The crunch in the Chinese economy continues to gather pace. In itself the crash in the Chinese stock markets is perhaps not so important, however it feeds into a wider impression of not merely a slowing but also a dysfunctional Chinese economy.
The latest half-year numbers from Kerry Logistics provides an interesting commentary on this. Hong Kong headquartered and led by a Singaporean former politician, Kerry is one of the strongest ‘non-Chinese’ logistics service providers in the mainland China market. With a business that geographically extends across much of China as well as South East Asia, it provides contract logistics and forwarding to a swathe of industries. It might be regarded as a bell-weather of development of the Chinese economy. If so China’s short-term prospects are concerning. Kerry Logistics’ Chairman, George Yeo, commented publicly that he viewed the “current market conditions with considerable concern. The overall economic outlook in the near term is bleak”, whilst the company’s CEO, William Ma, observed that the “the global economy continued to be plagued with volatilities in the first half of 2015”.
This did not stop Kerry increasing its operating profit for the period by 16% to HK$925m (US$119.3m), although turnover only increased by a more modest 2% to HK$10.14m (US$1.31bn). The dominant integrated logistics business drove the underlying profits forward, with a rise of 15% to HK$807m. However the smaller forwarding business bettered this with a 16% increase to HK$191m.
In addition, Kerry’s recently acquired Canadian forwarder, Total Logistics Partner Ocean Consolidators/Total Logistics Partner Air Express, is increasing its exposure to the trans-pacific routes through signing “a memorandum of understanding with a major NVOCC, focusing on ocean freight from Asia to the US, to acquire a majority interest in the company”. Kerry has not revealed the identity of this NVOCC. It is also looking to participate in the ‘New Silk Road’, concluding an agreement with Chinese state railways to access routes in China’s north and west to complement Kerry’s network across South East Asia and the East and South of China.
Kerry is looking to build a business focused on global e-retailing driven networks into China and South East Asia, while also looking to participate in the development of China’s often rather lopsided logistics economy. However the intensity of the short-term crisis may have a substantial bearing on the orientation of this strategy. After all it is possible that after a few years of short-term economic turmoil there may not be any ‘New Silk Road’ policy left.
GLOBAL SUPPLY CHAIN INTELLIGENCE (GSCi)