Archive for May, 2007

Serious money exists in the middle class which is growing in China year by year. According to McKinsey, 77% of urban Chinese households live on less than RMB25,000 a year, but by 2025 that figure will drop to 10%.

This may well result in a shopping spree which will resemble a tsunami. It should start to hit around 2010 as hundreds of millions of consumers go on a shopping spree seeking the trappings of a middle class lifestyle. In a sense, this will be the biggest Chinese revolution of them all — the move of the working class to middle class, a direct result of the consistently robust growth percentages coming from China’s GDP.

All the big global forwarders and logistics operators are already operating in China through various partnerships or on a solo basis. Several of these operators have bought out their JV partners and are going it alone although those tend to be companies providing services for big international clients, not local companies.

As internal logistics demands increase giant retailers that, earlier, outsourced their manufacturing to China are also opening stores in the mainland at a speed almost beyond comprehension. The same applies to foreign fast food chains like McDonald’s and KFC which bring its own problems. Ignoring whether it is desirable to have these chains bringing fast food and obesity — the two often go hand in hand — to China there is the under-developed cold chain which makes food logistics a separate and far more complex issue.

The situation with big brand retailers is both simpler and more complex. They are both manufacturing and selling in China and thus becoming de facto Chinese companies requiring internal logistics services, including warehousing and nationwide distribution networks.

Despite massive investment, road and rail infrastructure is still inadequate and, unlike demand for retail goods, cannot increase overnight. The trucking industry is in a woefully fragmented state so that logistics operators are forced to rely on a mixed bag of trucking companies operating regionally.

One way around this, which is a natural progression, is to have the big retailers in the major centers which makes delivery easier but not easy. It still has some way to go.

Logistics business in China is predicted to grow at 25% a year for the next five years. The incredible logistics demands of keeping hundreds of millions of people fed, connected, seated or clothed will see huge investment in distribution networks by logistics providers. China at the moment is about speed of growth and we can expect amalgamations and extensions in logistics companies to bring about the efficient system that is desperately needed.
Source: Cargo News Asia

The Yangtze — China’s longest, most important river — is playing an increasingly vital role in providing energy and raw material imports. The growth has attracted the attention of transport and logistics companies.

Some facts. (It would be possible to write ’staggering’ facts but that would be pointless hyperbole. Almost all facts about China are staggering.)

China accounts for a quarter of the world’s handling of containerized goods.
The seven provinces along the Yangtze’s 2,700km navigable length are home to 400m people and account for 40% of China’s gross domestic product and 60% of GDP growth.
Container volumes from the river’s ports to Shanghai are currently growing 35% year on year.

River traffic’s slow speed matters less for bulk commodities than for valuable container-borne goods. Bulk commodities are also harder to shift by China’s rapidly improving road network. Not all the growth is in bulk or on the lower river, however. Ford cars come by barge nearly 2,500km from a factory in Chongqing to be exported by sea from Shanghai.

Owen Xie, general manager for auto logistics in China of Japan’s NYK Logistics, said, ‘A truck’s maximum load is eight cars. When you take the barge, the maximum load is nearly 200.’ Which is shown in our illustration where a worker guides a truck on to a barge.
Source: Management +Karriere

The Chinese People’s Liberation Army (PLA) is to let some of its logistics services be handled by private contractors.

General Liao Xilong, the head of the PLA, said a 12-point plan for reform of the logistics services has been approved by Chinese President Hu Jintao, who is also the Chairman of the Central Military Commission.

The plan includes allowing the PLA to rent commercial vehicles for official activities, allowing service personnel to use civil telecommunications services for personal purposes and employing civilian schools to train technicians.

The Central Military Commission has also decided to privatize the management of barracks for troops stationed in large and middle-sized cities, hiring private warehouses for the storage of general-purpose materials.

The PLA will also reduce the number of hotels, guesthouses and training centers that it runs to the minimum. At the same time the number of the equipment repair units will be scaled down and the PLA’s research and development institutions will be transformed into civil and military dual-purpose organizations.

The 1.2 million-strong PLA has a defense budget of nearly $44 billion. This new move will bring some massive cost benefits and efficiencies which seems to be the whole point of the exercise.
Source: Press TV

China has suspended the planned construction of a new high-speed magnetic levitation train route linking the eastern cities of Shanghai and Hangzhou. This is probably the most advanced transportation system in the world and is used in Germany. The reason it has been suspended is that there are said to be radiation concerns.

An official with the Shanghai Municipal People’s Congress confirmed a major reason (and in that phrase lies the suggestion that there might be other reasons - for the suspension was the radiation concerns from residents living along the proposed route. He said, ‘The government is working on the issue.’

So what might the other issues be? Cost. It was approved by the central government in March 2006 and the budget was RMB35 billion ($4.5 billion). It was thought the budget conservative and it might over-run up to RMB40 billion.

The maglev project uses German technology which, in theory, let it run at a maximum speed of 450 km per hour. The track was due to be in operation by 2010, in time for the World Expo in Shanghai.

The planned maglev route was separated from some communities by a green belt only 22.5 meters wide, though a blueprint of the local government indicates a protection belt 150 meters wide would be built on either side. Still that is only half the 300-meter specifications applied in Germany.

The locals are plainly worried. The Minhang District government alone received more than 5,000 petitioners in a single day in March.

But the price may have been a major consideration. Wang Qingyun, an official in charge of transportation at National Development and Reform Commission (NDRC), said, ‘The project is still under study and its final design is subject to approval. It’s still hard to say whether the maglev would be built after all, but even if it would, it’s not possible to complete the project before 2010.’

The operational maglev route between Shanghai’s Pudong International Airport and Longyang Road is having trouble making money. One estimate is that it will take a hundred years to break even.

So instead of maglev a conventional high-speed rail link could be used which would be almost as fast as the maglev but cost only half as much. A trip from Shanghai to Hangzhou by high-speed train would take 35 minutes, only seven minutes longer than the maglev ride.
Source: China.org.cn

Before we go galloping ahead working on the principle that everyone knows what RFID is perhaps a short explanation is in order. RFID stands for radio frequency identification. Think of it as a bar code that does not need a reading device waved over it.

The concept has been around a long time. In 1946 Léon Theremin invented an espionage tool for the Soviet Union which retransmitted incident radio waves with audio information. This was meant to pick up sound — a passive covert listening device — but it was the first known RFID device. In theory there are three varieties — passive, semi-passive (also known as battery-assisted), or active.

Passive RFID tags have no internal power supply because they are microchips and some are a third of a millimeter across and we do not, as yet, make batteries that small. The chips act as transponders (transmitters/responders), listening for a radio signal sent by transceivers, or RFID readers.

So an RFID chip, perhaps fastened in the hem of a dress, receives a certain radio query, it transmits its unique ID code — typically 128-bit number — back to the transceiver.

Most of these will work from somewhere between a few inches and a few feet away. Bigger ones, with batteries, can be read over considerable distances as in a kilometer.

At the moment RFID chips cost something well under 50 cents. They are mandatory because WalMart insists on them and if the biggest potential customer in the world demands, manufacturers respond. Because of massive volume prices are heading downwards and soon they will be a few cents in which case the bar code will start to disappear.

Sorry about the length of that but people keep banging on about RFID codes without telling you what the blessed things are.

Now Metro, the world’s fourth largest retailer, is expanding its Advanced Logistics Asia RFID pilot to include 30 Chinese suppliers. The company has teamed with Checkpoint Systems to provide RFID labels for the participating suppliers.

Gerd Wolfram, Metro Group Information Technology’s managing director for advanced technologies, ‘We have been testing RFID in our supply chain from Asia since late 2005. We’ve been achieving good read rates, and everything has been working fine. So we decided to have a supplier event here in Asia and do a bigger test with more participants.’

How does it work? In the original scheme a third-party logistics provider, Fat Kee Stevedores, and a small Chinese supplier worked together to tags to containers loaded with cartons of various goods to be exported, including pens and kitchen gadgets.

At the Fat Kee facilities in China, the packages are pushed through an RFID portal. After the system reads the tags, software creates an electronic packing list, which is sent electronically to a Metro subsidiary in Hong Kong to be checked for accuracy. The list is then used to generate an advance shipping notice (ASN), which is sent to Metro headquarters. When the goods arrive at a Metro distribution center in Unna, Germany, the system reads the tags and checks them automatically against the ASN.

In other words checking from a created packing list is pretty well automated.

This work and Metro decided to expand the system to additional suppliers in Asia under the catchy if slightly banal title of ‘Tag it Easy’

The RFID tags on the labels, provided by Checkpoint, will store data. But some suppliers don’t have an RFID reader, so the label will also bear a bar code containing an 18-digit number will be read at several points along the supply chain.

Metro expects to use 30,000 RFID labels during the pilot.

Gerd Wolfram said, ‘We will consider the pilot a success if we achieve high read rates in Germany for the 30,000 packages, and if we have positive feedback from our suppliers — if they say they would like to use this solution and integrate it into their shipping operations.’

Source: RFID Journal and research

Kuehne + Nagel (yes, that is how it insists its name is shown. Swiss companies often have odd quirks like that) estimates that the global contract logistics market is worth around $130 billion.

Almost half of that business is in the Americas, followed by Europe (39%), Japan (18%) and Asia Pacific region (6%). Notice carefully it says ‘contract’ logistics. Make it just logistics and the figures are very different.

The Asian slice of the contract logistics pie is a relatively thin wedge worth $7.8 billion and it is by far the fastest-growing region.

Dirk Reich, K+N executive vice-president for contract logistics, said, ‘We are focusing on the Asia Pacific market and that’s the market with the highest growth.’

The Swiss logistics giant has opened 32 locations in China with another 10 to follow in the next year.
Dirk Reich said, ‘We need to be No 1 in Asia. If we are not number one here, we will not be able to achieve our goal of becoming the No 2 contract logistics operator in the world.’ Top position is currently held by DHL.

Contract logistics is where you handle all of the logistics for a large company. Doing this makes a company more asset-light by nature. Around 75% of the warehousing business is done through back-to-back rental and leasing contracts.

K+N’s top 15 customers represent 40% of the turnover which means there are less special needs to care for. On the company books are big names such as Inveco, Airbus, Carrefour, HP and Nortal; global organisations seeking to work with fewer service providers on a worldwide basis.

Dirk Reich said, ‘Our share of logistics spending with these companies is a small percentage of what the companies spend across the world. Unilever, for instance, spends more than $1 billion.’

He said K+N had already established the base in Asia Pacific from which to expand and move into the next phase of development. ‘We plan to increase business 10-fold over the next few years and it will be mainly organic growth.’

Andy Weber, K+N managing director Asia Pacific, said China was the driving force behind the global economy. She said, ‘By strategically strengthening our presence in the region further, we are going to capitalise on the growth opportunities offered in these markets.’
Source: Cargo News

Wolfgang Hollermann, CEO of Asia Pacific operations for Agility said the company has bought ocean-freight forwarder, Guangzhou Runtong International Transportation Company(GRITCL) for an undisclosed sum.

GRITCL, to use its more user-friendly name, whose annual revenues are estimated to be between $5 million and $10 million, has 138 employees in six Chinese provinces, with branch offices in Guangxi, Sichuan, Fujian, Yunnan and Chongqing. The deal will give Agility 14 offices in China.

Agility plans to make GRITCL’s Guanghzhou headquarters its base of operations for China.

Wolfgang Hollermann said, ‘It is important that we provide our customers with comprehensive services to meet their individual business needs throughout China.’

Agility is a $4.5 billion-revenue global logistics provider headquartered in Kuwait. The company formerly operated as the PWC Logistics group of companies, which included brands such as GeoLogistics, TransOceanic, and Trans-Link.
Source: Electronic Supply Manufacturing

Scheduled to open next year, the UPS International Air Hub at Pudong International Airport in Shanghai will be built on a one million square foot site. When open, the hub will operate 24/7, throughout the year.

The carrier will increase cargo load capacity to Shanghai by switching its planes from the MD-11s in current service to Boeing 747-400s.

Service will ramp up over time with sorting capacity projected to reach 17,000 pieces per hour by 2012.

The hub will link all of China to the UPS international network through Shanghai. Service will continue from there to the rest of Asia, Europe and the Americas.

In the mix are points in China served by UPS through services provided by an all-cargo airline, Yangtze River Express. Yangtze operates 24 dedicated movements each week, while UPS has 76 weekly takeoffs and landings in Shanghai.
Source: Logistics Today

China and Vietnam are jointly to set up a 8.5-sq-km trans-border economic cooperative area in the city of Pingyang, in south China’s Guangxi Zhuang autonomous region and Liangshang province of Vietnam.

This trans-border area contains a logistics cooperation area and a machining cooperation area. The idea is it is ‘one area linking two nations, inside the border but beyond customs, and a free trade with confined operation.’

The original cargo and goods made in China and Vietnams will get into this area freely, except for those banned or prohibited by the relevant laws of either country. Products made in this area only get slugged with half of the taxation whenever they get into markets of either country.
Sorce:People’s Daily Online

Express delivery giant DHL will invest several hundreds of millions of US dollars in its seventh regional hub in the Asia-Pacific region. It has to make a decision between Shanghai and a South Korean city for the hub in two months.

Jerry Hsu president of DHL Greater China and South Korea, said, ‘We are still evaluating factors like landing rights, oil prices and local infrastructure, and will make a decision soon.’ Read that as DHL seeing who can squeeze a few more concessions such as cuts in landing fees and very possibly free ice-cream on Thursdays.

If Shanghai is chosen, the investment to build the facility may double

DHL’s total investment in China in the past five years. DHL has committed to invest $325 million on the mainland from 2003 to 2007.
China has been one of the fastest-growing markets for the logistics firm (now owned by the German Deutsche Post) growing by about 35% a year.

Jerry Hsu said DHL has a 30% market share in the Chinese express delivery segment, far ahead of its competitors such as Fedex, UPS or local rivals like China Post and private firms.

UPS, a major competitor of DHL, also announced last month that it will establish an air delivery hub in Shanghai, the fourth such facility in the Asia-Pacific region, with an initial investment of $20 million.

Fedex said in March that it would open a China regional hub in Hangzhou, with a first-stage investment of $2 million. It also bought out its Chinese partner DTW in their joint venture.

DHL was the first foreign firm to launch domestic services in China.

A small bet is that once DHL has wrung every concession possible — including the ice cream — it will decide on Shanghai.
Source: CCTV