29

30

Number of logistics service suppliers

Enterprises which outsource their logistics functions

to an optimal number of logistics service suppliers

could reduce transaction cost and still contain risks

involved in outsourcing

According to the NDRC and Nankai University, over

70% of the surveyed industrial and commercial

enterprises selected 2 to 5 logistics service suppliers

30

3131

Number of logistics service suppliers (cont’d)

Number of logistics service supplier(s) hired by industrial and commercial

enterprises surveyed, 2009

11.2%

43.6%29.4%

15.8% Outsource to 1 logistics service

supplier

Outsource to 2-3 logistics service

suppliers

Outsource to 4-5 logistics service

suppliers

Outsource to over 6 logistics

service suppliers

Source: NDRC & Nankai University 31

32

1.Industry overview

(1) Market size





3232


Fixed assets investment in the logistics industry

Capacity of transport infrastructure

33

The capacity of the transport infrastructure in China is improving.

33

34

Fixed assets investment in the logistics industry

Improving transport infrastructure has always been a priority for the government in China

The total fixed assets investment in the logistics industry grew by 19.4% to 3,070.0 billion yuan in 2010

Investment in transportation accounted for 75.7% of the total fixed assets investment in the logistics industry in 2010

34

3535

Fixed assets investment in the logistics

industry (cont’d)

China’s fixed assets investment in four major modes of transport, 2008-2009

Source: National Bureau of Statistics of China (NBS)

Mode of transport

Fixed assets investment (billion yuan)

2008 2009

Highway 741.2 1,055.8

Railway 407.3 666.1

Water 120.4 167.1

Air 59.1 60.5

35

Capacity of transport infrastructure

36

Length of highways, navigable inland waterways, and railways in operation,

2008-2010

Source: NBS, CFLP

The networks of the 4 modes of transport (road, railway, water and air) have been expanding over the past several years

Achievements

‧China‟s length of navigable inland waterways ranked 1st in the world (~124,000 km in 2010)

‧The length of high-speed railway in China ranked 1st in the world (~8,300 km in 2010)

‧The total length of expressway in operation in China ranked 2nd in the world (~74,000 km in 2010)

Length (thousand km)2008 2009 2010

Highway 3,730.2 3,860.8 3,980.0

Navigable inland waterways 122.8 123.7 124.0

Railways in operation 79.7 85.5 91.0

36

Capacity of transport infrastructure (cont’d)

Both passenger and freight traffic recorded steady increases in the recording period

Road remained the major mode of transport to dispatch both passengers and freight in China

Among the 4 modes of transport, air had the most impressive growth rates in terms of passenger traffic (↑19.7% yoy in 2009) and total passenger- kilometers (↑17.1% yoy in 2009)

As for freight traffic and freight tonne-kilometers, the growth rates of the road transportation were the highest: 11.0% yoy and 13.1% yoy in 2009 respectively

3737

3838

Capacity of transport infrastructure (cont’d)

Total passenger traffic

(million persons)

Total passenger kilometers

(billion passenger-km)

Mode of transport 2008 2009 2008 2009

Road 26,821.1 27,790.8 1,247.6 1,351.1

Railway 1,461.9 1,524.5 777.9 787.9

Water 203.3 223.1 5.9 6.9

Air 192.5 230.5 288.3 337.5

Passenger traffic and total passenger-kilometers of the four major modes of transport, 2008-2009

Source: NBS

Freight traffic and total freight tonne-kilometers of the four major modes of transport, 2008-2009

Total freight traffic

(million tonnes)

Total freight tonne-kilometers

(billion tonne-km)

Mode of transport 2008 2009 2008 2009

Road 19,167.6 21,278.3 3,286.8 3,719

Railway 3,303.5 3,333.5 2,510.6 2,524

Water 2,945.1 3,190.0 5,026.3 5,756

Air 4.1 4.5 12.0 12.6

38

39

1.Industry overview

(1) Market size





3939


Top logistics enterprises in China

Foreign players‟ expansion in China

Performance of Chinese logistics companies against

global counterparts

Performance of Chinese 3PL companies in the world

Profitability of logistics enterprises

Utilization rate of vehicles

Utilization rate of warehouse

4040

41

Top logistics enterprises in China

CFLP ranked the top 50 logistics enterprises in China in terms of annual sales revenue in 2009

Total revenue of the top-50 reached 450.6 billion yuan in 2009, down by 5.3% yoy

All of the top-50 players had their annual sales revenue exceeding 1 billion yuan

41

4242

Top logistics enterprises in China (cont’d)

Scale of the Top 50 logistics enterprises in China, 2007-2009

Number of logistics enterprises with sales revenue 2007 2008 2009

Exceeding 1 billion yuan 43 43 50



Source: CFLP

42

4343

Top logistics enterprises in China (cont’d)

Top 20 logistics enterprises in China, 2009

Ranking Enterprises

Sales revenue in

2009 (billion yuan)

1

China Ocean Shipping (Group) Company

中國遠洋運輸集團總公司 104.62

2

SINOTRANS & CSC Holdings Co. Ltd

中國外運長航集團有限公司 71.62

3

China Shipping (Group) Company

中國海運集團總公司 44.60

4

Kailuan Group

開灤集團國際物流有限責任公司 27.47

5

China National Materials Storage and

Transportation Corporation (CMST)

中國物資儲運總公司 17.74

6

Xiamen Xiangyu Group Co. Ltd

廈門象嶼集團有限公司 16.98

7

China Railway Material Company

中鐵物資集團有限公司 14.08

8

Jizhong Energy Group Co. Ltd.

冀中能源峰峰集團邯鄲鼎峰物流有限公司 11.16

9

China Petroleum Transportation

Corporation

中國石油天然氣運輸公司 10.01

10

Henan Coal and Chemical Industry

Group Co. Ltd.

河南煤業化工集團國龍物流有限公司 8.81

Ranking Enterprises

Sales revenue in

2009 (billion yuan)

11

Shuohuang Railway Development Co. Ltd.

朔黃鐵路發展有限責任公司 8.75

12

China Railway Container Transport Co. Ltd

中鐵集裝箱運輸有限責任公司 8.19

13

China Railway Express Co. Ltd

中鐵快運股份有限公司 7.24

14

The S.F. Express Company

順豐速運（集團）有限公司 6.44

15

Beijing Huayou Natural Gas Co. Ltd, CNPC

北京華油天然氣有限責任公司 6.07

16

International Cargo Transport Limited of China

中國國際貨運航空有限公司 5.33

17

Yunnan Logistics Industry Group

雲南物流產業集團有限公司 5.16

18

SINOPEC Pipeline Transport & Storage Co.

中國石油化工股份有限公司管道儲運分公司 4.47

19

Shandong International Transportation

Corporation Maritime (Group) Co. Ltd

山東海豐國際航運集團有限公司 4.74

20

Chongqing Port Logistics Group Co. Ltd

重慶港務物流集團有限公司 4.01

43

4444

Foreign players’ expansion in China

Foreign players continue to accelerate their expansion in China

FedEx‟s Asia-Pacific delivery centre in Guangzhou‟s Baiyun Airport commenced its operation in 2009, and it is the largest one outside the US

UPS relocated its intra-Asia hub operations from Clark, Philippines to Shenzhen in early 2010

DHL entered into an agreement with the China Merchants Maritime Logistics (Shenzhen) Ltd. in June 2009 to establish a global distribution centre in Qianhai, Shenzhen

44

Performance of Chinese logistics

companies against global counterparts

According to the Alphaliner Top 1001, a few Chinese logistics companies entered the top-20 list

‧ 6th - COSCO Container L. (中遠集裝箱運輸有限公司)

‧ 10th - CSCL (中海集裝箱運輸股份有限公司)

‧ 11th - OOCL (東方海外)

45

1 Alphaliner is an information platform designed to serve the needs of the liner shipping industry. It has been updating

the ranking on a daily basis since 1996, setting a benchmark for the liner shipping industry.

45

46

Performance of Chinese logistics companies

against global counterparts (cont’d)

Ranking Operator TEU

1 APM-Maersk 2,313,559

2 Mediterranean Shg Co 1,974,659

3 CMA CGM Group 1,270,889

4 Evergreen Line 612,777

5 Hapag-Lloyd 599,982

# 6 COSCO Container L. 599,886

7 APL 583,484

8 CSAV Group 550,047

9 Hanjin Shipping 525,634

# 10 CSCL 497,218

# 11 OOCL 410,854

12 MOL 409,477

13 NYK Line 407,850

14 Hamburg Süd Group 374,844

15 Yang Ming Marine Transport Corp. 339,842

16 K Line 337,887

17 Zim 328,056

18 Hyundai M.M. 310,705

19 PIL (Pacific Int. Line) 262,020

20 UASC 236,747

Top 20 fleets in operation as of 26 May 2011

Source: AXS-Alphaliner # Note: Chinese operators46

47

Profitability of logistics enterprises

According to the 8th National Survey on Logistics Marketby the NDRC and Nankai University, 42.3% of the surveyed logistics enterprises recorded a profit margin of 5-10%, while 27.2% said their profit margin was between 3-5% in 2009

The 2010 National Statistical Survey Report on Logistics of Key Enterprises by the NDRC, National Bureau of Statistics (NBS) and CFLP revealed that the average profit margin for Chinese logistics enterprises was 6.0% in 2009, down by 7.1 ppt yoy

Overall, the profitability of logistics enterprises in China is still low

47

4848

Profitability of logistics enterprises (cont’d)

Profit margin of logistics enterprises, 2009

4.9%19.5%

27.2%

42.3%

6.1%Logistics enterprises that haveprofit loss

Logistics enterprises that haveprofit margin of 1-3%



Logistics enterprises that haveover 10% of the profit margin


48

4949

Utilization rate of vehicles

5.5%

24.1%

31.7%

38.7%

Use less than 50% of thecapacity of the vehicles

Use 51-70% of the capacity ofthe vehicles

Use 71-90% of the capacity ofthe vehicles

Use over 90% of the capacityof the vehicles

Utilization rate of vehicles by logistics enterprises, 2009


In 2009, 70.4% of the surveyed logistics enterprises used over

70% of the capacity of their vehicles, dropping from 73.4% in 2008

49

5050

Utilization rate of warehouse by logistics enterprises, 2009

21.2%

37.8%

36.1%

1.8% 3.1%

Use less than 30% of the

capacity of the warehouse

Use 31-50% of the capacity of

the warehouse


the warehouse


the warehouse

Use over 90% of the capacity of

the warehouse


Utilization rate of warehouse

In 2009, 73.9% of the surveyed logistics enterprises used over 70%

of the capacity of their warehouses, dropping from 75.0% in 2008

50

51

2. Challenges

5151

5252

Increasing logistics cost yet with low efficiency

As mentioned before, the ratio of the logistics cost to GDP of China remains high when comparing with its counterparts in the developed world

Operating costs including fuels, rental, etc. are surging in China

Chinese customers become more and more demanding in service quality and time of fulfillment, which leads to higher cost pressure and margin squeeze of the logistics players

The utilization rates of vehicles and warehouse for logistics players have been decreasing in recent years

52

53

Specialized logistics services are under developed

The demand for high value-added logistics services such as cold chain logistics is increasing

These kinds of services require sophisticated technology and advanced facilities. However, the service providers of specialized logistics services in China are not well-equipped with the necessary facilities and technology

Service failures including order fulfillment delay and product damage happen frequently

53

Poor development of infrastructure

Mileage per capita of road transportation in China

is around 1/10 of which in the United States.

Transport bottlenecks remain common in major

cities and in peak seasons like the Spring Festival

The infrastructural development in important

coastal regions is much more mature than that in

central and western China

Connections between railway, road and port

facilities still have much room for improvement

Overcharging of road tolls adds extra cost to

logistics service providers 5454

Constraints on human resources

According to the aforesaid survey by the NDRC and

Nankai University, logistics enterprises are targeting

particularly at talents who have expertise in integrated

logistics management, information management, supply

chain design, as well as sales and marketing

Although more and more universities in China offer

programs of logistics, the demand for talents has

always outstripped supply in the industry

Many practitioners lack modern management

knowledge and skill sets to satisfy the increasingly

demanding clients

5555

Local protectionism

Most logistics companies in China operate only in their

immediate regions and take little initiatives to develop

more comprehensive networks

The multi-layered distribution system has lowered

efficiency and visibility

5656

Lack of high-level coordination

Although the functions of government departments regulating

civil aviation, postal services, communications and urban

public transportation were consolidated with the establishment

of Ministry of Transport in 2008, other departments are still

responsible for monitoring different aspects of logistics

industry in China

The lack of high-level coordination among government

departments leads to multiple jurisdictions and limits the

development of logistics industry

5757

In-house mindset

As mentioned earlier, the outsourcing rate of logistics

function has been on the rise for the past five years

However, it still lags behind the rate of the developed

countries: The outsourcing rate of the US had already

exceeded 80% in 2004

The logistics functions outsourced by Chinese enterprises

are still the low value-added ones, such as transportation

and distribution

The self-management mentality has hindered the

development of China‟s logistics sector

5858

59

3. Government Policies

5959

The Twelfth Five-Year Plan (12th FYP)

According to NDRC, key directives of logistics industry development

are revealed under 12th FYP:

Develop 3rd party logistics

Enhance the efficiency, scalability and service of the industry

quality with diversified services provided

Quicken the logistics development on handling agricultural goods,

mineral, industrial goods and necessities

Facilitate seamless transition among intermodal transportation

Strengthen and integrate logistics infrastructure

Provide logistics information sharing platform

Promote logistics digitalized and intellectual development and

applications

Standardize the industry practice

Enhance the competitiveness of logistics enterprises in the globe60

The Twelfth Five-Year Plan (12th FYP)

(cont’d)

According to the NDRC and CFLP, at the end of the

Twelfth Five-Year Plan (12th FYP), i.e. 2015

‧The market size of the logistics industry will continue to

grow:

- The total logistics value will grow at a CAGR of 14%

- The value-added of the logistics industry will increase at a

CAGR of 15%

‧The efficiency of the logistics industry will further

improve:

- The ratio of total logistics cost to GDP will decrease to 17.5%

61

Medium- and Long-term Plans

Chinese government has issued Adjustment and

Revitalization Plan of Logistics Industry《物流業調整和振興規劃》after post-financial crisis in 2009 – 2011.

The government is now formulating the Medium- and

Long-term Development Plan of Logistics Industry, 2012-

2020《物流業發展中長期規劃（2012-2020年）》, the

plan will well define the directives and key highlights on

the development of logistics industry during the period.

62

Medium- and Long-term Plans (cont’d)

Several specific development plans will be issued soon,

including :

– Development Plan of Logistics Parks in China《全國物流園區發展規劃》

– Development Plan of Emergency Logistics《應急物流發展規劃》

– Development Plan of Commercial Logistics《商貿物流發展規劃》

– Development Plan of Coal Logistics 《煤炭物流發展規劃》

63

Development Plan of Commercial

Logistics

Commercial logistics refers to the logistics services

handling wholesale, retail, residential and catering

related activities.

In 2011, MOFCOM has issued Development Plan of

Commercial Logistics《商貿物流發展專項規劃》with

key directives.

– Build a comprehensive warehousing and distribution network

– Enhance the infrastructure, including distribution centers,

cold chain facilities, logistics parks, information platforms etc

– Brand the logistics services with professional and integrated

service standard

64

Key directives (cont‟d)

– Raise the technical application standard, e.g. automation,

track and trace, e-transaction platform, „Internet of Things‟

– Develop pilot works of commercial logistics

– Provide more policy supports, in terms of infrastructural plan,

investment support, training

– Promote green commercial logistics

– Establish emergency logistics operation mechanism

– Promote international cooperation and work closely with

Asian trading partners

Development Plan of Commercial

Logistics (cont’d)

65

66

4. Hot spots

(1) Online retailing and logistics industry

(2) The Internet of Things

6666

67


Market size

Logistics demand of online retailing

Measures taken by online retailers to enhance

logistics efficiency

Logistics remains the bottleneck of online retailing development.

67

Market size

Online retailing has recorded enormous growth in the past 10 years

‧Transaction value of China‟s online retailing market reached 498.0 billion yuan in 2010, registering a stunning growth of 89.4% yoy

‧ According to iResearch, the transaction value of online retailing is estimated to quadruple its size in 5 years, reaching 1,933.8 billion in 2014

68

Market size (cont’d)

0

100

200

300

400

500

600

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

bill

ion y

uan

Transaction value of online retailing, 2001 -2010

Source: iResearch69

Logistics demand of online retailing

The robust growth of online retailing generates significant revenue for the logistics sector, especially the 3PL players

According to iResearch, the income of express delivery companies brought by online retailing reached 19.3 billion yuan in 2009, up by 59.4% yoy

The market will continue to grow at a CAGR of 25.8% in the next 3 years, reaching 44.2 billion yuan in 2012

12.119.3

36.244.2

27.959.4%

29.7%22.1%

44.9%

0

20

40

60

2008 2009 2010 2011e 2012e

0%

20%

40%

60%

80%

Revenue from online shopping (RMB billions) Growth rate

Revenues of express delivery companies from e-commerce, 2008-2012E

Source: iResearch70

Logistics became the bottleneck of the

development of online retailing

The huge number of orders brought by online retailing overloads many 3PL companies

Delay of delivery and product damage usually happen during peak seasons

According to the survey conducted by State Post Bureau in 1H2010, 3PL companies‟ performance on on-time delivery remained dissatisfactory to most of the respondents; over 80% of complaints were related to delay of delivery and product damage

Additional services such as payment collection on delivery, return and exchange of unwanted goods are usually required by online retailers. However, many of the existing 3PL companies in China have yet to provide higher value-added services

71

Measures to enhance logistics efficiency

Most C2C e-commerce sites such as Paipai and Eachnet only partner with 3PL companies for product delivery. However, the service quality of 3PL companies are not consistent

To improve the satisfaction of customers about product delivery, some online retailers choose to establish a comprehensive in-house logistics system

‧ For example, Taobao, the largest online retailer in China, launched its online logistics platform named Wuliubao (物流寶) in June 2010 to aggregate demand of logistics-related services

‧ Through partnership with different services providers (e.g. warehousing service, package delivery and software solutions, etc), the platform aims to offer one-stop service for its larger-scale online sellers

72

Measures to enhance logistics efficiency (cont’d)

Alibaba Group, the parent company of Taobao, announced in January 2011, to further invest 20-30 billion yuan in its logistics platform over the medium term, serving its partners in the logistics industry, Taobao sellers as well as independent B2C websites

73

Measures to enhance logistics efficiency (cont’d)

Meanwhile, some online retailers would rather adopt a combination of in-house and outsourced logistics solution to balance service quality and investment

‧ For instance, Vancl, a major online apparel retailer, has built its own distribution centers (DCs) in Beijing, Shanghai, Shenzhen and Guangzhou. DCs in 10 other cities are also under construction. Meanwhile, they still employ 3PL companies to augment their in-house network to achieve boarder geographical coverage

It is expected that the online retailing in China will see explosive growth once the logistics bottleneck is alleviated

74

75

4. Hot spots



7575

76


Definition

The Internet of Things: an evolving concept

Applications of the concept

The Internet of Things in China

Market size

Related government policies

Internet of Things is gaining importance in China.

76

Definition

The International Telecommunication Union (ITU) defined the “internet of things” in its report, ITU Internet Reports: The Internet of Things 2005, as “from anytime, any place connectivity for anyone, we will now have connectivity for anything”

Any THING

Any TIME

Any PLACE

Any ONE

77

Definition (cont’d)

According to McKinsey, the Internet of Things is formed by sensors and actuators embedded in physical objects, linking through wired and wireless networks and using the same Internet Protocol that connects the Internet

These networks provide huge volume of data that flow to computers for analysis that allows objects to sense the environment and communicate, to understand complexity and response to it without human intervention

RFID tag

Active RFID reader and Wi-Fi hub

Portable RFID reader

and writer

78

The Internet of things: an evolving concept

The concept of "Internet of Things" was first coined by the founders of the then Massachusetts Institute of Technology (MIT) Auto-ID Center in 1999; at that time, the concept mainly referred to any broad class of identification technologies used in industrial development

"Internet of Things" came into limelight again when the ITU published the first report on the subject in 2005

The ITU report adopts a holistic approach by suggesting that the Internet of Things will combine technological developments in item identification ("tagging things"), sensors and wireless sensor networks ("feeling things"), embedded systems ("thinking things") and nanotechnology ("shrinking things"), and the scope of the Internet of Things is widened from industrial to daily life application

79


(cont’d)

Tagging things Feeling things

Thinking things

Shrinking things

80


(cont’d)

At the end of 2008, IBM‟s CEO Samuel Palisano brought out a new concept – “smart planet” to the world: applying high-tech intelligence to energy, transportation, food, water, even health care – an even broader scope of the Internet of Things application

Source: IBM 81

Applications of the concept

Daily life application: the Future Store by METRO Group

Present your Future Card at the sensor

on the trolley to load your personal shopping list,

tailor-made list of discount items and

loyalty bonus information

The screen on the trolley will show you the

most convenient way to get what you want to buy

Scan the products chosen with the sensor

before putting them into the trolley Info Terminal shows detailed information of

more delicate products

The Comfort Payment system helps

calculating the total amount of payment. Self

check out shortens the time of queuing

Electronic shopping list can be sent to the

store via Internet before you arrive at the store

Source: METRO Group82

Applications of the concept (cont’d)

Commercial application: Inventory control

Every product has a RFID tag on itThe tag communicates with the main server

constantly to update its own location and status

The location and status of the products can be

traced in warehouse, distribution centre, retail store

and even on the way

Smart shelf at retail store will send warning

signal to the merchandising management

system when it is about to be empty

The merchandising management system will then

either send the reminder to the shop assistants

for follow-up or re-order automatically from the suppliers

The info handset of shop assistants will show them the

location of empty shelves, items out of stock and other

information to facilitate refilling or reordering

Source: METRO GroupSuppliers will deliver the products to the store

after receiving the order 83

The Internet of Things in China

The development of the global Internet of Things industry has risen to the level of China‟s national strategy since Premier Wen Jiabao inspected the Wuxi Internet of Things Industrial Base in August 2009

Wen Jiabao followed up with a speech in November 2009 at the Great Hall of the People in Beijing, encouraging breakthroughs in key technologies for sensor networks and the Internet of Things

During the National Party Congress (NPC) & Chinese People's Political Consultative Conference (CPPCC) Annual Session 2010, Wen confirmed that China would accelerate the research and development as well as application of the Internet of Things

China set up an Internet of Things center in Shanghai in March 2010. With a total investment of 800 million yuan, the 170,000 sq.m. center is designed to develop technologies and industrial standards in the field

84

Market size

According to the 2009- 2010 the Annual

Development Report of China's Radio Frequency

Identification (RFID) and the Internet of Things, in

2009, the market size of the Internet of Things

industry in China exceeded 170.0 billion yuan

The concept is most applied in the areas of public

safety, household safety and transportation

According to the Report, the market will expand up to

750.0 billion yuan by 2015

In fact, the RFID (one of the major components in the

Internet of Things) market reached 8.5 billion yuan in

2009 in China, ranked 3rd in the world

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Related government policies

The central government attaches great importance to the development of the Internet of Things

After the approval of the concept at the NPC & CPPCC Annual Session in 2010, it is believed that the Ministry of Industry and Information Technology will soon issue a series of policies to facilitate development of the Internet of Things in China

Local governments are also actively providing policy support. For instance, Guangdong government issued the Opinions on Accelerating the Development of Internet of Things and Building an Intelligent Guangdong in December 2010 with a view to promoting the development of Internet of Things in the province 86

8787

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87

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