Among the government plans include distribution networks to
link cities and the countryside in order to promote an easier flow of
industrial goods and farm produce between the two regions; private investment
will be encouraged for the project; and the removal of regional protectionism which
will be welcomed by many logistics and transportation providers.
The development of China’s distribution industry will be
welcomed by all industries including the country’s growing ecommerce sector. According to AT Kearney, China’s online retail
market size is about $23bn, second only to the US and is expected to grow at a
rate of 29% each year over the next five years particularly as Chinese
infrastructure and online purchasing behaviors evolve.
In a recent Tompkins International podcast, the large online
retailers compete based on delivery frequency. And because of the fragmented
logistics market, e-retailers have been forced to develop their own
distribution networks. For many
e-retailers, deliveries are made to small depots regularly throughout the day.
“From the depot, the orders are taken by bicycle, motorcycle, three-wheeled
cart, or whatever means are available for delivery to the customer,” says Jim
Serstad, principal of Tompkins International-Asia. “While these networks
provide impressive delivery times measured in hours, much of the country is not
serviced at all.”
Hopefully transportation improvements will be made along with the distribution network improvements. Retailers and e-retailers alike, rely on small parcel. However, small parcel remains inefficient in China due in part to regional protectionism which the government wants to do away with as part of this new initiative. Newegg, a consumer electronics e-retailer, operates 8 distribution centers throughout China. However, it has noted third party parcel delivery services in China are not capable of meeting its parcel delivery needs. Therefore, in metropolitan areas where the company operates a facility, the company delivers a large amount of products through a local delivery system developed, owned and operated by the company. For deliveries outside these networks, the company relies on China Post.
Indeed, the need to open
the domestic express market to such providers as FedEx and UPS
complements the push towards distribution network improvements (see previous
blog post: “Rumors of Chinese domestic licenses being granted to FedEx and UPSprove false).
As the government attempts to move China from being the "manufacturer to the world" to one of a more balanced economy of exports and imports, encouragement of growth sectors such as ecommerce is important. As ecommerce continues to grow however, the need for distribution and transportation networks connecting the entire country will be needed. This may be a tipping point for such companies as FedEx and UPS to enter the domestic market.
As the government attempts to move China from being the "manufacturer to the world" to one of a more balanced economy of exports and imports, encouragement of growth sectors such as ecommerce is important. As ecommerce continues to grow however, the need for distribution and transportation networks connecting the entire country will be needed. This may be a tipping point for such companies as FedEx and UPS to enter the domestic market.
