China has made enormous strides in recent years. Dietmar Prümm, Director of Transportation and Logistics at management consulting firm PricewaterhouseCoopers (PwC) in Germany on how the Chinese logistics market has changed and why Europe’s logistics firms will soon have to fear for their leading role.
Mr Prümm, how big is the logistics market in China?
Dietmar Prümm _ China is the world’s largest economy after the US. As the second biggest exporter after Germany, the country also has an important logistics market. Turnover in China’s logistics sector has maintained consistent growth of around 5% over the last few years.
What modes of transport are used and when?
_ The modal split has barely changed in years. The volume of freight transport in China in 2016 totalled 43 billion tonnes. Three-quarters of this travelled by road, 15% by water and just 8% by rail. For purposes of comparison: the transport volume in Germany in 2016 was approximately 4.6 billion tonnes, but the modal split was very similar. The long coastline, however, means that ship transport plays a bigger role in China, while the share of road is correspondingly lower.
The Chinese government has invested large sums in infrastructure in recent years. How has this affected the individual modes of transport?
_ The transport volume in China has long been growing at a much faster pace than in Germany. But while rail freight transport has stagnated in recent years, the volumes of ship and air freight have risen substantially. Coastal ports are the mainstays of freight transport in China, especially when it comes to mineral ores, coal, oil and food staples.
But has it really been a challenge for rail to maintain its share of the total volume? After all, the rail network has almost doubled in the last decade along with the freight volume. Going forward, ambitious goals of the Chinese government call for achieving a 30% increase in the volume carried by rail by the year 2020.
Why a stronger expansion of rail?
_ In Chinese conurbations, rail plays an important role, especially for passenger transport. The Silk Road initiative China launched in 2013, known as One Belt, One Road, plans to expand the cross-border rail network, particularly to reduce transit times. Rail is considerably cheaper than air freight and considerably faster than ships. As in Germany, the plan is also for rail to help achieve sustainability targets.
How do you regard the increasing freight traffic between China and Europa?
_ I see great potential here for cross-border rail traffic all around the world. Road hauliers will not easily be able to transport the volume of goods people will be ordering online in future.
In today’s accelerating world where nobody wants a long wait for their delivery, it makes sense to offer services between Europe and Asia. Air freight is out of the question for most products, however, given the cost.
The automotive industry led the way. Now, consumer goods subject to more rapidly changing trends are also being moved onto the railways. International online retail is also creating many new business models. Some are aimed at customers who want their online purchases immediately, as if they were purchased from a high-street store. Others target customers willing to wait ten to 14 days for their products.
What is the situation in China regarding sustainability? Which industries have a particular awareness of this issue?
_ In our study update on German businesses in China and the transformation of logistics processes, we looked at how the underlying conditions for logistics processes have changed in recent years. We found that over half of companies surveyed in China attach little importance to environmental considerations when choosing their logistics provider. Companies working in the retail and consumer goods industries are most likely to regard sustainability aspects as a criterion for awarding logistics contracts. But 58% of German companies surveyed expect environmental protection measures to increase in China in the near future. Expectations are especially high among mechanical engineering firms, and particularly low among carmakers.
As in Germany, the plan is for rail to help achieve sustainability targets.
So what criteria do shippers use when deciding on their logistics?
_ For logisticians in China, punctuality, flexibility and sufficient capacity are the top criteria when awarding a contract to a transport company.
One thing that should give us food for thought, however: Our survey also showed that customers of Chinese logistics companies rate their satisfaction levels and the expertise of their service providers more highly in many areas than a few years ago. This is a positive development that German logistics firms working in China should not ignore.
In China, ten times as many consignments a year are delivered as in Germany.
What are the key trends on the Chinese logistics market today?
_ The goals have been clearly formulated by the Chinese government. Infrastructure investment through the New Silk Road initiative is to make “bottleneck logistics” a thing of the past. Logistics in China is to become more efficient, and new technologies are to play a big role in this.
Drones, robots, artificial intelligence and big data, for example, are being used in China to create state-of-the-art automated logistics complexes. Whereas in Germany, for example, package delivery drones often feature in presentations but play little role in practice, drone services have been booming for years in China.
Are these trends having an impact on European logistics providers?
_ Yes, because the rapid expansion in online retail is posing big challenges for logistics firms in China. In Germany, there was talk of panic in the industry in 2017 when the number of packages delivered annually hit a level slightly exceeding three billion. That volume triggered public debates on efficiency, costs and environmental impact. But in China, there are ten times that number of consignments a year.
The expertise they are gathering in this business segment is already leading Chinese express logistics providers increasingly to look further afield and compete globally for market share with the market leaders from Europe and the US.
Does that mean that European logistics companies should fear for their leading role?
_ There are many different paths to success on the world markets. From buying up whole companies or shares in them to setting up local branches and operating hubs, ports, airports and other logistics facilities abroad. Start-ups and the entry of new players from other industries will also change the existing picture.
In Germany, many people have already got used to a large American online retailer performing its own delivery services in lucrative regions. The Chinese equivalent already operates hubs in Europe and is now set to expand its capacity in Germany, too. Chinese logistics providers are strategically laying a path to end customers. That will inevitably change the logistics landscape.