Marching ahead: China & the logistics industry
Experts from Deloitte and COSCO Shipping discuss Chinas growing foothold in the logistics industry, including trade with the UAE and globalisation.
The growth of Chinas trade links with the UAE reflects the changing global dynamics that saw the emergence of China as one of the worlds fastest growing economic and political superpowers. According to a report released by the Center for Forecasting Science under the Chinese Academy of Sciences, the total value of the logistics industry in China will approach ¥280tn ($43.5tn) in 2018, an increase of 6.5% year on year.
The report highlights that development in the high-end manufacturing industry and the consumption boom will drive demand for logistics services. In 2018, logistics facilities and equipment will be upgraded and innovation in logistics will be made to enhance the efficiency of the industry. It is expected the total revenue of the logistics industry will exceed ¥9tn in 2018, while the total cost of the industry will reach ¥12tn.
The big numbers
Zhang Tian Bing, partner, Deloitte China Consulting, who leads the supply chain service line, says: In 2017, China’s government had proposed to strengthen the construction of infrastructure networks such as water conservancy, railways, highways, water transport and aviation, pipelines, and logistics. This is the first time that logistics has been mentioned as a part of the infrastructure of the nation’s transportation network, elevating the logistics industry to a new and far more prominent position.
Bing highlights several trends in the logistics industry in China: Economic globalisation and the rapid development of multinational corporations, coupled with the constant innovation of internet technologies, has prompted logistics enterprises to work together on a global scale. The global retail industry drives the consolidation of the logistics enterprises to form a global logistics network. In 2018, we expect that logistics enterprises will ride on the coattails of the ‘One Belt and One Road’ Initiative to aggressively seize new overseas markets.
The Belt and Road Initiative (BRI) was launched by China in 2013, with an aim to revive the great Silk Road as well as provide a new platform for multilateral cooperation to create new trade routes, economic links and business networks. Six economic corridors have been identified from China to Central and South Asia, the Middle East and Europe (the Silk Road Economic Belt) and, along a maritime route, from Southeast Asia, Oceania to the Middle East, Africa, and Europe (the 21st Century Maritime Silk Road).
Spanning across 69 countries and encompassing around 60% of the worlds population and 40% of global GDP, the blueprint is also a collection of interlinking trade deals and infrastructure projects, set to be mutually beneficial to BRI countries and China.
COSCO Shipping is now a globally renowned logistics brand, being China’s largest and the world’s leading group specialising in global shipping, modern logistics, as well as ship building and repairing.
Captain Wang Song, president of COSCO Shipping West Asia, says: The companys development is a reflection of the needs for growth within Chinas logistics industry, as well as the needs for Chinese companies expanding their businesses abroad. Through a series of industrial amalgamation, business expansion, and scaling up, COSCO’s shipping lines cover over 1,600 ports in more than 160 countries and regions worldwide, and its fleet size ranks the first in China and the second in the world.
COSCO is positioned the first in China and the fifth in the world by container fleet size, and is also the first in the world by dry bulk fleet. It takes a lead in the world for comprehensive strengths of professional bulk, multiple-purpose vessel and special vessel fleet, including the super tanker oil fleet.
According to a Knight Frank report, the UAE has been ranked as third in a global index of nations that stand to benefit most from the Belt and Road Initiative.
China is the largest trading partner of the UAE, which hosts the largest Chinese small commodities market outside [of] China, says Song. In Dragon Mart, you can find any type of small commodity, and it is from here that these products move on further into GCC, North Africa, East Africa, Central Asia and other neighboring countries. The Chinese people who live and do business here, have also brought along [with them] the Chinese culture, cuisine, and friendship.
China has a strategic partnership with the UAE, and actively supports the economic development of the country; Chinese companies leverage the UAE as the regional hub to expand commerce and investments in neighbouring countries. The positive investment environment of the UAE has brought opportunity and a solid platform for Chinese companies to do business and invest. The mutually beneficial development trajectory of the bilateral relationship is firmly rooted in the two countries historic experience, current economic drivers, and future potentials.
In September 2017, Dubai Multi Commodities Centre (DMCC), signed a memorandum of understanding (MoU) with the Xi’an International Trade and Logistics Park at the Xian Dubai Free Trade Zone Economic Cooperation Conference 2017 in China. Just prior to this, DMCC announced that it signed an MoU with the China Chamber of International Commerce (CCOIC), to explore the possibility of establishing a joint business council, organising cross-border trade delegations, as well as enhancing collaboration in the legal services sector.
The mutually beneficial development trajectory of the bilateral relationship is firmly rooted in the two countries historic experience, current economic drivers, and future potentials. Captain Wang Song, COSCO Shipping
In November 2017, Abu Dhabi Ports and Chinas COSCO Shipping Ports broke ground for the construction of a new container terminal at Khalifa Port. Abu Dhabi Ports, which operates Khalifa Port, last year signed a 35-year concession agreement with COSCO to operate a new $700mn terminal that will add 2.4 million twenty-foot equivalent units (TEUs) a year to the ports existing capacity of 2.5 million TEUs. COSCO Shipping also has an option to increase the capacity by a further 1.1 million containers.
The move is part of Abu Dhabis broader strategy to develop the port as a regional hub and link it with industrial free zones to expand and diversify the economy.
In the second quarter of 2018, Abu Dhabi Ports and the Jiangsu Provincial Overseas Cooperation and Investment Company Limited (JOCIC) announced that 15 Chinese companies have signed agreements to invest in Khalifa Port Free Trade Zone (KPFTZ), the largest free zone in the Middle East, totalling $1bn in value.
Under the terms of last years investment cooperation agreement, China-UAE Industrial Capacity Cooperation (Jiangsu) Construction Management Co., a UAE company established by JOCIC, would occupy and develop approximately 2.2sqkm of the free trade zone for companies from the Chinese province of Jiangsu. This area, now dubbed as the China-UAE Industrial Capacity Cooperation Industrial Park, is part of the KPFTZ and is expandable to reach 12.2sqkm.
In recent news, the UAE introduced a law to allow up to 100% ownership to foreign investors. According to experts, the move is expected to change not only the investment landscape of the UAE, but also create significant growth opportunities by attracting more foreign direct investments, especially into the non-oil sectors.
Song remarks: Chinese companies can benefit from the UAEs comparative advantage in terms of geographical location, industrial development, management philosophy, reformative vision, and support for innovation, to achieve mutually beneficial development and win-win with their UAE partners via commerce and investments. COSCOs vision is to focus on our base in the UAE, develop markets around the broader West Asia region, and connect to the worlds shipping network. Such plan will be further adjusted in line with geostrategic developments across the region. Our destiny is closely intertwined with the people of the Middle East, we are here for good and want to achieve long term growth in this region.
Technology and e-commerce
Chinas courier industry has seen unprecedented growth in the last few years, given the rise of e-commerce. The surge in business has helped the founders of Chinas biggest express delivery firms become billionaires.
Bing says: In 2016, Jack Ma (the founder and executive chairman of Alibaba Group) put forward the concept of new retail and new logistics. The new logistics mode shares information among upstream and downstream enterprises across the entire industry chain. It is an important bridge linking consumers and manufacturers. In 2018, all sectors of the logistics industry will cooperate with one another to reconfigure their own social resources to jointly expand business operations and improve operational efficiency so as to maximise the benefits of joint distribution.
New retail is Alibabas strategy to redefine commerce by enabling seamless engagement between the online and offline world. Alibaba CEO Daniel Zhang summed up the unfolding challenge in a letter to investors when he said companies must use Big Data analytics to redefine the traditional core elements of retailingconsumers, merchandise and storesand the relationship among those elements to upgrade current formats and create new retail occasions. Trends such as consumer-centric retail models, customised goods and delivery, and omnichannel shopping have changed the entire business model.
In 2018, we expect that logistics enterprises will ride on the coattails of the ‘One Belt and One Road’ Initiative to aggressively seize new overseas markets. Zhang Tian Bing, Deloitte
Bing continues: New logistics technologies that use artificial intelligence have been continuously emerging, driving the application of intelligent techniques such as automatic sorting, electronic waybill and so on. Artificial intelligence is penetrating each and every aspect of the realm of logistics, especially in the last-mile delivery to consumer stage. In 2018, the overall procurement and utilisation of ‘smart equipment in the logistics industry will continue to rise.