China Evolves. What is the Impact on Logistics?

It’s on the tip of your tongue. If you’re talking about the economy, trade, global politics, population, GDP – or, more close to home – if you’re thinking about the prospects of your business in the coming decade – it’s China. More than ever, China is on the radar of the international logistics business. Over the past four decades, the country has undergone a major transformation that’s impacted the world, its trade and financial markets. For these reasons and more, it’s worthwhile to look at the big picture and how that might impact the U.S. and China relative to distribution and logistics.

China’s Rise to Powerhouse

China is a powerhouse. It is, at 1.3 Billion people, the most populous nation in the world. And with a GDP of $9.2 Trillion, it is the 2nd largest economy in the world. Between 1978 and 2008, prior to the global financial crisis, China went on a tear, economically speaking. In 2001, China joined the World Trade Organization and imports to the U.S. soared – imports as a percentage of US economic output doubled within four years. After years of double-digit growth, China’s economy showed signs of distress in the early-to-mid 2000s. Manufacturing costs were on the rise and they saw increased competition from neighboring Asian countries. Recession or moments of economic distress aside, China’s economy is a force.

China Gets Big. And it Changes Things in the U.S.

According to economists, the Chinese competition could account for 1 million of the 5.5 million American manufacturing jobs lost in that period between 1999 and 2011. In addition to massive manufacturing job losses, shippers had to adjust their game. Trade had other impacts: our imports to China went up sharply. And the price of goods that could be manufactured more cheaply abroad put money in American’s pockets. In terms of logistics, many goods that previously were warehoused here and shipped around the country are now warehoused elsewhere and being shipped into the country.

And what of its Effect on Logistics and Pacific Partnerships?

While there are 2016 campaign promises and proposals for increased tariffs and sanctions on China imports to the US, it’s truly unknown what, if anything, will come to fruition. China’s expertise and systems are improving when it comes to logistics. Consolidation and competition have driven some costs down, though it still lags behind the U.S. in terms of both. As global consultancy AT Kearney notes, it may be difficult for some western approaches to business to be replicated in China. Significant factors include governmental intervention, company culture, maturity of the logistics industry and environmental pressures. Whereas China has been a ‘Make and Ship’ economy, they are increasingly adding “Plan”, “Buy”, “Distribute” to that equation.

We’ve seen China modernize as the market has opened up to foreign parcel providers like FedEx and UPS. Infrastructure has expanded. Still, climate control, automation and other warehouse amenities sometimes taken for granted on our shores may not be a sure thing in China. In addition, the companies you are likely to deal with are fragmented and hyperlocal. As an example, in the early part of this century, the average trucking fleet size in China was two. Warehouse space in China’s densely populated, large metropolitan areas is priced at a premium.  And rail is often clogged by passenger traffic. In other words, contingency planning could be a full-time job if you’re doing logistics business in or with China.

A few of the needs you should consider if considering logistics with Chinese companies:

  • Contingency planning in Asia.
  • Contingency plan in China.
  • Strong partners on U.S. shores.
  • Due diligence on global partners, routes and networks.
  • Cushion on budgets: resources, timeline, money.

The ones who get it right could be the survivors or big winners of the China challenge. Supply Chain excellence could be the brand equity push that puts you over the top.