Ti’s latest report, Global Contract Logistics 2014, finds the market in change as retailing is transformed by e-commerce. Indeed, advanced logistics services, particularly those in consumer-facing activities, are expanding as opportunities grow in emerging markets. As such, according to the author of the report, Ti’s Senior Analyst, Thomas Cullen, this has created a huge potential for contract logistics providers but at the same time, there are substantial threats.
China’s automobile market is an industry in which the need for advanced logistics services is creating opportunities for contract logistics providers. Global vehicle manufacturers have moved into China to take advantage of the growing domestic needs. As a result, according to the report, these manufacturers now command more than 60% of the market and for many of these manufacturers, are buying into domestic vehicle manufacturing companies to increase their control over their joint venture partners. As such, this is likely to have an impact on purchasing of logistics services.
A recent example is that of Volkswagen. China has become Volkswagen’s largest and one of its most important markets. For the first five months of this year, the group sold more than 1.5m vehicles in the country, including sales by its two joint ventures FAW Volkswagen and Shanghai-Volkswagen, up 17.7% from the same period in 2013. In fact, Volkswagen and its joint ventures recently announced plans to spend about €2.0bn (US$ 2.7bn) in the northern port city of Tianjin and Qingdao in the east for additional expansion and production.
While China’s automobile market presents great opportunities for contract logistics providers, as Ti’s Global Contract Logistics 2014 report notes, there are threats. For example, China’s government subsidises the country’s domestic automobile manufacturers at an estimated $700m a year, this as some industry analysts points to concerns over the country’s growing “glut of car factories and over 170 domestic manufacturers.” Economists say Chinese government payouts are prolonging production overcapacity and could hinder the development of local champions that could compete globally. Meanwhile, foreign manufacturers will continue to expand market share.
The Chinese automobile market will likely continue to grow in the short to medium term. As such, with the Chinese contract logistics market expected to grow 14.1% through 2017, based on Ti forecasts, contract logistics providers will benefit during this period.
One such provider that is taking advantage of this opportunity is Unipart, which in April 2014 announced a five year aftermarket logistics contract with Qoros Automotive Co Ltd., a car manufacturer based in Changshu, China. This new business was an important entry into the domestic Chinese automotive logistics arena for Unipart. It will manage a dedicated Qoros aftersales warehouse in Changshu, eastern China. From its Suzhou-based headquarters, the company will also provide a turnkey solution covering forecasting right through to reverse logistics, warranty management and supply chain finance services.
GLOBAL SUPPLY CHAIN INTELLIGENCE (GSCi)