The growth of the Chinese automotive market in the past 18 months may have been faster than the pace at which Chinese automotive logistics companies have been able to expand fleets and develop the types of supply chain services that carmakers increasingly require, according to representatives from the Council Automobile Logistics Association (CALA) of the Chinese Federation of Logistics and Purchasing (CFLP). But while the logistics market may still be fractured and comprised of small, underperforming providers, there are signs that several larger providers are moving in the direction of improving standards and increasing the complexity of services.
At a meeting in London at the offices of Automotive Logistics magazines, carmaker and logistics service provider representatives of the CFLP expressed a fervent desire to increase the standards of logistics providers in China closer to a level similar to that of Western markets. Sun Jing, manager of Finished Automobile Logistics for FAW Logistics – a logistics company owned by FAW – said that the company has been growing fast, and with its growth has been looking closely at using logistics providers that offer better standards and service. But the “chaotic” nature of the current market has made it difficult to implement such changes across the supply chain.
“Many small logistics companies are competing in a very bad way,” said Sun. “These companies cut corners wherever they can and violate regulations, making it harder to increase our standards.”
Sun added that it was also difficult to apply Western standards in China because “the speed of the vehicle logistics market has not matched the speed of the sales market”.
Jun Wu, director general manager of Guangzhou Fengshen Logistics, as well as the vice chairman of CALA, also pointed to the success that his company had found in developing its services and logistics network. “Two years ago we handled only parts logistics but since then we have expanded to include vehicle logistics, commercial vehicle logistics and we have established a joint venture with a Chinese Railway division to develop rail freight,” Wu said.
But he added that Chinese logistics providers would need to learn to work together more if they were going to find the right scale to lower logistics costs in China. “Cooperation between big providers in China is very rare,” said Wu. “For example, Fengshen is moving cars north to the Beijing area, while other logistics companies should be coordinating to move cars south.”
But FAW’s Sun confirmed that the biggest logistics providers are conservative, and often reluctant to work together, missing out on opportunities to deliver savings. But she did not necessarily believe that this reluctance was an outright factor of the current structure of the Chinese logistics market, in which most of the major logistics players are owned by OEMs.
“The Chinese government has committed to supporting the most important OEMs, including FAW, and that support provides us with a great benefit,” she said. “We believe that we can also set a good example for the rest of the sector as a leading logistics provider.”
Such leading by example is an important strategy for the CFLP, which wants to spearhead a charge toward reform among logistics providers. Ouyang Jie, chairman of CALA as well as the vice president of Dongfeng Motor – a major Chinese OEM that is also a key partner for Nissan and PSA in the country – said that the cost of logistics was rising in China and would only continue to do so unless logistics companies made a greater effort to improve standards. But he also acknowledged that organisations such as the CFLP had a role to play in helping the government to set nation-wide regulations on issues such as truck sizes and loading limits.
“We believe there are some cultural differences between Western and Chinese companies, and that those differences are down mainly to standards,” Ouyang said. “We are only just beginning to address these issues, but we believe they are important as logistics costs continue to rise. The industry has to ask itself how it can add value.”
The CFLP is a strategic partner of Automotive Logistics magazines and conferences, and will be again be a key partner and supporter of the Automotive Logistics China conference to be held in Shanghai in 2011.