Digital Edition

June 09, 2014

Issue link:

Contents of this Issue


Page 30 of 87

INTERNATIONAL MARITIME THE JOURNAL OF COMMERCE 31 By Greg Knowler THOUSANDS OF LOW-MARGIN players with low market penetration are driving up logistics costs in China that can account for as much as 40 percent of production costs, making it difficult for logistics providers to offer nationwide coverage. Yet Ch i n a's log i s t ic s m a rket , at $88 billion in terms of 3PL revenue, is the second-largest in the world, with antici- pated growth of 12 to 16 percent in the next 10 years. This would make China the world's largest 3PL market by as early as 2016. These findings came in a recent report released by Maersk Group on the role con- tainer shipping and logistics can play in in enhancing China's competitiveness and trade. John Kornerup Bang, Maersk Group's head of positioning and strategic risk man- agement and the report's lead author, said logistics shortcomings are reducing China's competitiveness and increasing the price of consumer goods. Achieving effective logistics is a grow- ing challenge in a country where half of the world's top 50 retailers have established them- selves and are growing rapidly. By next year, the China consumer market will represent enough purchasing power to buy 14 percent of the world's products, the report says. Bang's report found that inventory and storage costs accounted for 35 percent of China's total logistics costs, while transpor- tation comprised more than half of logistics costs. Ocean freight and inventory were two areas identified as being the greatest logis- tics cost items that stood to benefit most from supply chain savings. "China's challenge as a sourcing market is its long distance and lead time to markets in Europe and the U.S., and consequently higher transport costs and the potential need for higher inventory levels compared to sourcing hubs closer to main markets, such as Mexico or eastern Europe," Bang said. "This means that just the shipping cost can make up 8 to 10 percent of the total cost of sourcing from China." One of China's greatest challenges as wage levels continue their inexorable rise will be to maintain its competitive edge over alternative sourcing nations offering lower cost manufacturing. Minimum wages in China have increased 10 percent a year since the mid-2000s, faster than regional rivals including Vietnam and Cambodia. Even with the escalation, China's wages remained far more competitive than those of the developed world, Bang said. Yet the impact would be felt in manufacturing costs, and it would vary across industries and product categories. This was where real cost savings could be made, and improving supply chains could even offset rising wages. An Accenture analysis of labor cost sensitivity looked at the impact on cost structures in three industries in China: Footwear, heavy machinery and personal computers. It found that a logistics cost reduction of 15 percent could fully offset a 30 percent minimum wage increase. But optimizing China's supply chains isn't a simple task. The logistics landscape is fragmented and lacks integration and coordination, resulting in lower operational efficiency and higher costs. "There are still a lot of inefficiencies in China logistics, espe- cially when you move inland," Bang said. Improvements in container shipping connectivity since 2004 have been associ- ated with a 30 percent increase in China manufactured imports and a 40 percent rise in exports, the Maersk study found. Converted to trade value, the year-over-year growth has resulted in additional imports and exports worth $686 billion. JOC Contact Greg Knowler at and follow him on Twitter: @greg_knowler. TAMING THE BEAST Maersk study finds big potential for logistics savings in China IN BRIEF n NY-NJ's Global Terminal, ILA Go to Arbitration Global Terminal in the Port of New York and New Jersey and the International Longshoremen's Association failed to reach agreement on staffing of a semi-automated terminal to be unveiled on June 18, sending the issue to arbitration. The terminal will feature rail-mounted gantry cranes controlled remotely by longshoremen. The union has claimed jurisdiction over operation of a button that truck drivers must press to ensure they're standing in a safe area while the RMGs lower containers onto chassis. Global CEO Jim Devine would not comment on the labor negotiations, but said the terminal remains on track for the June 18 grand opening of its $300 million expansion onto 70 acres adjacent to Global's existing 110-acre site. n Shippers Press the Attack Against Box Scanning Law A coalition of shippers and transportation providers is asking the head of the U.S. Department of Homeland Security to repeal a controversial container scanning mandate. The roughly 70 shippers, representing farmers, retailers, manufacturers, trucking companies, container lines, customs brokers and forwarders, want DHS Secretary Jeh Johnson to tell Congress to scrap a mandate requiring all containers bound for U.S. ports to be scanned before leaving the port of origin. DHS has until July to meet the mandate, part of the 2007 SAFE Port Act and a response to the September 11 terrorist attacks. Congress already has extended the deadline several times. About 5 percent of import containers currently are being scanned prior to loading. n New Orleans Cold Storage to Expand in Charleston New Orleans Cold Storage plans to more than double the size of its existing storage space at the Port of Charleston, South Carolina. The expansion represents an investment of more than $14 million, of which the South Carolina Ports Authority will contribute up to $12 million for the project. "We are looking forward to offering even more services to our clients at the Port of Charleston, where we have been for almost 30 years," Mark Blanchard, president and CEO of New Orleans Cold Storage, said in a written statement. The facility currently handles more exports than imports, but the expansion will especially benefit the import meat trade, particularly meat imports from Australia, New Zealand, Central America and South America, a company representative told the JOC. JOC

Articles in this issue

Links on this page

Archives of this issue

view archives of Digital Edition - June 09, 2014