A craze for cars keeps logistics' wheels turning

"Chinese carmakers are quite keen to expand the overseas market," says Thaysen, who worked for China for five years from 2000 and returned last year.

"But they should be aware that they need a mature network and operation, and experts who understand the destination market to support their step of globalization."

China's logistics costs account for about 18 percent of its gross domestic product, far above the levels seen in the US and European countries, according to a report published by the Ninth Automotive Logistics China Conference in Beijing last year.

Thaysen says that even though strong growth is expected to continue, China faces challenges such as high automotive logistics costs and low efficiency, which are making Chinese products less competitive and putting pressure on companies' cash flow.

"Successful Chinese companies like Huawei and Lenovo, they spend a lot of efforts to optimize their supply chain. In return, more cash can be released from their supply chain. Some Chinese companies only focus on cutting immediate or transaction costs like fuel charges and labor costs, while most of the international players are more concentrated on increasing the visibility and control of the full supply chain."

High inventory is a big challenge for many Chinese companies at present. If a company has low visibility with its supply chain, from raw material procurement to after-sales, production is usually boxed in to already set paramaters, unable to be adjusted to match prevailing market conditions.

Ceva, which employs more than 51,000 people in more than 170 countries, had revenue of 6.9 billion euros in 2011, the Asia-Pacific region accounting for 28 percent of that. Thaysen says China has become the most important contributor to Ceva's business in this region. The company plans to build a new 50,000-square-meter warehouse in Shanghai this year to support its growth plans.

As Ceva vies to expand its market in China it is beginning to work more closely with its domestic partner Shine-Link Logistics, a bonded logistics service provider in Shanghai, with which it formed a strategic alliance last year. Under the agreement, Ceva has streamlined custom clearance and bonded logistics services to its Chinese customers, while Shine-Link Logistics uses Ceva's global network to reach more overseas destinations.

With personal wealth steadily growing and the sales of luxury cars doing the same in China, Thaysen believes the introduction of high-end cars will affect the supply chain in a number of areas including management of spare parts and upgrading of reverse logistics.

"Thus, service is a key differentiator in this sector, although cost is still high but auto companies in this sector are willing to pay more on logistics to maintain a high level of service," he says.

After initial car purchases, the demand for automotive replacement is rising, making way for more trade-ins or new purchases, which are becoming a staple of China's automotive market.

This will help propel the second-hand automotive market, which is not as developed as that of Western countries. That growth, particularly in first-tier cities will in turn drive the growing market for spares and parts.

Thaysen says a well-developed domestic network is essential to support the new trends in the industry, particularly because the country is so vast and diverse.

zhongnan@chinadaily.com.cn

(China Daily 03/01/2013 page20)