Welcome to China Service Mall!

1 Logistics statistics at a glance

(1) Rapid growth of logistics demand

China’s economy has continued to grow very rapidly, with GDP expanding by 9.9% in 2005, hitting 18,232.1 billion. The growth is expected to persist as China continues to become more closely linked with the global world. With the fast development of the national economy, the demand for logistics services has been growing significantly. This is reflected commonly by the following two indicators:

a Total logistics revenue

According to the China Federation of Logistics and Purchasing (CFLP), the total revenue obtained by the industry amounted to 1,879 billion yuan in 2005, increased by 12.7% from 2004. Of this total, revenue obtained by the transportation sector in general made up the largest portion and reached 1,592.4 billion yuan, grew by 10.5% year-on-year (yoy).

Looking specifically into the logistics segment will find that the revenue growth of some newly emerged logistics services was much higher than that of the industry’s total revenue growth. For instance, the revenue earned by information and related services was 2.6 billion yuan in 2005, while revenue obtained from providing distribution services was 21.9 billion yuan. They both rose 28% compared to 2004. On the other hand, processing revenue reached 124.9 billion yuan, up 27.2% from 2004; packaging earned 23.9 billion yuan, up 29.9%. These figures indicate that the add-on services provided by logistics operators are expanding in a more rapid pace than the industry as a whole.

b Total logistics value

Another indicator of logistics demand is total logistics value. Total logistics value represents the total value of final products (including industrial products, agricultural products, imported products, renewable energy and consumer products) delivered to the end users after using the logistics services. The total logistics value for 2005 was 48.1 trillion yuan, grew by 25.2% compared with 2004. The growth in 2005 slowed down from 29.9% in 2004. This was attributable to the country’s macroeconomic tightening measures to curb overheating of the economy.

Among the total logistics value, the value of industrial products accounted for about 86% of the total value, reaching 41.3 trillion yuan, up by 27.2% yoy; while logistics value of imported products amounted to 5.4 trillion yuan, up by 16.4% yoy).

Without doubt, logistics demand increases with economic growth. This can be reflected by the coefficient of logistics demand. The coefficient is obtained by dividing the total logistics value by GDP. In 2005, the coefficient was 2.64, meaning that the production of one unit of GDP requires 2.64 unit of logistics service to support. The rising coefficient implies that the rapid growth of China’s economy has been generating new demand for logistics services. Indeed, the CFLP even predicted that if China’s GDP grows at 8.5% and total logistics value expands at 16.7%, the latter will reach 91 trillion yuan in 2010, doubling that of the present level.

(2) Total logistics cost remains high, but growth rate declining gradually

The total logistics cost in 2005 was 3,386 billion yuan, representing a rise of 12.9% compared with 2004. However, its growth was 3.7% lower than that in 2004.

The ratio of total logistics cost to GDP represents the efficiency of logistics operation in the economy. It is also used as an indicator of the development level of the logistics industry. In general, the higher the percentage, the less efficient is the logistics industry. Despite remaining high in value, total logistics cost as a percentage of GDP has been on a downward trend. It decreased from 19.4% in 2000 to 18.57% in 2005 and the total cost savings in the 10th Five-year Plan period totaled 109 billion yuan.

As predicted by the CFLP, the ratio of total logistics cost to GDP will continue to drop resulting from higher efficiency of modern logistics services. CFLP predicted that total logistics costs during the 11th Five-year Program period (2006-2010) will grow at 10% annually, 2% lower than that of the 10th Five-year Plan period. It also forecasted that the total logistics cost will reach 5,400 billion yuan in 2010, the ratio of total logistics cost to GDP at around 16.8% and cost savings yield during the period will be around 435 billion yuan.

Total logistics cost includes three cost components, namely transportation, inventory storage and management costs. Transportation cost consists of the cost incurred in the transportation of goods by means of railway, road, airplane, pipeline, and transporting agents. Inventory storage cost includes not only the cost incurred in occupying the warehouses, but also interest cost of money received if inventories were sold, expired and depreciated; as well as the insurance cost of inventories. Management cost includes the spending on managing logistics information, in particular, third-party and fourth-party logistics.

The followings are the trends of the total logistics cost by category:

a Transportation cost

Transportation cost accounted for the largest portion of the total logistics cost, totaling 1,863.9 billion yuan in 2005, grew by 10.1% yoy. The growth rate is smaller than that of the total logistics cost, and declined by 1.9% over the previous year. As a result, its proportion over the total logistics cost lowered from 56.9% to 55%. This is largely attributable to the slowdown of demand for goods transported resulting from the macro-economictightening measures.

b Inventory storage cost

Spending on inventory storage totaled 1063.2 billion yuan. It grew by 18.4% compared to 2004, which was higher than the increase in total logistics costs of 12.9%. Inventory storage cost accounted for 31.4% in 2005, lifted up 1.5% compared with 2004.

Among the various components of inventory storage cost, distribution, processing and packaging cost was the category with the highest growth, rising 26.2% from 2004. It was followed by the warehouse and storage cost, which recorded an increase of 22.6%.

c Management cost

Management cost includes the cost of managing logistics operation, in-house research and development of technology for handling logistics information, etc. The amount spent on such cost was 458.9 billion yuan in 2005, rose by 12.3% yoy, and accounted for 13.5% of the total logistics costs.

(3) Total fixed assets investments continue to increase

In 2005, total fixed asset investments (including investments in transportation, warehouse and storage, wholesaling, distribution, processing and packaging, and postal services) in the logistics industry amounted to 929.3 billion yuan in 2005, increased by 22.8% yoy.

Although the growth was 4.2% lower than that registered in the previous year, it still stood at a high level.

Among the various logistics segments, transportation attracted the largest amount of investments in 2005 and hit 775 billion yuan (grew by 22.6% yoy), accounting for 83.4% of total investments. Huge investments in transportation can help ease the bottleneck in transport infrastructure. During the 10^th Five-year Plan period (2001-2005), the length of railways in operation increased at an annual rate of 2.1%, which was 0.2% higher than the growth in the 9th Five-year Plan period (1996-2000); the length of highways grew at 6.7% annually during the period and the growth was 2.8% higher than that of the previous five years. In 2005, the total length of highways stood at 1,920,000 km, grew by 36.9% as compared to the end of the 9th Five-year Plan period. Meanwhile, 920 specialized berths designated for handling containers, crude oil, ore, coal, etc. were built in 2000-2005 (1.5 times the previous five years); of which, 188 have over 10,000 ton handling capacity (1.7 times the previous five years); and the handling capacity of new ports reached 540 million tons (2.1 times the previous five years).

Investments in warehousing and storage was 35.6billion yuan in 2005 (increased by 4.4% yoy); investments in wholesaling totaled 110.4 billion (grew by 31.6% yoy); investments in distribution, processing and packaging was 4.6 billion yuan (up by 32.9% yoy); and investments in postal services amounted to 3.8 billion yuan (up by 2.8% yoy). Among these segments, distribution, processing and packaging yielded the highest growth of investment, indicating that logistics is increasingly linked to those add-on services. As will be discussed, bonded logistics park is one of the initiatives to put together logistics and those add-on services.

(4) Logistics industry playing an escalating role in China’s economic development

a An important industry powering China’s economic development

The logistics industry is one of the most important pillars powering China’s economic growth. The total valueadded of the industry stood at 1,214 billion yuan in 2005, up by 12.7% yoy; it accounted for 6.7% of China’s GDP and 16.5% of the country’s service sector valueadded, increased by 1.4% and 3.5% yoy respectively.

Hence, the direct contribution of the logistics industry to the country’s economic growth has been increasing and will continue to increase. It shall be noted that the continuous development of the industry may also benefit the economy indirectly by: 1) saving up hidden costs resulting from, for example, good perishes; and 2) improving information flow so that production will be more market-driven.

b Modern logistics enhancing circulation efficiency

One of the far-most important factors enhancing the efficiency of China’s distribution sector is the rapid development of modern logistics. According to a recent survey conducted by the National Bureau of Statistics, the average inventory growth of industrial enterprises above designated size dropped from 24.7% in 2004 to 17.9% in 2005. Another survey conducted by the China Logistics Information Center (CLIC) on the turnover time of current assets of 50 major producer goods distribution enterprises indicated that the average current assets turnover times increased from 2.6 times in 2004 to 2.8 times in 2005, up by 7.7%; meanwhile, the average turnover time of inventory grew from 12.4 times in 2004 to 13.4 times in 2006, increased by 8%. These show that modern logistics do enhance the overall efficiency of the distribution sector.

2 Major problems of the industry as reflected by logistics statistics

(1) Total logistics cost to GDP ratio remains high

At present, China’s total logistics cost as a percentage of GDP stood at 18.6%, which is nearly double that of the developed countries (around 9.5-10%). The main reason behind this is that China is still at the middle of the industrialization process. Its GDP growth mainly comes from primary and secondary industries; tertiary industry only accounts for around 40% of its GDP (as compared to 70-80% in the developed countries). During the 15 years between 1991-2005, the total logistics cost to GDP ratio decreased at an annual rate of 0.36%; yet, during 2000-2005, it reduced by only 0.16%. Assuming the total logistics cost to GDP decreases at an annual rate of 0.3%, it takes at least 20-30 years to reach 10%! To quicken this process, China needs to speed up the development of modern logistics as well as accelerate the industrial restructuring process and put more emphasis on its tertiary sector.

(2) Low value-added for modern logistics industry

China’s total logistics revenue is relatively low as compared to the scale of the industry, indicating that the business operation of logistics enterprises is narrow and the scope of value-added services is weak.

Statistics showed that the average logistics revenue per unit of freight traffic in China in 2005 was less than 160 yuan/ton, which compared unfavourably to more than 470 yuan/ton in the US. This indicates that modern logistics services in China are lagging behind that of the developed countries.

(3) Supply unable to meet demand for logistics services

According to the CLIC, during 1991-2005, the country’s freight traffic increased at an annual rate of around 10%, which was at least 5% lower than what was needed during the period. Hence, constraints on logistics supply still pose a major problem for the industry.