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The perception that 2017 could bring slowed growth is generating new efficiency in China logistics. Here are some of the noteworthy factors that could impact the logistics industry over the next year:
Government Policies for Logistics: To prevent further slowing of the economy, the government is offering support to businesses in many different forms, including logistics support. This support takes the form of tax incentives for those complying with regulations, infrastructure investment, implementing standardization to improve efficiency, etc. For example, it is difficult to make money in trucking without loading trucks over the legal road weight. The government needs compliance without putting financial pressure on trucking firms, so they are planning incentives for those who comply. The government also recognizes that standardization in logistics could also improve efficiency. For example, standardizing pallets would eliminate the waste of re-palletizing and disposing of unused pallets.
Material-Handling Technology: China already has a mature supply of local pallet handling equipment, but now is the time for investment in high-speed, light-goods handling. The rise of e-commerce is creating demand for piece-picking and sorting technologies. Robots are being explored for these functions, as well as for transport within the warehouse, for buffering and for kitting. We should not expect to see too many implementations yet, but we can at least expect that the offerings from material-handling vendors will broaden significantly in the coming year.
Contract Logistics: The field of local providers of warehousing solutions and contract logistics is currently limited. Global logistics firms, however, offer contract logistics services in China just as they do in the rest of the world. They prefer to focus on retail distribution; e-commerce fulfillment is very difficult to make profitable margins. Even with the remarkable growth of e-commerce, margins in e-commerce fulfillment continue to be thin in order to compete with JD and Alibaba’s Cainiao network. Therefore, as local competition increases, we can expect them to be focusing on capturing more retail distribution at more competitive pricing than global providers.
Rail Transportation: Rail has struggled to become a significant ground transportation alternative to trucks, despite government efforts to promote rail. The breakthrough we might see in 2017 is the use of high-speed rail for express delivery. High-speed rail can reach over 500 cities in China and provides a lower-cost alternative to airfreight. However, the systems have not yet been developed to support high-speed rail parcel delivery. Once the systems are in place, we expect a fairly rapid adoption of high-speed rail by parcel carriers.
As profitability of businesses in China becomes a greater concern, logistics no longer can be ignored. Logistics providers are now looking for efficiencies through technology, cost-effective transportation modes, and more profitable services. These changes will push the historically inefficient logistics of China to improve both cost and service levels. These changes will be incremental, so expect that China will continue to create new technologies and ways of doing business that are unique to China.
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