科爾尼--中遠(yuǎn)集團(tuán)物流行業(yè)及發(fā)展趨勢(shì)研究報(bào)告

July, 2001 COSCO IPO SUPPORT MATERIALS Logistics Services Industry Environment & Trend Analysis - COSCO Comments and A.T. Kearney Remarks The contents of this document were prepared by A.T. Kearney and may not be used, altered or disclosed to other parties, without the written permission of A.T. Kearney. The information contained in this document has been obtained from external sources which A.T. Kearney believes are reliable. However, A.T. Kearney can make no representation as to the accuracy or completeness of the information or projections derived therefrom. 8 Point/Final Version/Logistics Industry Outlook -final/ 2 Table of Contents Executive Summary 1. Market Size & Growth Global China 2. Service Demand Global Trends China Trends 3. Competitive Environment Global China 4. Regulatory Environment 5. Information Technology Appendix 8 Point/Final Version/Logistics Industry Outlook -final/ 3 Executive Summary 8 Point/Final Version/Logistics Industry Outlook -final/ 4 A.T. Kearneys definition of the logistics services industry Structuring and managing, on behalf of cargo owners, solutions involving some combination of parts of the supply chain (i.e. transportation, warehousing, (de)consolidation, etc.) 8 Point/Final Version/Logistics Industry Outlook -final/ 5 The logistics service industry represent a tremendous growth opportunity, both globally and in China Market Characteristic Conclusion Customers are increasingly demanding high value logistics service solutions, requiring global reach and advanced supply chain management capabilities Increasing demand for global reach and capabilities fuels consolidation as large full service providers are positioning themselves for success Chinas entry into WTO is expected to have two main implications - the logistics market will grow rapidly, and competitive intensity will dramatically increase Strong IT capabilities is becoming a core capability of logistics services providers and is critical to building a logistics services business Market Size & Growth Service Demand Competitive Environment Regulatory Environment Information Technology Source: A.T. Kearney The global logistics services market reached an estimated US$ 190 Bn in 2000. The China market is still small at US$ 0.61 Bn, but will be growing rapidly at CAGR 35% over the next five years 8 Point/Final Version/Logistics Industry Outlook -final/ 6 The China logistics industry will be shaped by Chinas entry into the WTO and the subsequent opening of the market to foreign competition Industry Scenario 2006 Rapid increase in M&A activities Key alliances formed within the next 2-3 years Rapid expansion of global players offering sophisticated end-to-end solution, including logistics, transportation and IT Implementation of e-commerce initiatives and increasing dependence on IT network Mergers, Acquisitions and Alliances Global Competitors Technology The logistics market will grow rapidly Competitive intensity will dramatically increase WTO Entry Source: A.T. Kearney 8 Point/Final Version/Logistics Industry Outlook -final/ 7 1. Market Size & Growth 8 Point/Final Version/Logistics Industry Outlook -final/ 8 The global logistics services market reached an estimated US$ 190 Bn in 2000 The global logistics outsourcing market is estimated to US$ 190 Bn in 2000 The transportation and related expenditures market reached an estimated US$ 3.8 Trillion in 2000, and is expected to grow at an annual rate of 2.3% over the next 5 years The Asian logistics outsourcing market is estimated to reach US$ 31 Bn in 2001 and is expected to grow at CAGR 39% over the next five years The greatest opportunities for outsourcing are in transport, warehousing, and transport management The growth of the global logistics services industry is mainly driven by shippers propensity to outsource logistics services and organic transportation market growth Customer electronics, automotive and apparel represent the most attractive opportunities for logistics services in China 8 Point/Final Version/Logistics Industry Outlook -final/ 9 The China market is still small at US$ 0.61 Bn, but will be growing rapidly at CAGR 35% over the next five years The China logistics services market is still small at US$ 0.61 Bn, but will be growing rapidly over the next 5 years The logistics services industry is still at an early stage of evolution in China The transportation and related expenditures are proportionately higher in China than in most developed countries and NIEs - indicating a major improvement opportunity In Coastal China, demand for logistics services is expected to be strong in Guangdong and Shanghai In Inland China, the largest demand potential is in Sichuan and the Hubei/Yangtze river region Growth in the logistics services industry in China will mainly be driven by continued macro economic growth and increased propensity to outsource logistics Favorable macro economic outlook Public policy and spending Increasing interest in outsourcing for logistics needs Growing IT and E-business 8 Point/Final Version/Logistics Industry Outlook -final/ 10 Market Size & Growth - Global 8 Point/Final Version/Logistics Industry Outlook -final/ 11 The global logistics outsourcing market is estimated to US$ 190 Bn in 2000 Source: Chinainfobank, CSFB, A.T. Kearney Global Transportation and Logistics Market Size (2000) Transportation and related activities handled by manufacturers, wholesalers, retailers themselves(e.g. private fleet, private warehousing) Discrete sets of transportation and related services outsourced by manufacturers, wholesalers, retailers (e.g. public warehousing etc.) Combination of transportation and related services provisioned by 3rd party logistics service providers US$ 3,800 Bn Outsourced US$190 Bn Global transportation and related expenditures Global outsourced transportation and related services Global logistics outsourcing market 8 Point/Final Version/Logistics Industry Outlook -final/ 12 US$ Bn The transportation and related expenditures market reached an estimated US$ 3.8 Trillion in 2000, and is expected to grow at an annual rate of 2.3% over the next 5 years Note: (1) Asia includes Japan, Hong Kong, Korea, Singapore and Taiwan Source: Bowersox and Calantone； CSFB； A.T. Kearney Analysis Transportation and Related Expenditures by Region (2000) Transportation and Related Expenditures by Function (2000) US$ Bn Total = US$ 3,837 Bn Others: -1.4% Asia(1): 2.2% Europe: 2.6% North America: 4.0% 915110213969411073125284095610927297066491996 2000 2006E3,424 3,837 4,389 Warehousing $304 Bn Transport $2,204 Bn Others $55 Bn Shipper-Related $20 Bn Inventory $1,102 Bn Admin $152 Bn CAGR 2000-2006 8 Point/Final Version/Logistics Industry Outlook -final/ 13 The Asian logistics outsourcing market is estimated to reach US$ 31 Bn in 2001 and is expected to grow at CAGR 39% over the next five years Note: Asia includes China, Japan, Honk Kong, Korea, Singapore and Taiwan Source: Bowersox and Calantone； CSFB； A.T. Kearney Analysis Logistics Outsourcing Market in Asia - Gross Revenue (US$ Bn) 1541128260423123161999 2000 2001E 2002E 2003E 2004E 2005E 2006E8 Point/Final Version/Logistics Industry Outlook -final/ 14 The greatest opportunities for outsourcing are in transport, warehousing, and transport management Transport Warehousing Transport Management IT Supplementary Logistic Services Purchase Order Management Logistics Management 30% 47% 48% 85% 20% 40% 39% 76% 23% 2% 5% 16% % of respondents outsourcing 1998 % of respondents planed outsourcing 2003 13% 8% Outsourcing by Function Resource require- ments Complexity Note: The percentage may not add up to 100% due to rounding Source: Based on several A.T. Kearney studies, including: - Worldwide study comprising 280 participants (automotive 19%, electronics 25%, retail 27%, chemicals 29%) - European study comprising 500 participants (retail 26%, food & beverage 26%, commodities 22%, machinery 12%, automotive 7%, electronics & high-tech 4%) 8 Point/Final Version/Logistics Industry Outlook -final/ 15 Outsourcing of non-core business activities Organic growth of transportation markets Increased complexity of global supply chains Recognition by many shippers that supply chain strategy may be a key competitive advantage Willingness to outsource when logistics not seen as core competency Development of superior logistics capability by a few 3PLs Growth in demand for transportation services expands with international trade growth Globalization of many industries means goods need to move over longer distances at faster speeds with higher reliability Growth in Logistics Services Source: UBS Warburg, IDC Growth Drivers Details 1 2 The growth of the global logistics services industry is mainly driven by shippers propensity to outsource logistics services and organic transportation market growth 8 Point/Final Version/Logistics Industry Outlook -final/ 16 Consumer electronics, automotive and apparel represent the most attractive opportunities for logistics services in China Note: 1. Size of circle relative to segment size in 2000 2. Analysis is indicative only Source: A.T. Kearney field interviews and research High Low Growth (2001-2006) Remarks Highly market-oriented, need quick response to consumer feedback Manufacturers have to to improve operation efficiency continuously due to intense competition Relatively high product value and less price sensitive High requirement for timing and reliability of liners High gross margin industry, production cost and logistics account for less percentage of sales Prefer timely feedback from destination ports, i.e.trade consulting services Automotive supplies involve over 30,000 parts, which need consolidating suppliers to handle logistics Intense competition drives companies to reduce cost, current inefficiency in self-handling leads companies to consider outsourcing services actively High value products, not very price sensitive, but sometimes decisions are made overseas Packing requirement involves technical difficulties, unwilling to outsource logistics services High profit industry, not very price sensitive High quality requirement for dry, no smell, no leaking containers, hence containerized in factory Clearance of cigarettes needs to be done by professional I/E companies or manufactures Large and special shape, therefore the way to put them into containers can impact the number of containers to be used, which directly related to cost - usually done in-house Cost sensitive, firms usually choose less busy season to get cheaper prices Frozen products and fresh products need to be handled fast with care Other products are low-value and need no special services Low value products, highly price sensitive Lower quality requirement, usually containerized at ports Consumer Electronics Apparel Automotive Machinery Tobacco & Liquor Furniture Primary Goods Chemicals&Materials Industry Low High Consumer Electronics Apparel Automotive Outsourcing Propensity Tobacco, Liquor Primary Goods Opportunity Assessment by Industry Chemicals &Materials Furniture Machinery Add market and trends analysis by industry 8 Point/Final Version/Logistics Industry Outlook -final/ 17 Market Size & Growth - China 8 Point/Final Version/Logistics Industry Outlook -final/ 18 The China logistics services market is still small at US$ 0.61 Bn, but will be growing rapidly over the next 5 years Logistics Outsourcing Market - Gross Revenue (2000, US$ Bn) Note: Asia includes China, Japan, Hong Kong, Singapore and Taiwan Source: Bowersox and Calantone； CSFB； A.T. Kearney Estimates 0 . 6 10 . 8 21 . 1 11 . 52 . 0 32 . 7 43 . 6 92000 2001E 2002E 2003E 2004E 2005E 2006EG loba l A s ia C h in a190 23 0.61 China Logistics Service Market (US$, Bn) 8 Point/Final Version/Logistics Industry Outlook -final/ 19 The logistics services industry is still at an early stage of evolution in China Characteristics Emerging demand for outsourced logistics services Low value added services such as transport and warehousing are the major type of services outsourced Traditional in-house behaviour being impacted Fast growth of logistics user base and higher requirement for broader services Large number of services providers competing for customers and human resources Most high value added services are free and provided as selling points Logistics outsourcing becomes common practice and an important lever for competition Consolidated service market with a few established market leaders Logistics penetrate in supply chain and replace traditional business models Global logistics integrators provide one-stop solution worldwide Specialization and close cooperation among global logistics service providers Optimized allocation and integration of resources along the supply chain Stage Emergence Growth Penetration Globalization World Leading (US) China Today Source: A.T. Kearney 8 Point/Final Version/Logistics Industry Outlook -final/ 20 Warehousing and Distribution Trucking Rail Freight Although Heavily Used, Railway Freight Has Long Transit Times and Service Reliability Is Poor Railway Containers Are Not Compatible With Shipping Company Containers Airline Customs Brokerage Courier Limited Presence of Foreign Firms As JV E.G. DHL Sinotrans Regional Segregation in Operation Logistics Center and Freight Forwarding Shipping The domestic warehousing market is currently small and over-supplied with basic warehouses providing virtually no value-added services Some consolidation just started among the large warehousing companies River transportation has declined Most vessels are characterized by low speed and high energy costs Trucking companies are only allowed to operate in restricted regions Government has established 15 Free Trade Zones and some logistics centers are set up there Inland transportation is handled by domestic freight forwarder who is usually sub-contracted by the international freight forwarder Seven domestic airlines dominate regional operations Designated foreign carriers are given a maximum entitlement of 50 tonnes per week Many customs clearing brokerage firms and considerable confusion about roles Customs clearing procedures took at least - 1 day previously but expected to be shortened to1 hour The logistics services industry is still at an early stage of evolution in China (continued) Source: A.T. Kearney Analysis China Logistics Services 8 Point/Final Version/Logistics Industry Outlook -final/ 21 Transportation and related expenditures are proportionately higher in China than in most developed countries and NIEs indicating a major improvement opportunity 236724856879414%12%23%11% 10%H on g K on g K or e a C h i n a Jap an USL og e x pe n di t u r e L og e x p a s % of G D PTotal Transportation and Related Expenditures and % of GDP (2000) Note: (1) VAS: Value-added-services (2) Including packaging, admin, information services, ect. Source: Bowersox and Calantone, CSFB, IMF 1997 study； Chinainfobank； A.T. Kearney Analysis US$ Bn China Transportation and Related Expenditures Breakdown by Function (2000) Total = US$ 248 Bn US$ Bn VAS5%O t h e r s29%W ar e h ou s e24%T r an s p or t42%(1) (2) 8 Point/Final Version/Logistics Industry Outlook -final/ 22 Demand Growth In Coastal China, demand for logistics services is expected to be strong in Guangdong and Shanghai High Low Hebei, Beijing, Tianjin 4 Beijing is the No. 1 air cargo center in China. In addition, Beijings hi-tech industry, which needs a lot of air transportation, is developing very fast Over 80% of the volume through Tianjin port are agricultural products, furniture, metal hardware and raw materials, all being low value products. In addition, most shippers are in poor financial conditions and are very price sensitive Shandong (Qingdao) 4 Qingdao has several famous local companies, such as Haier, HiSense, Aukma and Qingdao Beer. They are more quality oriented and less price sensitive Frozen products account for 15-20% of the volume. Quality requirements for frozen products are very high in terms of timing and handling care. Hence, frozen products shippers tend to be less price sensitive and more quality concerned Footwear and garments account for significant portion. Some large customers such as Payless Shoes (No. 1 customer of COSCO in volume) requires accurate shipping time and full range of sophisticated 3PL services from P/O management, trade consulting to space booking, warehousing and transportation Province Logistics Demand Selected Provinces in Coastal China Guangdong Demand Size 5 Remarks Major exports are processing of lower value-added products no special requirement for logistics quality； Road transportation is convenient, often containerized in factory to reduce cost less need for warehousing/ consolidation Electronics industry is booming in Dongguan, which has some leading companies like Huawei potential large profitable customers Strong Weak Shanghai (Jiangsu, Zhejiang) 5 Shanghai is the fast growing economic/ financial center in China, which has some major MNCs such as SGM, Acer, Philips, etc. They are matured customers of logistics services and less price sensitive. On the other hand, to get the deals from them usually needs to involve high level negociation Large companies in Shanghai and nearby areas are mainly JVs of automobile and consumer electronics industry, which have high product value and lower price sensitivity Source: A.T. Kearney field interviews and analysis 8 Point/Final Version/Logistics Industry Outlook -final/ 23 Demand Size Sichuan (Chengdu) Have the 3rd largest distribution center in China, the largest population, and important heavy industry base The logistics industry there has already attracted interest of foreign large shippers like Ikea and investors including Hutchison Whampoa Located in mountain areas, road transport infrastructure is inconvenient, so highly relying on rail transport Chongqing 2 Agricultural products, metal products and motor cycles, which totally account for over 80% of the export volume, are all low-value products, price sensitive and have flat growth Underdeveloped infrastructure, esp. road and rail transportation have limited foreign investments in this region. Cargoes usually transported by barges, which is the cheapest mode Province In inland China, the largest demand potential is in Sichuan and the Hubei/Yangtze river region Logistics Demand Selected Provinces in Inland China Yunnan 2 Demand Growth Remarks Most important export industry is tobacco, which has high profit margin, high quality requirement for logistics services, and not very price sensitive Exports for wood, wooden materials and furniture, which accounted for over 30% of export volume before, are largely reduced due to newly imposed government sanction on cutting trees High Low Strong Weak Source: A.T. Kearney field interviews and analysis Hubei, Yangtze River Region 3 Exports are low-value products including tobacco, cotton, chemicals and steel materials Many imports are material for JVs (e.g. Citreon and Dongfeng Cummins), of which decisions are usually made overseas Market is very fragmented and shippers generally have small scale/volume No warehouses/piling centers with modern container handling capacity and advanced IT structure are available, can be a potential development area 3 8 Point/Final Version/Logistics Industry Outlook -final/ 24 Growth in the logistics services industry in China will mainly be driven by continued macro economic growth and increased propensity to outsource logistics Growth Driver Implication The Chinese economy is expected to grow at CAGR 7% over the next five years. Increased international and domestic trade will drive demand for logistics services Public policy and spending supports improvements in Chinas logistics infrastructure, providing opportunities for further expansion of logistics service providers. Capable foreign service providers are limited in business scope by regulation, and their full entry after WTO will drive the industry toward international best practices There is increasing interest among China-based enterprises in outsourcing for logistics services. Overseas businesses are extending their supply chains deeper into China The fast growing market in online B2B transactions provides an additional market segment for logistics services Favorable Growth Outlook for the China Logistics Services Industry Favorable Macro Economic Outlook Public Policy and Spending Increasing Interest in Outsourcing for Logistics Needs Growing IT and E-Business 1 2 3 4 Source: A.T. Kearney Analysis 8 Point/Final Version/Logistics Industry Outlook -final/ 25 The Chinese economy is expected to grow at CAGR 7% over the next five years Source: Chinainfobank, A.T. Kearney Analysis 2001E 2006EProjection of Chinas GDP Growth and Structure (RMB, Bn) Continuous growth in GDP indicates a robust and fast growing macro economy, providing opportunities for sophisticated logistics service providers The economic structure will be continuously optimized and upgraded Logistics is directly correlated with the manufacturing industry, therefore growth of secondary industries will lead to the growth of logistics services Improved services industries will also have a positive impact on the logistics sector Improved supportive services such as legal, accounting, etc. Improved telecommunication capabilities Remarks Secondary: 7% Tertiary: 9% CAGR (01-06) Total: 7% Primary: 3% 13,367 9,560 Favorable Macro Economic Outlook 1 8 Point/Final Version/Logistics Industry Outlook -final/ 26 Demand for logistics services comes from both international and domestic trade Source: Hong Kong Trade Development Council Research； Chinainfobank Demand for Logistics Services More International Trade More Domestic Trade International trade International trade has sustained the global economic fluctuation and kept fast growing in the past 5 years It is projected to grow at a CAGR of 7.5%, with total trade value reaching US$ 680 Bn in 2005 Exports Expected to rise by an additional 2.4% per year over the first five years of WTO entry Share as world exports is projected to rise from current 3.5% to 7.3% in 2005 Imports Projected rise of US$ 21.3 Bn after WTO Projected annual growth rate will be marginally faster than export Domestic Trade CAGR of retail sales of consumer goods in the Ninth 5 Year was 11% Positive outlook due to continuously growing purchasing power Development of chain stores Sales revenue of chain store corporations has experience double digit rise from 1997 Multinational chain stores have been aggressively improving their presence in China market Inter-city trade Currently more than 50% of the foreign industrial and retail firms distributed their products in more than 50 cities Inter-city trade will be frequent after WTO Favorable Macro Economic Outlook 1 8 Point/Final Version/Logistics Industry Outlook -final/ 27 The State Economic and Trade Commission has established a master plan for developing logistics services in China State Economic and Trade Commission Logistics Industry Trade Plan Source: Business Alert China at 30 Pilot Centers Inter-regional Networks Supply Chain Systems Select suitable enterprises in various key cities to establish 30 pilot logistics and distribution centers 10 National Enterprises About 10 specialized key enterprises with national logistics and distribution networks will be developed Realign assets to form inter-regional, inter-sector and inter-ownership logistics and distribution networks Efforts will be made to explore the possibility of using 3PL and distribution enterprises to build supply chain systems, and to bring facilities and services of logistics companies closer to advanced international standards Public Policy and Spending 2 8 Point/Final Version/Logistics Industry Outlook -final/ 28 A wide array of government supported logistics infrastructure development programs are under way across China Source: Chinainfobank Examples of Government Initiatives to Improve Logistics Infrastructure A number of national logistics centers are under construction, with reasonable size, standardized operation, and modern facilities Coastal Large Cities - Logistics Center Inland Areas - Road/Railway Modern third party logistics and distribution base Its main body will be linked to 7 railways and hundreds of railway transit points Expected to serve for the dispatch of over 90% of daily necessities in the city Also serve eastern China and the whole country Shanghai Commercial Logistics Center Public Policy and Spending 2 High way density will grow to about 1650 km/10000sq.km in year 2005 Invest RMB 270 Bn to upgrade railway infrastructure New railways, electric railways, highways, expressways are in phase: 8 Point/Final Version/Logistics Industry Outlook -final/ 29 Interviews with SOEs and foreign invested enterprises in China indicate a relatively strong interest in outsourcing logistics services Source: A.T. Kearney field interviews and research SOEs usually have own warehouses and trucking divisions, therefore, they demand less warehousing, transportation and other related value-added services. However, in face of increased competition, SOEs have a growing interest in outsourcing logistics Foreign invested enterprises have the highest requirement for logistics services in terms of range and quality. These companies are extending their supply chains into China - replacing middle men who used to get China origin cargo to the port. MNCs will be looking for logistics services companies in China to help them fill the void Import/export companies have the least demand for logistics services providers, because most of these companies also provide transportation, customs clearance services, etc. Remarks % of Respondents with Interest in Outsourcing Logistics Services (2001) Increasing Interest in Outsourcing for Logistics Needs 3 25%40%38%S O E F o r e i g n I n v e s t e dE n t e r p r i s e sI m p o r t / E x p o r tC o m p a n i e s8 Point/Final Version/Logistics Industry Outlook -final/ 30 China-based companies have a positive attitude towards purchasing advanced logistics services and quality, speed, and price are the most important purchasing criteria Note: (1) Survey by the China Warehouse Association (2000) Attitudes and preferences for distribution of 450 large and medium-sized enterprises (2) The responding enterprises deal in electrical home appliances, electronics, foodstuffs and chemicals for daily use Source: Chinainfobank, China Warehouse Associate, A.T. Kearney filed interviews and research 7% 22% 26% 29% 44% 52% 64% 75% Looking for distribution services Prefer transportation companies Use general logistics agents Prefer trunk line services Looking for new logistics agents Hire third party agents Hope that new logistics providers will provide comprehensive logistics services Looking for modern logistics companies Interest in Logistics Services Survey Results (2000) Logistics Services Purchasing Criteria - China 0.88 0.81 0.79 0.77 0.68 0.91 0.91 0.93 Network Documentation Reputation Info Tracking Professionalism Price Service Speed Service Quality Relative Importance High Avg. = 0.82 Increasing Interest in Outsourcing for Logistics Needs 3 Low 8 Point/Final Version/Logistics Industry Outlook -final/ 31 Online transactions provides an additional source of growth for logistics services Source: Research Report of China E-Business Association and Network Evaluation Center, Apl. 2001 01020304050602000 2001 2002 2003 200400.511.522.533.5B 2 B B 2 CGrowth of Online Transaction in China (US$, Bn) B to B (US$, Bn) B to C (US$, Bn) CAGR (00-04) B2B: 53% B2C: 167% Growing IT and E-Business 4 Industry - Public information platform Reducing cost and overlap in investment, information share Customers/shippers Standard bar coding system, easier for outsourcing Better facilities to communicate with service providers, easier to manage and supervise Service providers - Intranet Cost reduction from higher efficiency Better service quality, because of internet/intranet enabled real-time cargo tracking, etc. Broader service range, e.g. trade consulting Current Industry Initiatives 8 Point/Final Version/Logistics Industry Outlook -final/ 32 2. Service Demand 8 Point/Final Version/Logistics Industry Outlook -final/ 33 Customers are increasingly demanding high value logistics service solutions, requiring global reach and advanced supply chain management capabilities Service Demand - Global Trends Traditionally, cost reduction has been the main reason for companies to outsource logistics Today, customers are increasingly demanding more advanced services and end-to-end solutions Demand-Pull logistics requires the logistics service providers to be flexible and to control a large part or the entire supply chain Leading logistics service providers are developing logistics one-stop-shops - from raw material sourcing to delivery of finished goods Customers are increasingly interested in contracts with both fixed and variable pricing schemes - based on risk sharing The opportunity for risk-sharing contracts is considered to be greatest in transportation and inventory management Service Demand - China Trends In the China market, logistics demand is still composed of basic services, such as transportation and warehousing Going forward, demand for logistics services in China will mainly come from Transportation/Distribution, Warehousing/Consolidation as well as Customs Brokerage and Forwarding The quality of logistics services offered in China are not good as indicated by poor performance on on-time delivery, cargo loss and document accuracy However, satisfaction levels for logistics services in China are relatively high, possibly indicating low expectations 8 Point/Final Version/Logistics Industry Outlook -final/ 34 Service Demand - Global Trends 8 Point/Final Version/Logistics Industry Outlook -final/ 35 Traditionally, cost reduction has been the main reason for companies to outsource logistics 1. Reduce and control operating costs 2. Improve company focus 3. Gain access to world-class capabilities 4. Free internal resources for other purposes 5. Resources are not available internally 6. Accelerate reengineering benefits 7. Function difficult to manage/out of control 8. Make capital funds available 9. Share risks 10. Cash infusion 15% 25% 15% 10% 15% 6% 8% 3% 5% 4% 6% 20% 28% 10% 15% 10% 12% 7% 10% 10% 13% Estimated Cost Saving Note: (1) Use of 53-foot equipment (2) Consolidation, scheduling and mode selection Source: CSFB Hard Savings (mainly transportation) Dynamic consolidation Dedicated operations Mode conversion Cube utilization(1) Carrier optimization Rate management Inbound(2) Soft Savings (mainly warehousing) Reverse logistics Location study Inventory Distribution design system Area Top-ten Reasons Companies Outsource Logistics 8 Point/Final Version/Logistics Industry Outlook -final/ 36 Today, customers are increasingly demanding more advanced services and end-to-end solutions, such as supply chain integration 7 33 33 33 33 47 53 53 53 66 66 66 73 73 80 80 87 Labor Cost Savings Transportation Cost Savings Access to Skills Freedom to Focus on Core Competencies Capital Asset Flexibility Balance Sheet Relief Project Management and Start Up Improved Customer Service Inventory Cost Reduction Access to Information Systems Systems Integration Cycle Time Reduction Global Access Supply Chain Integration Facilitation Supply Chain Integration Implementation Freedom From Regulation Other Past Service Demand Current Service Demand % Respondents 32 42 63 74 53 89 95 100 100 100 100 74 84 95 100 100 95 % Respondents Expected Future Service Demand % Respondents 20 33 93 93 100 53 66 66 73 66 66 46 53 73 66 66 60 Source: A.T. Kearney 1998 Logistics Survey 8 Point/Final Version/Logistics Industry Outlook -final/ 37 “ Demand-Pull” logistics requires the logistics service providers to be flexible and to “control” a large part or the entire supply chain Suppliers Manufacturing Demand indirectly drives manufacturing volume through forecasts Warehouse Wholesale/Retail “ Supply-push” Logistics Chain Suppliers B2B Exchange Manufacturing Direct Delivery “ Demand-pull” Logistics Chain Manufacturing driven by actual demand The rate of supply was set by the manufacturer in advance, based on expected demand It was the role of the logistics providers to ensure a just-in-time supply of components The rate of manufacture is determined on a real-time basis by the rate of demand While this model is more efficient, it requires perfect integration of all logistics operations within one process Source: Lehman Brothers, A.T. Kearney Analysis 8 Point/Final Version/Logistics Industry Outlook -final/ 38 Leading logistics service providers are developing logistics one-stop-shops - from raw material sourcing to delivery of finished goods Raw Materials Sourcing Production Planning Factory Sourcing Manufacturing Control Quality Assurance Export Documentation Shipping Customer Order Placement Receipt of Finished Goods Source: A.T. Kearney Finance materials Finance production Arrange payment for transportation Financing Purchase raw materials: fabric and trim Select factories with the required skills, specialty or capacity Sourcing Coordinate production transportation Consolidate and ship goods to customers Prepare import/export documentation Provide shipment tracking Logistics Services Arrange and schedule materials delivery Create and manage production schedules Ensure quality Provide tracking Supply Chain Management Full Service Provisioning Key Capabilities 8 Point/Final Version/Logistics Industry Outlook -final/ 39 66%29%13%27%29%32%7%42%55%Misture ofFixed/VariableCost-PlusI n c r e a s eR e m a in C on s t a n tD e c r e a s eCustomers are increasingly interested in contracts with both fixed and variable pricing schemes - based on risk sharing Note: (1) 17 respondents Source: A.T. Kearney 1998 3PL survey Type of Pricing Schemes in Logistics Contracts (1) - Global Trend in Pricing Schemes 27%21%13%39%Cost-Plus Mixture of Fixed/ Variable Others Transaction Percent of Respondents Transaction 8 Point/Final Version/Logistics Industry Outlook -final/ 40 11%5%12%16%16%32%42%16%26%16%42%42%26%11%0%68%0%11%26%16%16%84%11%62%57%16%10%16%74%5%5% 10%O t h e rT r a di t i on a l F r e i g h t F or w a r di n gI n t e g r a t e d S e r v i c e sD e di c a t e d C on t r a c t C a r r i a g eW a r e h ou s e M a n a g e m e n tT r a n s por t a t i on P u r c h a s i n gI n v e n t or y M a n a g e m e n tT r a n s por t a t i on M a n a g e m e n tThe opportunity for risk-sharing contracts is considered to be greatest in transportation and inventory management Main Hurdles for Risk-sharing Contracts 21%21%26%26%47%59%Identifying Baseline/Benchmarks Enforcement/ Commitment/ Willingness on Part of Customer Selecting Metrics and Measures Concern about Out-Years Scope Limit or Expansion Agreeing on Targets and When They Are Met Source: A.T. Kearney 1998 3PL survey Risk-sharing Opportunity Large Opportunity Medium Opportunity Small Opportunity No Opinion 8 Point/Final Version/Logistics Industry Outlook -final/ 41 Service Demand - China Trends 8 Point/Final Version/Logistics Industry Outlook -final/ 42 In the China market, logistics demand is still composed of basic services, such as transportation and warehousing 20%28%48%4%P ac k agi n gW ar e h ou s i n gI n n e r - C i t yD i s t r i b u t i onM aj or R ou t eT r an s p or t29%29%29%14%P ac k agi n gW ar e h ou s i n gI n n e r - C i t yD i s t r i b u t i onM aj or R ou t eT r an s p or tNote: (1) Survey by the China Warehouse Association (2000 and 2001) Attitudes and preferences for distribution of 450 large and medium-sized enterprises (2) The responding enterprises deal in electrical home appliances, electronics, foodstuffs and chemicals for daily use Source: Chinainfobank, China Warehouse Associate Logistics Services Outsourced by Manufacturers (2000) Logistics Services Outsourced by Distributors (2000) 8 Point/Final Version/Logistics Industry Outlook -final/ 43 Going forward, demand for logistics services in China will mainly come from Transportation/Distribution, Warehousing/Consolidation Warehousing/ Consolidation Transportation/ Distribution Purchasing /Manufacturing 1 3 3 In-house Truck companies MOR COSCO China Post Port bureaus Haier, TCL Maersk, APL, P&O In-house Purchase order management Vendor screening and management Truck Container towing Rail Barge Storage Inventory control Sorting/Labeling Packaging/ Unpacking Consolidation/ Deconsolidation Purchase order management and vendor screening are the least demanded services with less than 5% interviewees indicating interest. Manufacturers generally dont feel comfortable allowing outside service providers to get involved in key decisions like purchasing, sourcing, etc. Railway is largely MOR monopoly, and some large companies like COSCO and Sinotrans have unit trains which have lower prices better service levels Trucking market, including container towing, is very fragmented. Current supply exceeds demand, resulting in price competition and the trend of decreasing prices It might be more cost effective to have long-term relationships with 2 to 3 trucking companies than to have own trucks Traditionally, large manufacturers have own warehouses, therefore they dont need to outsource. But the quality of those warehouses is usually outdated and value-add services are limited Warehouses/ CYs at ports are owned and managed by port bureaus For logistics services providers, lack of modern warehouses/distribution-centers is one of the bottlenecks In coastal areas, Maersk and P&O have provided warehousing related new value added services for MNCs, esp. footwear companies Interest Level Service Providers Service Type Remarks Source: A.T. Kearney field interviews and analysis 8 Point/Final Version/Logistics Industry Outlook -final/ 44 as well as Customs Brokerage and Forwarding D-to-D 5 4 2 Port bureaus Freight agents Professional brokerage houses COSCO, Penavico Sinotrans Maersk Maersk P&O COSCO Customs clearance and duty payment BOL and other document management Space booking with linehaul carrier Cargo tracking Trade consulting Door-to-door services Interest Level Service Providers Service Type Customs Brokerage Forwarding Source: A.T. Kearney field interviews and analysis Shippers usually outsource customs clearance to 3rd party, or like to have the service providers consulting/support on that On top of the traditional document services, increasing demand comes for more client-centered service, such as the delivery service of BoL, and with better quality Emerging requirement for more value added services such as trade consulting on contract term, L/C (esp. for small to middle sized local companies) and destination market information feedback (esp. for demand sensitive products such as apparel, furniture, etc.) Cargo tracking is one of the gaps between Chinese companies and those global leading companies with GPS Demand for door-to-door services and ex-works (EXW) terms is increasing, in order to reduce damage rate during transportation, guarantee quality of cargo/delivery services, and improve shippers perception among customers These requirements are usually from contracts signed overseas, therefore sales efforts should cooperate with group HQ and overseas companies Remarks 8 Point/Final Version/Logistics Industry Outlook -final/ 45 The quality of logistics services offered in China are not good as indicated by poor performance on on-time delivery, cargo loss and document accuracy 73%77%73%L ogi s t i c sC om p an yD i s t i b u t orM an u f ac t u r e rOn Time Delivery Ratio (90%) 82%85%79%M an u f ac t u r e rD i s t i b u t orL ogi s t i c sC om p an yCargo Loss Ratio