Market Access Report: Logistics

Jones Day

China's imports and exports surged to US$620 billion in 2002, ranking fifth in the world. Logistics costs related to the acquisition, storage, movement and disposition of goods in China hit US$1.9 trillion in 2001, or approximately 20% of the country's GDP, compared to approximately 10% of GDP for more developed markets such as the United States. In the past three years, the majority of China's logistics service providers enjoyed revenue increases of more than 30% per year, and over 90% of multinationals in China contract at least a portion of their logistics business to third party logistics service providers. Nevertheless, the lack of an integrated multi-modal logistics industry, a shortage of skilled professionals, distribution networks that tend to be regional rather than national, and the inability of China's transportation infrastructure to keep pace with the country's economic development, continue to hinder supply chain operations in China. Internal and external inefficiencies and correspondingly high costs have been the result.

With China's logistics service provider revenues projected to increase 50% per annum over the next three years, it is not surprising to see foreign players such as DHL, Danzas and Maersk strengthening their presence via strategic equity acquisitions in, and partnering with, key Chinese industry players. For years foreign logistics companies barred from entering China independently have had to work through joint ventures (JVs) authorized to provide services only within limited segments of the supply chain. Since teaming up in 1986 with Sinotrans, China's leading state-owned logistics company, DHL's China business has grown significantly and continues to grow at over 40% per year. DHL, UPS and Exel acquired strategic stakes of 5%, 3% and 0.8%, respectively, in Sinotrans when it listed in Hong Kong in February 2003, the first international securities offering by a PRC logistics company. Meanwhile shipping titan Maersk, vying to increase sales and gain market share, will almost certainly benefit from its parent company's establishment of a foreign-funded container terminal management JV company in collaboration with the Shanghai Port Authority in September 2002.