The logistics arm of China’s FAW Group is investing in resources and strengthening its organisation in preparation for the challenges that will come with being a public company, according to its head, Kan Shanggang.

As China’s carmakers have grown into major volume players in recent years, so too have several important logistics providers. FAW Logistics, for example, moved a record 2.05m vehicles in 2011—an increase of nearly 15% from 2010— putting it on a par with some of the largest land-based vehicle logistics providers in Europe or North America.

FAW Logistics is exemplary of automotive logistics providers in China, not only because of its growth since it was formed in 2006, but also because it, like other large logistics providers in China, is a wholly-owned subsidiary of a stateowned Chinese carmaker—in this case, the FAW Group. The head of the company, Kan Shanggang, is a communist party member, which is also common practice in China.

But while the company falls under state and OEM ownership, FAW Logistics’ management has set a path toward modernisation. With the FAW Group heading towards a public listing on the stock exchange, so too is the logistics business gearing up to respond to the investment and service requirements of a public company. It is investing heavily, via its parent, in logistics resources, while aiming to be a fully integrated multi-modal player in the vehicle logistics sector.

According to Kan, whose title is FAW Logistics secretary of party committee—a role equivalent to general manager—the company is not only serving customers across six different entities of the group and its joint ventures, but is also working more with non-group OEMs, as well in collaboration with other providers to find backhaul efficiencies.

Kan reveals that FAW Logistics is also looking to better align its own organisation and resources. Evolving historically from Changchun Lujie Logistics, which was set up in 2006 in the merging of two old FAW subsidiaries, it was renamed FAW Logistics in 2010. But there are also other logistics entities within the group that will soon be consolidated into core areas, with the goal being to set up a large, coordinated logistics group.

An important group entity
FAW Group is one of the four largest carmakers in China and also one of the oldest in the industry, commonly known for its Hongqi luxury sedans and limos dating back to the 1950s.

While the proprietary structure of FAW Logistics might be considered a by-product of China’s state-run industrial policy, Kan believes it is also a strength for the company as the group sets its future strategy. For its 12th Five-Year Plan (2011-2015), for example, FAW Group has set logistics as an important strategic and competitive advantage for the company.

“Our parent group is placing more importance on the logistics sector. We can see this in both the investments made and the OEM’s interaction with and support for logistics businesses,” says Kan.

Logistics at FAW is an integrated part of supply chain management instead of a mere transport department in the way many large carmakers in China worked in their early days. Kan believes that maintaining FAW Logistics as a group entity is strategic. While the LSP is given a necessary status as an independent entity, it identifies itself more as an internal force within the company rather than as a third party.

“Logistics is to do with aspects ranging from delivery, quality and service to brand image, and [thus] outsourcing to a third party [outside FAW group] can be a risk,” Kan says.

Responsibilities and facilities
FAW Logistics moves vehicles for FAW-Volkswagen—for which it is the exclusive LSP—as well as FAW Car, FAW-GM, FAW Tianjin, FAW-Toyota and FAW Jiefang, a commercial vehicle OEM. Besides its headquarters in Changchun, and operations at Tianjin, FAW Logistics has vehicle logistics operations in Chengdu to serve a local FAW-VW plant. There is also a Shanghai-based JV with Toyota called Toyota Lujie Transportation (TLT). Through this JV, FAW Logistics moves vehicles imported by ro-ro from Japan at Shanghai’s Haitong terminal to the city and nearby regions such as Jiangsu, Zhejiang and Fujian. The company has another JV with a shipping service provider to operate waterway transport, but Kan admits that the business has so far failed to maintain momentum and has not been very successful so far.

For FAW-VW in particular, FAW Logistics provides finished vehicle warehousing services, with a 400,000 square metre warehouse facility in Changchun and 350,000 square metre logistics base in Chengdu.

After its current expansion plan, the company will have four logistics bases and two distribution centres, according to Kan. The four bases are to be located where FAW has factories at Changchun, Tianjin, Chengdu and Foshan. With the exception of Changchun, all of these are currently under construction and are expected to be complete by 2015. The two distribution centres are located in Wuxi and Wuhan, and are leased on a long-term contract with the functional purpose of facilitating backload business with China’s other LSPs, including Anji Logistics, a SAIC subsidiary, and Changjiu Logistics.

FAW Logistics also does inbound and aftermarket logistics for FAW-VW and a variety of other companies, with finished vehicle logistics its core business. FAW Group currently spreads out other services between FAW Logistics and two other logistics companies that it owns—FAW International Logistics, and Jiefang Logistics—although there are plans for further consolidation.

A bumpy road
The state regulations on road to prevent overloading, especially those issued last July that sought to enforce more strictly the 16.5-metre length requirement, have greatly impacted automotive logistics providers in China. FAW Logistics, with its fleet of 700 car carriers, is no exception. The company does part of its road haul with its own fleet, while outsourcing the rest of its services to third-party providers or independent trucking operators. In total, there are 6,000 car carriers operating in the FAW network.


As reported in previous issues, in China it is common for car carriers to violate the 16.5-metre length requirement for trucks, and so not all carriers within FAW Logistics’ proprietary fleets are compliant in size. However, the company considers it essential to follow legislation, as fines and detention of car carriers affect deliveries to customers.

"It might be easier for private companies to cope with some big fines, but things are less flexible for us [as a stateowned company] dealing with these special expenses,” Kan indicates. “Most importantly, as a state-owned company we see corporate social responsibility as an imperative obligation.”

However, meeting the required limits means dropping from a ten-unit load to as few as six units, making it almost impossible for the company to earn profits on its road operations. Kan says that the parent group makes considerable sacrifices to assimilate part, if not all, of the costs to make up for the logistics provider’s loss.


According to Kan, state authorities are now paying closer attention to the issue after FAW Group brought it to the attention of both local and provincial government, going on a dozen rounds of discussions with ministries including the Ministry of Information, Ministry of Public Security and the Ministry of Transport. The three ministries have subsequently made a number of trips to FAW to carry out further research into the length issue. While FAW Logistics would be happy to see a new official standard on the road, Kan admits that the final outcome is still unknown.

More rail and waterway
FAW Logistics has direct rail links serving both finished vehicles and inbound logistics. The link was planned as early as when the first FAW plant was built in 1953. FAW is now constructing another rail yard to accommodate increased vehicle capacity.

The RMB100m ($15.8m) investment would help meet the goal of moving 5m vehicles in the group’s 12th Five-Year Plan, with 3m units targeted in Changchun alone. The company also targets moving nearly 25% on rail and 10% by water. “Eventually we’ll have multi-modal transport that involves road, rail and waterway,” says Kan.

Planning diversified transport options is a natural response to the challenges facing the entire industry for road-haul services. Kan points out that Changchun has its limitations in terms of its geographical location as an inland city in northeast China. “Unlike Shanghai or Tianjin, which is good for developing all transport models, be it road, rail or water, Changchun is largely limited to road and rail.”

While relying solely on road delivery would be highly risky, rail stands out as an option requiring more attention. “Involving more rail and water is what’s on our agenda for the FAW group as a whole,” says Kan. “Particularly, our rail percentage by 2015 is expected to rise to 25-30%. In 2011, FAW Logistics delivered 80,000 units by rail, standing at only 5% of the total number of finished vehicles shipped.”

Expanding the business
Of China’s four largest carmakers—FAW Group, SAIC Motor, Dongfeng Motor and Chang’an Motors—FAW group will be the last to go public. While the IPO has been repeatedly delayed, in part because of the carmaker’s complex shareholding structure, an eventual approval is expected to take place reasonably soon.

“I think getting listed will bring benefits to FAW Logistics in the long run. It will result in increased investments, holistic control, standard operation and improved management, and finally improved logistics capability,” Kan comments.

Kan believes that the flotation will increase the company’s ability to invest beyond its current logistics infrastructure, which is currently financed entirely by the FAW Group.

faw-3Although it obviously has close ties with its parent group, FAW Logistics also ships vehicles for OEMs outside the group such as BYD, Dongfeng and Geely, as well as collaborating with other logistics providers in what Kan calls “cross-flow” business. This approach attempts to integrate backload business through a sharing of resources.

“Return trips with empty loads cause a lot of waste and this must be reduced,” says Kan, adding that FAW Logistics, Anji and Changjiu have all developed their own network for backload business. “The trend is we will see ourselves delivering more and more services for non-parent OEMs,” Kan predicts, revealing that Anji and Dongfeng have both visited FAW Logistics to set up discussions and make known their wishes regarding collaboration on resource integration.

“The business of logistics [started] late in China. We notice the disorder in the market and in competition, and resources are rather fragmentary. With numerous logistics operators, big or small, dispersed across the country, the overall efficiency is low,” Kan comments, adding that efficiency will come only through integration.

Kan admits that Anji currently has more centralised resources. FAW has improved through recent consolidations, but he believes it still has a long way to go. “Right now our businesses overlap in this regard. Competing for resources [in the same group] would not be good for management efficiency,” he comments.

Kan says the next step is to draw a line between business sectors. The finished vehicle and aftermarket business will go to FAW Logistics, while inbound logistics will go to FAW International Logistics. “We won’t generate value unless we pool each party’s resources for mutual use. And it doesn’t work either if either party lacks resources,” he says.

The customer is the important challenge
FAW Logistics faces several challenges that are universal to providers in China, such as the road regulations and increasing labour costs. For this purpose, internal consolidations are going on with a change in operational approaches anticipated across FAW Logistics, FAW International Logistics and Jiefang Logistics. The FAW group has in mind the creation of a large logistics company the way SAIC did with Anji.

While FAW Logistics faces issues around capacity, regulation and organisation, Kan believes the company’s greatest challenge will be satisfing its customers better.

“Challenges like road fines matter, but they are secondary in importance because FAW Logistics is not alone in this [issue],” Kan says. “What is central will always be our ability to improve logistics capabilities.”