Last mile transport is the greatest challenge for logistics companies in China, while high road tolls and unregulated penalties have forced them to think of ways to lower costs. Total logistics costs in China topped CNY9.4 trillion in 2012, equivalent to 18% of gross domestic product (GDP), according to the China Federation of Logistics and Purchasing (CFLP). Road tolls and trucking penalties accounted for a third of those costs. About 95% of the country’s highways and 61% of its first-tier roads are toll roads, with only the roads leading to suburban areas or within villages free of charge. Trucks are also subject to many restrictions and penalties that weigh on the costs of logistics firms. “I wish the government could allow trucks to use highways after midnight,” said Johnny Chou, President and Chief Executive of Best Logistics Technology. The ban has left trucking companies with no option but to use highways illegally after midnight in order to guarantee timely delivery. China’s logistics market is very fragmented, with up to 10,000 logistics companies in operation, meaning that only a handful can take advantage of economies of scale. Traveling empty is also a severe problem for trucking companies, because they lack the comprehensive networks needed to optimize the routes they serve, leading to wasted capacity. Shenzhen Speed Distribution, a logistics subsidiary of consumer electronics manufacturer TCL, said it tried to mitigate costs through the use of an extensive warehouse network and better inventory control. Transport-related costs accounted for 70% to 80% of the operating costs of the Shenzhen-based logistics company, with warehouse costs making up the rest, General Manager Jiang Huangfa said. Most costs are out of the company’s control. “What we can do is to minimize the percentage of empty-leg trips and control the stock to just-in-time inventory level”, Jiang said. TCL has 20 non-factory warehouses and 40 regional distribution centers to increase the utilization rate of trucks on pre-designed routes and has outsourced its trucking needs to more than 200 companies with nearly 1,000 trucks, the South China Morning Post reports.

Airlines & airports

• Henan Civil Aviation Development & Investment Co has purchased a 35% stake in Luxembourg’s Cargolux Airlines International and will launch a new freight service between Zhengzhou in Henan province and Luxembourg.

Express delivery

• Express companies are increasingly competing for cargo that barely generates a profit. “The express fee for a parcel below one kilo is just CNY5. CNY3 already went to the delivery worker, the remaining CNY2 has to cover all other costs including sorting, warehouses, transportation and investments in hardware. The gross profit margin is practically zero,” a regional cargo handler told China News Services. Yet, industry players are investing more in the expectation of future growth.

Ports & sea transport

• Shanghai handled 32.5 million TEU in 2012, retaining the title of the world’s busiest container port for a third year. But only 5.5% of the cargos fell into the category of international transshipment. By comparison, in Hong Kong, international transshipments accounted for more than 50% of container throughput.
• Hong Kong ceded its status as the world’s third-busiest container port to Shenzhen and fell to fourth place last year. Hong Kong has suffered two consecutive years of decline in container throughput, said Sunny Ho, Executive Director of the Hong Kong Shippers’ Council. In the first 11 months of last year, throughput at the city fell 4.2% to 20.36 millionTEU after dropping 5.2% in 2012. In contrast, Shenzhen’s throughput rose 1.2% to 21.3 million TEU in the first 11 months.
• Shanghai remained the world’s busiest container port in 2013 as the city moved toward its goal of becoming a shipping center. Container throughput rose 3.3% to a record 33.6 million TEU last year. The city first became the world’s biggest container port in 2010 when it surpassed Singapore.
• Sinotrans Shipping, one of China’s largest operators of dry bulk ships, bought four 64,000 DWT vessels this month for HKD805 million, their second purchase in the space of four months. It acquired four 93,203 DWT vessels in October 2013 for HKD540 million.
• China Shipping Group, China’s second-biggest shipping company by assets, is considering selling bonds denominated in U.S. dollars for the first time as borrowing costs in Asia drop to a more than one-month low. The Shanghai-based firm provides container, tanker and freight transport services. The company has the equivalent of USD3.7 billion in bonds and loans outstanding.
• China Cosco, China’s largest bulk shipping company, said it would have returned to profit last year, avoiding a possible delisting after losses for two consecutive years. The company, controlled by state-owned China Ocean Shipping (Group), has posted losses for two years, and running a loss for a third year to December, would trigger a delisting from the Shanghai stock exchange. In August, Cosco posted a smaller first-half net loss of CNY990 million, compared with a net loss of CNY9.56 billion in 2012 and CNY10.4 billion in 2011. To return to profitability, Cosco sold its logistics business, stakes in a container manufacturer and office properties last year.
• China’s shipbuilding industry in 2013 received new orders of 70 million DWT, up 242% year-on-year, according to a report by the Ministry of Industry and Information Technology (MIIT). Altogether, 80% of these new orders went to the 20 industry leaders. The industry had won orders for six liquefied natural gas (LNG) carriers and four very large gas carriers (VLGC), the report said. Zhang Guangqin, President of the China Association of the National Shipbuilding Industry, said it will take at least another five years for overcapacity to be eased.
• China Shipbuilding Industry Corp (CSIC), one of China’s two major shipbuilding conglomerates, said its operating revenue jumped by 7.3% year-on-year to CNY187.3 billion. CSIC attributed the increase to its strategy of diversifying and adjusting its core products. CSIC devoted more of its resources to non-marine products, such as heavy port cranes, large steel parts and equipment needed for offshore oil exploration and the generation of wind power. Sun Bo, CSIC’s Executive Vice President, said that the proportion of its non-marine products now exceeds its shipbuilding operations by more than half.

The Conference Board – in partnership with the Flanders-China Chamber of Commerce –  organized a briefing on “The Future of Foreign Investors in China” on 22 January 2014 in Brussels. Following the introduction by Mr Egbert Lox, Board Member Flanders-China Chamber of Commerce/Senior Vice President Government Affairs, Umicore; Mr. David Hoffman, Vice President and Managing Director of The Conference Board China Center for Economics and Business, gave an interesting briefing. The briefing took stock of economic trends and policy developments to provide a “reality check” on China’s attractiveness as an end market and competitiveness as a production base. The session illuminated a set of key considerations for setting realistic objectives for growth and profitability in China, near- to medium-term.

Foreign experts who attended a meeting with Premier Li Keqiang said they are confident about the Chinese economy in 2014, thanks to robust economic figures for last year. Alistair Michie, Adviser to China’s Foreign Experts Advisers Committee, said he has no doubt that China will be able to deliver another decade of sustainable growth. Michie was one of more than 70 foreign experts who attended the meeting with Premier Li to offer suggestions on the nation’s development.