Logistics providers operating in China need to make some serious investments if they are to meet the needs of vehicle output, which is slated to increase at a fast pace despite the current slowdown in Chinese car sales. Industry experts also say that manufacturers in China need to look beyond purely in-house logistics provision and embrace the trend for outsourcing logistics functions to common carriers with global expertise.
 
Speaking at the recent Automotive Logistics China conference in Beijing, China, NYK's COO and vice president for Automotive Logistics China, Owen Xie, said logistics capacity was a pressing issue for China's automotive industry.
 
"Talking to OEMs in recent years, everyone can see the fast pace of development in China, but behind this no one knows how difficult it has been for logistics companies. We are preparing, but OEMs are moving fast. The market is putting LSPs in an increasingly difficult position," he said.
 
Current trailer capacity for finished vehicle road haulage in China stands at 12.1m units while rail provides for 1.2m, said Xie. Ro-ro capacity also stands at 1.2m. However, Xie said that the market for passenger and commercial vehicles was close to 20m-unit throughput annually, a figure corroborated by Shen Jinjun, executive vice chairman of the Chinese Automobile Dealers Association, who told delegates to expect sales growth of between 5-10% this year to reach that figure.
 
With Ford, GM and Volkswagen all recently announcing new assembly plants in China, the expectations for the long term are obvious. Martin Thaysen, executive vice president for China at Ceva Logistics, pointed out that production capacity is expected to increase to 25m by 2015, and that consultancy KPMG has even suggested a figure of 40m units is possible, which could result in significant overcapacity.
 
Ford Asia Pacific's vehicle distribution manager, Richard Li, said that there is already a conflict between supply and demand for vehicle logistics with asset investments lagging.
 
According to Xie one of the pressing issues holding back supply chain development has been that manufacturers in China prefer to keep logistics in-house because they believe it brings greater accuracy in understanding the demand on logistics resources. He also claimed that each OEM has been eager to protect its own interests. "But, don't forget," said Xie. "if every OEM was doing it the same way there would be no optimization in the future. "
 
Instead, manufacturers need to adopt a more global strategy of outsourcing services to common carriers, specifically those planning to meet the dramatic increase in demand for them forecast up to 2020 with investment.
 
Unfortunately, there is still an emphasis on price reduction, with costs being squeezed year by year. Xie pointed out the redundancy of squeezing providers at a time when they needed to grow to meet the market; he said that that if there was a 5% reduction of logistics expenditure every year, there would be no LSPs in 20 years.
 
Ford's Li pointed to the need for a shift toward rail investment to meet demand.
 
"We know now that trucking takes 90% of total volume but in the US its 75% by rail. We need a mass delivery with low cost and rail should play an important role here," he said.
 
Reforms planned for this year, however, could open the way for more efficient and flexible rail services for freight. As part of the government's 12th Five Year Plan, 7,000km of track will be given over to freight use on an annual basis, according to Zhang Xiaodong, professor at the Transport College of Beijing Jiaotong University. Some major liberalisation reforms are also due to be announced, including allowing third party companies to operate trains, which Zhang said would help improve service and better use resources.
 
 
 
 
 

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