Stable Development and Innovation

 

to Promote the Sustained and Healthy Development of

China's Logistics Industry

 

——Review of China's Logistics Industry Development in

2012 and Prospect in 2013

 

（Foreword）

 

    In 2012, faced with the complex and volatile macroeconomic environment, the slowdown in the overall development of the logistics industry in China is obvious, and new achievements has been made in all aspects of the industry. In 2013, we bear the new task of maintaining stability, innovation, restructuring and development.

    1. Review of China's logistics industry in 2012

In 2012, China's logistics industry has sprung up a lot of new changes.

    i. The slowdown in the overall development of the logistics industry

    In 2012, China's national economy has showed a trend of recovery. The annual gross domestic product (GDP) is 51.9 trillion yuan, with a year-on-year growth of 7.8% ending the continuous downtrend at the end of the fourth quarter.

    With the stabilization and recovery of the economy, the logistics industry begins to rise gradually from the steady state before. According to statistics, total value of social logistics goods is 177.3 trillion yuan, with a year-on-year growth of 9.8%, dropping 2.5% compared with growth of last year, dropping 0.2 percentage points compared with the first half of the year, rebounded by 0.2 percentage points compared to the first three quarters. National logistics added value is 3.5 trillion yuan, achieving a year-on-year growth of 9.1%. Although this figure is somewhat lower than the same period last year, it’s still 1 percentage point higher than the tertiary industry. Logistics value added has a share of 6.8% of GDP, accounting for 15.3% of value added of service sector. Total cost of national social logistics is 9.4 trillion yuan, with a year-on-year growth of 11.4%, dropping 7.1 % compared with growth of last year. Total costs of social logistics account for 18% of GDP, with a year-on-year increase of 0.2 percentage points. The logistics cost of economic operation is still high.

    ii. Obvious trend of differentiation in demand of logistics Demand of logistics import & export and production has a slowdown.

    Heavy loss has been made by shipping companies due to the sluggish growth of international markets and the continued downturn in the international shipping business. Due to the slowdown in investment, the demand of industrial and commodity logistics such as iron and steel, building materials, coal, energy, has declined, increasing pressure to the inventory. Since the second half of 2012, repeated mortgage of warehouse receipts in steel trade industry of east China has caused multi-party debt disputes, triggering systemic risk of logistics finance. In 2012, national automobile achieve sales of 19 million, with increase of only about 4%, the situation of rapid growth in vehicle logistics began to reverse.

    The demand of logistics in fast moving consumer goods and e-commerce transactions is increasing rapidly. Annual e-commerce transactions has reached 7 trillion yuan, and the volume of online shopping transaction is more than 1.2 trillion yuan, accounting for 33.8% and 5.8% of the total retail sales of social consumer goods. Supporting express logistics of e-commerce and online shopping achieved high-speed growth, with annual business volume of 5.7 billion, a year-on-year growth of 55%. With the improvement to the level of consumption and safety awareness, the demand for the logistics quality of food, pharmaceuticals, fast moving consumer goods, agricultural products and other logistics is increasingly high. At the same time, application of cold chain logistics has been further expanded.

    The speed of outsourcing in manufacture is increasing rapidly. Manufacturing enterprises promoted the resources to concentrate on the main business. The level of logistics outsourcing in traditional manufacturing enterprise has improved significantly. Logistics outsourcing of manufacturing enterprise such as IT, automotive, home appliances and clothing have stepped into the supply chain integration. A number of professional logistics enterprises with capabilities of services separated from the group of companies and developed independently. Logistics enterprises separated from manufacturing enterprises years before have made rapid expansion after several years of market exploration.

    iii. The capacity of logistics enterprise is enhanced in specialized services

    Enterprises take active measures to respond to costs rising and market changes. The cost of logistics enterprises elements hikes in 2012. The human cost rises on average of 15-20%. Fuel price was about three times of the price in 2000, and tolls accounted for more or less one-third of the cost of road transport. The interests of fund in most enterprises were more than the profit level. Land prices for the logistics industry in large and medium-sized cities and warehouse rent rose again. In response to market pressures, large-scale logistics enterprises took measures of restructuring, integration, mergers and acquisitions, while small and medium-sized logistics enterprises relied on public platform and Union development. Domestic shipping companies slashed capacity to adjust their business structure. Express companies faced risk in the traditional mode of franchisees. Directly-managed and revocation became the trend gradually. In road freight market, a group of like the Transfar logistics company, Linan Logistics Park and other entity platform and information platform integrated social resources effectively. IPO of China Post Express has succeed, a number of logistics enterprises with excellent market performance are actively preparing for listing.

    Specialized service capabilities of companies have further enhanced. Enterprises pay more attention to customer demand, developing personalized and integrated services. There is emergence of a group of professional logistics enterprises with outstanding ability in segments such as cold chain logistics, automotive logistics, urban distribution, real estate of logistics. Enterprises took measures of intensive management, technological innovation, management improvement and staff training to cope with the pressure of rising cost.

    Some new modes of operation such as lean Logistic, joint distribution and supply chain integration have shown strong vitality. More and more enterprises extended the industrial chain, gradually transformed to integrated logistics service providers from traditional logistics enterprises.

    iv. The speed of cross-integration in business operation is accelerating

    Various types of corporate took cross-border business. Trade and business enterprises extended services from the trading function to logistics. Logistics business like stock market, trading, trading center got rapid development. A number of consumer-oriented business enterprises and e-commerce businesses such as Su Ning, Gome, Jingdong, Dangdang invested heavily in building and improving the logistics network. Some enterprises applied for express license, and supplied service of its own logistics and distribution system to society. Express companies like China Post, SF opened online business, and entered the field of e-commerce. The logistics enterprises involved in purchasing and distribution operations, and supplied integration services of supply chain with the help of financial institutions.

    Depth fusion of a variety of business model has been happening. Manufacturing and logistics industry developed jointly, enhancing collaboration in procurement, production, marketing and other aspects. Manufacturing companies such as Lenovo, Haier, FAW group deepened strategic cooperation with logistics companies, with promotion of business process reengineering. Commerce industry developed with the logistics industry. A number of commercial enterprises like Bailian Group, Wumart, Zhejiang Materials Industry Group Corporation, Tianjin Materials Industry Group Corporation have transformed the traditional distribution channels into innovative circulation patterns. Integration of financial and logistics enhanced the logistics industry in the ability to control the entire supply chain. A variety of downstream business formats such as automotive, appliance, electronics, pharmaceutical, retail has been in depth integration, speeding up the change of supply chain collaborative approach.

    v. Integration and promotion of regional logistics and international logistics

    The integration of regional logistics continued to develop. The integration of regional logistics in the Yangtze River Delta, Pearl River Delta, the Bohai region and midland has been promoted actively, establishing system of regional clearance, traffic management and enforcement cooperation of roads law. Development of the logistics industry in eastern part has reached an advanced stage speeding up transformation and upgrading. The midland and western regions maintain rapid growth in logistics infrastructure due to the transfer of industry. A number of national logistics node city like Beijing, Shanghai, Guangzhou, Chengdu showed obvious influence in accelerate the development of areas around them. Midwest logistics cities such as Zhengzhou, Wuhan, Xi’an have showed a good prospect.

    International logistics showed plenty of opportunities. COSCO, Sinotrans, SF and other large-scale logistics enterprises have entered

    the international market following the domestic manufacturing and construction enterprises and have made positive progress in the field of engineering logistics and courier logistics. Air transport enterprises expanded actively in international route joined the League of Nations to create an international airline. A large number of logistics enterprises actively promoted overseas expansion and increased strategic investments, through mergers and acquisitions and other means.

    vi. Great achievement in logistics infrastructure investment

    In 2012, investment in fixed assets of China's logistics industry reached four trillion yuan, with a year-on-year growth of 23.9% and amplitude increase of 16.1 percentage points. To end of this year, the operating mileage of railway has reached 99,000 km, highway mileage of 4.18 million km, including highway 96,000 km, with increase of 5.9%, 1.8% and 13.1% respectively. With the release of rail capacity, multimodal transport of motor-rail, air-rail and other modals developed rapidly.

    The number of logistics parks has been enlarging. In 2012, the CFLP conducted the Third Survey of National Logistics Park (base). A total of 754 kinds of logistics parks included which include 348 in operation, accounting for 46%. Compared with the previous two surveys, the regional distribution of the logistics parks tends to equilibrium, and transformation and upgrading is obviously happened. The park gradually expanded the scope of services, improving their concentration and radiation effects.

    vii. Ability of information and technical improved steadily Logistics information improved faster. A number of e-government systems in transport, postal services, food and drug regulatory speeded up the development and utilization of information resources. The national railway launched cargo e-commerce platform handling cargo business online. In state Post Bureau, safety supervision platform is basically completed, monitoring condition of courier production. In Ministry of Transport, construction of the National Transport logistics public information platform has officially started. The work of public logistics information platform of national and local made new progress. The application of RFID technology has gained government support in the field of logistics and transportation. And GPS car terminal has made mandatory in vehicles for transport of dangerous goods. Networking technology has been applied in the field of tobacco and other logistics.

    About upgrading in logistics equipment market，the market of the forklift, shelves, trays and other logistics equipment was stagnant. Equipment manufacturing enterprises have increased their market development efforts, developing high-end products and emerging markets, upgrading service. The rapid development of industry retail chain, e-commerce, medicine, tobacco and courier brought substantial increase in the number of distribution center, with high demand of warehouse, automatic sorting system, automatic identification systems, handheld terminals and equipment system. Logistics equipment tended to systematization, automation, and intelligent.

    viii. standardization and education of logistics have achieved remarkable results

    Standardization of logistics has been actively promoted. Last year saw 23 standards published including 8 national standards, 15 industry standards. 80 national standards and 12 industry standards are being formulating. The target of the 《 National Logistics Standards Planning》 has been completed basically. Since 2005, the CFLP carried out assessment of class-A logistics enterprise in accordance with the national standards of the 《Logistics Enterprises Classification and Evaluation Indicators》.And until now the number of class-A companies has reached 2135. Standards for professional logistics such as logistics parks, cold chain logistics and pharmaceutical logistics has been formulating and revising rapidly.

    Logistics system construction and certification of vocational skills training has achieved positive results. At present, there are 417 undergraduate colleges, 824 vocational schools and more than 2,000 trade schools have opened logistics major. With approval of the Ministry of Education, logistics management, logistics and engineering have been included in the directory of the Ministry of undergraduate education major categories. From logistician vocational qualification training and certification work has been carried out by CFLP in November 2003, more than 300,000 people have took part in the certification training, and more than 160,000 people have been given qualification certificate.

    ix. Further improvement of the policy environment of logistics industry

    The State Council issued the 《Views on deepening the reform of the distribution system and accelerating the development of circulation industry》 to promote the development of third-party

    logistics and promote the socialization of internal logistics. Subsequently, the General Office of the State Council launched 10 policies to reduce distribution costs, especially logistics costs.

    The release of《The 12th five-year plan of domestic trade development 》and 《The 12th five-year plan of service industry development》all put forward new requirements to the development of the logistics industry. In August 2011, the state council general office issued a 《Opinions of the policy measures to promote healthy development of the logistics industry》which is called the “Nine articles of state”in logistics industry. In 2012, the relevant departments for the implementation of the “Ninth articles of state” have done a lot of work.

    Department of the national development and reform commission, the ministry of railways and other ministries released policies to encourage and guide private investment into the logistics related fields. The national development and reform commission

    drafted the《Special development planning of the logistics park》and 《Special development planning of emergency logistics 》. Treasury released tax policies about land use of logistics enterprises, which stipulate the tax is halved and the logistics industry should be brought into the changing range from business tax to VAT expanding business tax pilot. Ministry of transport carried out clean-up of the toll road, actively promoting drop and pull transport transportation, supporting the construction of logistics parks in highway hub style. Commerce Department started the application of modern logistics technology and pilot of joint distribution putting forward guidance opinions about ware-housing transformation and upgrading. The freight organization reforms happened in the ministry of railways trialing "physical" transport organization. The ministry of industry and information technology promoted industrial development of logistics and logistics information. The general administration of customs promoted reform and development of special supervision area. Local governments published planning and supporting policies actively implementing the “Ninth articles of state”.

    Overall, in 2012 China's logistics industry withstood severe challenges and risks, achieved a steadily moderate growth, it played an important role in the national economy development and the change of the economic pattern. But we can not neglect the slowing of the industry growth, and it is a series of prominent problems which are covered up for a long time under the high speed growth are more and more obvious. The level of socialization of logistics is still low, and logistics outsourcing stays undeveloped. Internalization of logistics service is obvious. Logistics industry is still dispersed, and capability of professional service is not enough. Homogeneity competition is more serious, and lacking of integrity caused social attention. The increase of logistics benefit and efficiency is slow. The figure is high whether in logistics total cost and the ratio of GDP, or the enterprise logistics cost rate. Management in logistics market is in risks. Rising trend of factor costs is irreversible. The survival space of logistics enterprise is further compressed. The fact of huge scale and lack of capability will coexist for a long time. Variety of modes of transportation is unbalanced and uncoordinated. In the construction of logistics infrastructure, on the one hand, the supply of logistics land is difficult to guarantee, and construction planning is hard to be carried out. On the other hand, in some places, some organizations occupy land in the name of logistics construction but use this land for other purposes. Logistics involves too many management organizations, and coordination is difficult. As a result, relevant policies are slow to proposed and difficult to implement. Policy environment does not match with the needs of the development of industry. For example, after logistics industry was included in the VAT pilot, not only unified tax in process is not solved, but "transportation" is faced with more serious problem of widespread tax increase. It seems that carrying out the policy of logistics “Nine articles of state”, lightening the burden of logistics enterprises have still a long way to go.

    2. Prospects of China's logistics industry in 2013

The year of 2012 is the first year to comprehensively implement the spirit of “The 18th National Congress of the Communist Party of China”. The 18th National Congress of the Communist Party of China determines the realization of build a well-off society in an all-round way and comprehensively deepening the reform and open policy, putting forward the target to improve the socialist market economic system and speed up the transformation of the pattern of economic development. The "two all-rounds" and "two speeding ups" is the new task of the modernization when our country entered a new stage.

    Logistics industry of our country has stepped into a new stage, faced with new opportunities. Firstly, logistics industry should grasp the strategic opportunity of expanding domestic demand, especially the consumer demand, and efficiently meet consumer demand to play a more important role, reducing the circulation costs, improving the efficiency of circulation. Secondly, logistics industry should grasp strategic opportunities of transformation and upgrading of the industry, promoting socialization of logistics demand and the supply chain integration and servitization of the manufacturing industry. Thirdly, logistics industry should grasp the strategic opportunity of new urbanization to strengthen the reform and construction of city logistics service system, and promote the integration of urban and rural logistics development. Fourthly, logistics industry should grasp the strategic opportunities of innovation-driven growth, encouraging enterprises to accelerate technological innovation, service innovation and pattern innovation, forming new drives of technological progress and management innovation. Fifthly, logistics industry should grasp the strategic opportunity of the open economy, and create international logistics service network, providing logistics support for other industries in their internationalization. Sixthly, logistics industry should grasp the strategic opportunity of saving resources and recycling economy, and promote green logistics, recycling logistics, low carbon logistics, staying in the way of sustainable development.

    In the following period, the international economic is still grim, domestic economic shows a stage characteristics. Some research institutes point out that China's potential growth rate is gradually slowed down, and may shift from "continuous high-speed growth stage" into the "medium growth stage". As a preliminary prediction in 2013, the added value of total social logistics and logistics industry growth rate in our country is about 10%, the ratio of the total social logistics cost to GDP is still hard to decrease.

    Central economic work conference was held recently and determined the economic work in 2013 to keep steady with desire of breakthrough. We will fully implement the spirit of The 18th National Congress of the Communist Party of China, improving with steady, pioneering innovation, adhering to the principles of steady growth, structural adjustment, integration and promotion of transformation. Taking reducing the total logistics cost, improving logistics operation efficiency in the whole society as the center, we should bear in mind the concept of integration, promote structural adjustment, increase the intensity of transformation, improve the service level and growth of quality, comprehensively promoting the sustainable development of the logistics industry in China. For this purposes, we should pay attention to the following key works.

    i. Be confident to take initiative development transformation. The adjustment of the economic growth rate has important influence on the logistics industry in our country. But we also should notice the long-term trend which national economy will sustain healthy development not changed. The 18th National Congress of the Communist Party of China puts forward that to the year 2020 gross domestic product and per capita income of both urban and rural residents will be doubled, providing a strong impetus for industry development. We should take firm confidence, seize the opportunities, and actively promote the transformation and upgrading. We should guide enterprises to shift competition from a single function, price war and traditional logistics service providers to system integration, cooperation and win-win supply chain management service provider, promoting enterprise's core competitiveness. We should change the industry from a cost- driven, extensive development to innovation-driven, intensive development, improving the quality and efficiency of the development of logistics industry.

    ii. We should change ideas and promote the development of integration. The core concept of the logistics industry and strong vitality lies in the integration, and it is also a focal point of transformation and upgrading of logistics industry in the new period. We should grasp the new opportunities of the acceleration in manufacturing industry upgrading, circulation system reforming and urbanization, adhering to the integration of distributed logistics resources, breaking the bottleneck of upstream and downstream logistics. Based on the logistics function integration and information integration, we will promote the resources integration between enterprises, realize industrial supply chain integration in upstream and downstream, improve the efficiency of resource utilization, and transform traditional logistics operation mode. We should guide the large logistics companies to improve enterprise’s concentration through mergers, restructuring, joint integration and so on. It is also beneficial to encourage small and medium-sized enterprises to carry out various kinds of alliance cooperation in order to cope with the pressure of competition. In particular, we should attaches great importance to the use of capital market to achieve development and integration.

    iii. Strengthening management and paying attention to scientific development. Along with the advancement of new industrialization and the market’ prosperity, management ascension will create a competitive differentiation advantage for the enterprise, and become enterprise’ important tool for reducing costs and improving efficiency. Logistics enterprises should pay special attention to the strategic management, follow market demand, shrink less-competitive business and adjust the business and organization structure. Special attention should also be paid to the market management and market segments, position clearly and strengthen links with key clients. What is more, we should pay attention to the service management, focusing on refinement, high-end business, personalized service, promoting lean logistics service. We should pay attention to cost management, explore the potential advantages, improve cost assessment system, and strengthen cost assessment, rewards and punishment. We also should pay attention to risk management, improve the risk management system, found risk assessment and internal control evaluation mechanism, set up risk warning mechanism.

    iv. Promoting the integration of multi-industry. In the era of economic globalization, the competition in the world economy has entered a stage of competition in the supply chain. Logistics enterprises should make full use of its own advantages, links the upstream and downstream industry chain, explore the integration of manufacturing, retail, financial industry and other industries promoting the transformation of the mode of production and circulation, and enhance the capacity of logistics industry in control of the entire supply chain. We should always take the final customers’ demand as priority, improve cooperation with customer enterprise, and expand the breadth and depth of the logistics outsourcing, in order to provide important support for the entire supply chain in creating differentiated advantage.

    v. Technology accelerates the innovation and development. At present, China is in a period which is full of strategic opportunities for new technological revolution. Different form previous technological revolution, we have the advantage of early-development. We should pay close attention to the emerging technology, new energy, energy conservation, logistics information technology and other fields of technological development, and actively participate in the piloting to increase efforts of scientific and technological transformation. With particular attention to the application of the internet of things in the logistics field, we should actively develop advanced service model based on internet of things. In addition, we should take full advantage of modern advanced information technology to build public logistics services platform, completing the mode transformation of traditional logistics service. We need to transform traditional mode of operation through green logistics and coordinate green development and improvement in efficiency.

    vi. Enhancing self-regulation of industry and upholding the development with integrity. In recent years, China's logistics market has achieved rapid development, with acceleration of transformation and upgrading. But we should also notice that disorderly competition, malicious fraud and lack of credit system have led to problems which frequently occur in logistics market seriously damaging the reputation of the industry. We need to build the system of industry self-regulation, formulate self-regulation rules, and improve the self-restraint mechanism to prevent systemic risk. We should set up industry credit system, promote the evaluation of A-class companies and intensify punishment to the loss of credit to improve the awareness of credit. We need to enhance enterprises of social responsibility, improve the moral qualities of the employees, and safeguard the legitimate rights, interests and good reputation of the industry. Efforts will be made to strengthen the industry culture, enhance the soft power of enterprise, and establish a good image in public.

    The development of the logistics industry in the new era needs guidance and support of policy. We look forward to implementing of the “Nine articles of state”and other policies by government departments at all levels. In particular, we should make full use of the guiding role of the tax and fiscal policy according to the rule of reducing the tax and unifying tax rate and properly resolve the outstanding problems in the process of changing from business tax to VAT in order to adapt to the need of integrated operation and network management in logistics industry. Works should be done to deepen the cleanup of toll road, reduce toll of crossing the bridge, solve problem of logistics sites and the land price , develop a variety of ways to increase investment and financing support, avoid arbitrary charges, fines and lighten the burden of logistics enterprises, truly implement the industry position of the logistics industry in taxation, land, statistics and other relevant departments of the management of the national economy to create effectively an appropriate institutional policy environment for the development of the logistics industry.

    Introduced in 2009, the 《The logistics industry restructuring and revitalization plan》has completed its historic mission, and there is urgent need for the medium-term and long-term development plan to promote the development of industry as the strategic thinking and top-level design in the new era. As an industry association, China Federation Logistics and Purchasing will continue to pay attention to the demands of corporate in policies, do a better job for severing government and make new and greater contributions to the industry’s sustained and healthy development in the new year.

    （Author: He Liming, Chairman of the China Federation of Logistics & Purchasing, China Society of Logistics.）