The China Perspective: What is the outlook of China's logistics market?

Eddy Chan: FedEx recognizes that among the emerging markets in Asia, China has the greatest growth potential, especially for the express and logistics industry. The country is becoming more than a manufacturing center for the world. According to US Census Bureau’s Foreign Trade Statistics, approximately US$60 billion worth of goods left China for the U.S. by air and another US$61 billion worth of goods entering China by air in 2005. U.S. exports to China have grown by 75% in the past three years, making the United States second only to Japan as China’s top trading partner In addition, the express market as a whole grew over 20% annually for the past five years. According to China International Freight Forwarding Association, China’s express market is anticipated to grow between 30 to 35%.

TCP: Does China have a great need for a modern logistics sector?

EC: It is beyond doubt that China’s economic growth has ushered in the great needs for a modern logistics sector. The country’s development is maintaining its position as a nexus of global supply and demand. It is already becoming the world’s leading manufacturer for electronics. For instance, according to Organization for Economic Cooperation and Development (OECD), China has overtaken the US as the world’s largest exporter of a broad range of electronics goods, including computers, mobile phones and digital cameras. Moreover, China’s investment in massive infrastructure projects, which includes the modernization and expansion of road, rail and inland waterway and coastal shipping infrastructure, will also help boost the efficiency of logistical services. For instance, Guangzhou now has a highway network that connects more than 97% of countries, municipalities and towns in the Guangdong and neighboring provinces.

TCP: Does the country have the necessary infrastructure and human resources ready for a modern logistics sector?

EC: While China has made great strides in developing its logistics infrastructure, progress is slow and more improvements are needed to support the nation’s robust economic growth: First, inventory levels at Chinese businesses as a percentage of sales are several times higher than those in most developed countries; Second, inefficient domestic logistics and transport systems result in material waste, slow adoption of new technologies, and higher costs to consumers—dampening China’s economic growth; Third, supply chain issues threaten to block the success of most large-scale investments in China. Integration, facility quality and capacity and government regulations remain the three major issues that must be addressed. Last, but not the least, to recruit and retain the right talent is also a challenge that many multinationals are facing in China.

TCP: How does FedEx position itself in this market?

EC: China is one of FedEx’s fastest growing markets in Asia Pacific and an important part of our global strategy. FedEx is the market leader in China and is committed to China. Since FedEx’s entry into China in 1984, the company has expanded its service to cover more than 200 cities across the country, with plans to add 100 additional cities in the next few years. In January 2006, FedEx announced an agreement with its joint venture partner, Tianjin Datian W.Group Co., Ltd to acquire DTW Group’s 50 percent share of the FedEx-DTW International Priority express joint venture and DTW Group’s domestic express network for US$400 million. Currently, while FedEx operates 26 JV branches in China, with China headquarters based in Shanghai and more than 3,100 people in China, the number of our employees is projected to grow up to more than 6,000 by the time the acquisition is complete.

TCP: Does FedEx plan to expand more into central or western China?

EC: FedEx’s plan is not only to focus on some regions, but to continue to keep pace with explosive customer demand, and go wherever our customers want us to go. Over the past twelve months, FedEx has increased its presence in second-tier cities in China, including Zhongshan, Foshan, Huizhou, Zhuhai and Jiangmen, Xian, Qingdao and Dalian, where there is a growing demand for international express services. Many of these cities are emerging as both manufacturing powerhouses and consumer markets, and the growing cost of labor and land in China’s big cities will continue to push industrial investment to smaller cities. The increased migration of higher-value industries to second and third-tier cities fuels demand for reliable, time-definite distribution services.

TCP: What are the difficulties for the future development of China's logistics sector? Will these hurdles also be barriers to FedEx's development?

EC: Efficient logistics, especially express airfreight relies on hardware in the form of physical infrastructure, such as airports and motorways, as well as software, in the form of regulations and procedures that govern the use of those assets and the flow of goods.

Rapid growth of both China’s economy and the demands for modern logistics create a huge infrastructure challenge. With regard to regulations and procedures, China is unique in requiring separate business and other licenses at the local level. For example, we need licenses from the Ministry of Commerce, China Customs, and the State Administration of Industry and Commerce, among others – but those licenses and approvals are obtained at the local level, so that we also need permission from the local commerce department, local customs and the local Administration for Industry and Commerce in each city in which we operate. In addition, it is vital to improve customs clearance procedures since customs clearance reform is the key to a seamless, uninterrupted flow of goods across borders keeps the integrated global economy running smoothly. Despite these existing hurdles, the future for FedEx in China remains extremely bright. We have the experience and the track record to provide solutions and we are working closely with the regulatory authorities to sort out some of these issues.