The China (Shanghai) Pilot Free Trade Zone is expected to catalyze demand for logistics facilities in the eastern region of the city, helping reverse an imbalance that sees demand for such services heavily concentrated west of the Huangpu river. Since the Chinese government approved the new FTZ, companies dealing with trade, logistics and manufacturing have flocked to register businesses there. The FTZ is likely to benefit logistics companies in the Yangtze River Delta region by lowering their transportation and export costs. Investors will be encouraged to raise their stakes in the warehouse and logistics sector, driving rents and property prices to new highs. But while office rents in the FTZ have begun to soar, warehouse rates are relatively stable. “This is because most of the warehouse and storage facilities in Waigaoqiao are occupied. It will take time for the rent to go up as most of the tenants have signed three-year leases,” said Su Zhiyuan, head of industrial operations for real estate services company DTZ China. The FTZ will generate huge demand in the long run for high-quality warehouses situated there, said Chen. There are about 780,000 square meters of premium warehouse space within the zone. Daily rents are CNY1.1 to CNY1.5 per sq m, and the average vacancy rate is 20%. The corresponding rate in west Shanghai is just 1.4%.

Container manufacturers, ports and logistics firms have been pouring millions of dollars into developing cold-chain facilities to serve the expected demand for fresh produce and seafood as the global economy recovers. Poor local distribution in China, however, could frustrate shippers’ access to consumers in the world’s second-largest economy, traders said. Singamas Container seeks to double sales of its special containers, including refrigerated ones, over the next two to three years, and port operators and logistics firms strengthen the supply chain to ensure the seamless flow of fresh produce, but problems arise when it leaves the cold warehouses. “Very few trucks on the mainland are equipped with power supply for reefer containers, so most fresh produce is not kept in a regulated atmosphere on its way to the markets,” said Kurt Huang, General Manager of Shanghai Hongshen Freight Forwarding. “Even with those that are equipped, there are unscrupulous drivers who switch off the power during the journey to save fuel, inflicting heavy losses on the cargo owners.” Jiang Zhangjie, an Anhui-based fruit importer, said a growing number of new, inexperienced operators in the business and the lack of a regulated distribution network meant product quality was at risk of being compromised. “Many of these newcomers just want to make quick money,” Jiang said. “They do not invest for the future as that would raise the price of their produce and lower their competitiveness.” While Asian exports of fresh produce fell nearly 6% to USD18.6 billion last year, according to the United Nations, Asian imports jumped 12% to USD28 billion, with China accounting for almost 70% of the increase. Anthony Wong, former President of the Hong Kong Logistics Association, said he wanted to bring the city’s logistics know-how and expertise into the mainland by setting up a cold-chain zone in each of the major provinces, but he said the shortage of land was as much a problem there as in Hong Kong. “The municipal governments all reserve their land to projects like residential developments, shopping malls and hotels as they are the money-spinners that generate quick income for them. We have low priority,” Wong said, as reported by the South China Morning Post.

Logistics park and toll-road operator Shenzhen International, which owns 380,000 square meters of land in Qianhai, has signed a cooperation agreement with New World Development to explore investment opportunities in the special economic zone. Chairman Gao Lei said the alliance with New World would largely involve logistics investments in Qianhai and other cities. He also said Shenzhen International would take a majority stake in logistics projects, but he did not rule out the possibility of allowing the joint-venture partner to take a bigger interest in residential and office developments. The firm formed a consulting company with Shenzhen government-backed Shenzhen Investment in a 50-50 joint venture. The consulting firm would work with the municipal authorities in Shenzhen on the land-use conversion rights for its Western Logistic Park in Qianhai. The park will span 400,000 sq m in the Qianhai Shenzhen-Hong Kong Modern Service Industry Cooperation Zone. Currently being used for warehousing and logistical purposes, the site will be converted to commercial and residential use. Gao said Shenzhen International planned to expand its logistics business to 30 cities over the next five to 10 years in view of the strong demand for such services. He did not give an estimated investment amount but said the land cost for each project would be at least CNY1 billion. Shenzhen International announced net profit attributable to shareholders rose 6.54% to HKD857.35 million for the six months to June. Turnover declined 2.1% to HKD2.79 billion as toll revenue fell because of a policy change.

During the 2007 shipping boom, Chinese shipyards required down payments of as much as 60% of a vessel’s value. Now, they have had to cut the amount to 5% to 10% and exceptionally to as little as 2%, resulting in an advantage to state-owned companies that have access to government credit. “The payment terms mean shipyards have to burn their own money to build ships, which brings them extraordinary cash-flow pressure,” said Lawrence Li, Shanghai-based Analyst at UOB Kay Hian. “Only state-owned yards that are able to secure funding can offer such aggressive down-payment terms.” State-backed companies grabbed 74% of orders for new vessels in China in the first half of this year, according to UOB Kay Hian, compared with 52% in all of last year. In some cases the banks were also cutting credit lines and moving to recover outstanding loans, the China Association of the National Shipbuilding Industry said. Dalian Shipbuilding Industry, a unit of state-owned China Shipbuilding Industry, won an order in July to build seven ships that can carry 8,800 containers each. The buyer, a unit of state-run China International Marine Containers (CIMC), agreed to pay 2% of the total amount of USD595 million as a first installment and the rest on delivery. New orders for commercial vessels at Dalian Shipbuilding’s parent surged more than five-fold in contract value in the first half. The ability to get financing had become one of the most critical issues for yards trying to win orders, said Bao Zhangjing, Deputy Director of the China Shipbuilding Industry Economy Research Center. “The market is going to be more dominated by fewer players given the current situation,” Bao added. Of the 1,591 shipyards in the country in 2011, 70 were state-owned and a third of the all shipyards might be shut in about five years as they failed to win orders.

Alibaba Group, China’s largest e-commerce company, is leading a group of investors with plans to build a CNY100 billion “smart” logistics system to connect existing networks and provide faster, more efficient delivery of goods ordered online. The new company, called Cainiao Network Technology Co, was unveiled in Shenzhen in May. “Cainiao” is a popular term on the internet in Chinese, referring to a rookie lacking experience. “The new company is named Cainiao because we’re a group of newcomers in the logistics industry,” said Shen Guojun, Chairman of Yintai Holdings Co, one of the investors in the project. “We will learn and grow together with start-up firms.” Total investment in the project could reach CNY300 billion. The project is expected to link hundreds of domestic cities. “We’ll dedicate at least 10 years to developing the new company and hope to reduce the logistics cost for privately-owned companies and small vendors,” said Jack Ma, Chairman of Alibaba, who will also chair the new company. Improved logistics services is a key element for growth in the e-commerce industry. The new venture will become a platform connecting existing logistics networks with internet infrastructure so that data about packages and delivery information can be easily accessed and managed, said Tong Wenhong, Vice President of Alibaba. The initial focus will be on cities where logistics services are less developed and online orders may take days to arrive. Construction of warehouses and logistics centers is starting in a dozen cities.

Alibaba aims to provide a full industry chain of services for online vendors so that they can sell merchandise, advertise, receive online payments and manage delivery services on the platform. Other shareholders in the project include the Fosun Group, China’s largest privately-owned conglomerate; major courier firms including SF Express (Group), Shentong Express, Zhontong Courier, Yuantong Express and Shanghai Yunda Express; and financial institutions such as China Life Insurance Group and CITIC Group, the Shanghai Daily reports. The warehouses to be built will have a total storage space of three million square meters, or the equivalent of 356 soccer fields. China’s logistics costs accounted for 18% of its gross domestic product (GDP)  in 2012, compared with just 8% in the United States, according to the China Logistics Association. Alibaba’s project may be interpreted as a fight-back against Jingdong Mall, another e-commerce giant, which has built a combined inventory space of more than 1 million square meters and poured CNY3.6 billion into its logistics system in the past year, said Xu Yong, Analyst with China Express and Logistics Consulting, an independent logistics think tank. A combined 60% of all express-delivered parcels in 2012 – or 12 million units per day – were from Alibaba’s two major trading platforms, Taobao and Tmall. These figures propelled Xu to regard the network as a possible attempt to achieve a monopoly. Taking part in the network may also diminish the couriers’ chances to cooperate with other e-commerce firms, Xu added.