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Logistics market sees shuffle

By Tu Lei (chinadaily.com.cn)
Updated: 2008-11-12 10:30

Due to the rising costs of raw materials, fuel and labor some small and medium logistics enterprises have had to drop out the market, while larger companies are seeing their profits drop or in the red, writes the China Business Times.

Figures from China Logistics Information Center show some new trends for logistics firms.

Firstly, market demand is slowing. In the first three quarters, transportation fees were 1,885 billion yuan ($276.22 billion), which accounted for 51.2 percent of social logistics fees, the lowest level in the past ten years. This is down 2.7 percentage points compared with the same period last year.

Deposit fees saw a quick increase, comprising 36.5 percent of total logistics fees, the highest level in record. This shows that logistics storage is increasing, or in other words supply is exceeding demand.

Second, logistics prices are fluctuating. Figures show China's coastal dry bulk freight index, the barometer of freight changes, dropped to 1422.8 from its highest point of 2886.9 on June 4, a rate that has declined more than 50 percent. The dropping price will float the market and is bad for the development of logistics.

Third, the increase in logistics general profit is slowing. In the first three quarters of this year the amount of value-added in the logistics industry amounted to 1259.4 billion yuan, accounting for 17.3 percent of value-added in the service industry. This is 6.7 percent of gross domestic profit, down 0.3 or 0.2 percentage points respectively in 2007.

Fourth, the increase in the amount of investment in the logistics industry is slowing. In the first three quarters the industry's fixed asset investment was 1067.5 billion yuan, up 13.5 percent year on last year. The rate of increase was 14 percent lower than that of total investment in fixed assets, down 5.3 percentage point's year on year.

There are multiple reasons for these changes. The rising price of raw materials, fuel, and power, as well as the management cost are eating into profit. Currently the cost of fuel accounts for 40 percent of road transportation firms' general cost, and 25 to 35 percent for those firms transporting cargo on water.

In addition, rising comprehensive labor costs, storage fees and land use taxes have caused more suffering for logistics enterprises.

A survey of key logistics enterprises shows that management costs increased by 36 percent in the first three quarter's year on year. And more than 40 percent of enterprises saw their profits down, with some even reporting a loss.

Meanwhile, international financial crisis has also dampened the domestic logistics market.

Wang Guowen, the Chief Representative of the Council of Supply Chain Management, said a Shanghai-based United States logistics enterprise predicted their international business would be down 18 percent due to the drop in exports.

At the same time, foreign-funded enterprises are grabbing more of the domestic market. In China 95 percent of logistics firms are small and medium sized companies operating in a low profit market with an unstable income.

FedEx Express has witnessed an apparent rise of its market share in China since June for the third time in a year. FedEx's American headquarters had allowed its Chinese service to run at a loss for a maximum of three years in hopes of increasing its market share to allow it to further tap into the huge Chinese market. Its monthly loss in its domestic service was estimated at over 50 million yuan.

Meanwhile, Xiong Dahai, vice-president of the Beijing branch of Zhaijisong Express, said Zhaijisong has had to stop expansion.

Wang said the financial crisis is also a chance for improving logistics supply chain technologies. He suggested that administrations should help the logistics industry more, encourage them to improve core competencies and have more co operation with suppliers.

Wang Binke, an official from Ministry of Industry and Information Technology, said there is an urgent need to speed up information-oriented development, build up the internet logistics platform and realize logistics modernization ambitions.