China Logistics: nangang_case_study

With China’s accession to the World Trade organisation in 2001, and the subsequent shift in transport geography that followed through the outsourcing revolution, China has become central to the global logistics system. Since its foundation the Institute has been fortunate to enjoy a strong relationship with China, and this relationship is reflected in both the research and the programs the Institute has conducted in China.


Measuring the Cost of Logistics in China

In order to improve any system one needs to be able to manage it, and in order to be capable of managing a system one first needs to capable of measuring it.The Institute's founding Chairman Bob Delaney developed a methodology for measuring the cost of logistics as a percentage of GDP, which he presented annually in his State of Logistics Reports until his death in 2004.

His co-author, Ms. Rosalyn Wilson, has continued his work in publishing these annual reports.Bob's objective with the report was to quantify the logistics-productivity gains resulting from deregulation and to bolster arguments against re-regulation. His logistics-efficiency ratio showed that US logistics costs as a percentage of GDP peaked at more than 16 percent in the early 1980s, before steadily declining to their current level of below 10 percent.

The World Port Strategy Forum (WPSF) is the annual general meeting of the Port Authority members of the Institute and takes place each October in Shenzhen.The theme for the 2015 edition of the forum is “The World’s Leading Port Authorities:Their Strategies and Case Studies”
Bob's essay "The Disunited States: A Country in Search of an Efficient Transportation Policy" helped lay the groundwork for logistics policy in the US for years to come. In the essay Delaney begins by noting how, during the period of 1980-4, the impact of deregulation on the trucking industry resulting in savings in excess of $50 billion.

Delaney argued that deregulation would lead to public policy allowing the nation's producers, distributors, and transportation companies to form innovative, cost- effective partnerships that could move goods through the supply chain efficiently.

Logistics Costs

As a result of his campaigning work Bob was asked to assist in writing the legislation that deregulated the interstate motor carrier and railroad industries in 1980. He also played a lead role in the passage of the Aviation Act of 1994, which ended economic regulation of the trucking industry by the states.

Bobs work laid the foundations for a 50% reduction in the cost of logistics in the U.S. since the introduction of deregulation. The question the Institute is now seeking is how this framework can be extended to calculating the cost of logistics internationally, and to ask what impact the addition of seaborne cargo (which accounts for 90% of world trade) has on these calculations. For the purpose of the research and in recognition of China's enormous impact on global logistics costs we have focussed on that market.

Chinese Port Centric Logistics is the Most Efficient in the World

With China's accession to the World Trade organisation,and the subsequent shift in transport geography that followed through outsourcing, the need for a comprehensive understanding of international logistics costs becomes even more paramount.

There is a significant difference between the cost of logistics inland and on the coast in China the efficiency of Chinese coastal logistics. Chinese ports achieve a throughput of 190 Million TEU,compared to just 34 million TEU for US ports. This has led to very efficient Chinese coastal logistics, for which there are two main drivers.

Firstly, increase in TEU traffic outstripped the ability of ports to build new facilities motivating them to seek new technologies and innovation in stevedoring. Secondly, Chinese ports are 'legacy-light'. The pressure from rapidly increasing TEU traffic demanding new logistics solutions, and the lack of legacy at Chinese ports allowed those ports to adopt port-centric solutions to meet these challenges.

In 2005 the Institute identified and accredited Yantian International Container Terminals (YICT), based at the Port of Shenzhen, as 'Best in Class'.The knowledge shared by YICT with the Institute was the foundation upon which the Container Terminal Quality System (CTQS) was ultimately based. Through the CTQS the Institute has shared this best practice from the East with the rest of the world. Coming full circle, the Institute is now working to share the knowledge of best practice in hinterland logistics developed in the West with the Chinese.

At present the cost of domestic Chinese logistics stands at 17.8% of GDP, and this high cost is affecting the Chinese economy. In addition, the Chinese government is planning to promote the economies of their Western provinces through the latest five year plan which will see more multinationals relocating inland away from the more efficient port clusters on the coast.

The Institute is sharing the U.S. approach to measuring the cost of logistics developed by Bob Delaney with the Chinese Government and logistics industry. GIL has developed a working relationship with the Chinese Center for International Economic Exchange which is led by Mr. WEI Jianguo,(魏建国) Wei Jianguo was the Vice Minister of Commerce in the PRC from 2003-2008.

GIL IS advising on and designing the measurement parameters used in calculating the cost of logistics, and from there sharing global best practice on how individual cost bundles can be targeted. The "20 to 8" campaign is a GIL 10 year program that is designed to share best practice from around the world with State and industry professionals on lowering costs in the domestic logistics sector from its historic high of 20% to an optimized 8%.

The Institute wishes to share the approach to measuring the cost of logistics developed by Bob Delaney with the Chinese Government and logistics industry, and will team up with Mrs Rosalyn Wilson, author of the annual 'State of Logistics' report, to introduce the methodology and the study to the Chinese market. It is the Institute's intention to share with the Chinese the logistics best practice of the West, and in return learn the best practice that the Chinese have developed for coastal logistics.

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Yantian International Container Terminals Global Best in Class Container Terminal

Research in to the Chinese Ports and their role in global logistics was conducted simultaneously with the Institute's research in to how U.S Beneficial Cargo Owners (BCO’s) from the consumer goods and retail sector were coping with the logistics challenges arising from sourcing in China.

Our BCO research concluded that Home Depot (who were importing more than 100,000 TEU per annum from the region) were the “Thought Leaders” in their peer group in global logistics execution. In particular Home Depot and their team led by Rosa Hakala and Ben Cook, were pioneers in fostering direct relationships with Chinese container terminal operators, who they viewed as vital in ensuring the integrity of their supply chains.

Home Depot together with their ocean carrier and 3PL conducted face to face meetings with the port authority, terminal operator and other port stakeholders. It was through this work that we became aware of Yantian International Container Terminals (YICT)In 2005, after researching container terminal operation in China and across the world, the Institute accredited Yantian International Container Terminals (YICT) in China as the Global Best in Class Container Terminal.

Yantian, which in 1992 was just a remote fishing village in Shenzhen, in the Guangdong Province of Southern China, grew to become home to the worlds leading container port operation. The director and general manager of YICT, Mr Kenneth Tse, recalls visiting Yantian for the first time in 1992. “It was no more than a fishing village then,” he explains. “Today, Shenzhen is a thriving metropolis while Yantian has become an important district of the city.”

In accrediting YICT ‘Global Best in Class Container Terminal”,the Institute identified the benchmark port in global containerization. Since its inception in 1994, YICT has set itself apart by approaching its task differently. YICT, as a result of its enormous responsibility to provide a quality service that supports China’s emergence as the world’s leading trading nation and also because of competition from other port operators in the region, adopted a very open flexible approach.

Right from the outset YICT made efforts to understand and reach out to those businesses that would use their port, working with what it clearly views as its partners, to provide a competitive, efficient solution for its clients. As champions of “Joined Up Thinking” YICT built their cargo volumes through marketing directly to cargo-owners a strategy they called ‘End User Marketing’ which in itself was a key innovation for the port industry and has been widely copied since.

The principle behind the strategy was very simple, if the container terminal could convince the cargo owner to use its facilities, they in turn would specify the terminal as their preferred choice leaving the carrier no choice but to call. The key to winning the cargo was to work with the Beneficial Cargo Owners to overcome their challenges and in finding ways to add value and reduce costs.

This strategy was in stark contrast to how traditional ports operated who rarely engaged with the cargo owners, this was largely due to the absence of a direct contractual arrangement between the parties and also a cultural understanding that the carrier was the party that dealt with the cargo owner and nobody else.

YICT’s management and executives have become available to the global logistics community in a way that we haven’t witnessed before and have done much to herald in a new dawn in the history of port operator/shipper relations.The Institute encourages port operators worldwide to benchmark their performance with Yantian when choosing the operation to emulate.

In exchange for this recognition YICT agreed to share the knowledge of its best practices with the Institute, knowledge that would become the foundation on which the Container Terminal Quality System (CTQS) was built.

MORE ABOUT THE BENCHMARK TERMINAL YICT

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As part of this research the Institute identified and accredited Dah Chong Hong Sims as the best 3PL in China for promoting a culture that put the buyer-seller relationship at the centre of their strategic and operational thinking.


With the launch of the Chinese Government’s 12th Five Year Plan, and with Chinese Overseas Foreign Direct investment set to reach $2 trillion by 2020, the country is preparing to debut some of its leading companies and brands on the world stage. The Institute will chart this progress as part of its ‘China: Go Global’ research study and will meet directly with leaders of these companies to exchange with them our knowledge of how global companies successfully leverage logistics and supply chain strategies to get their products to the right place at the right time in the right quantity anywhere globally. We are particularly interested in highlighting to the Chinese Go Global Community the value of exploring potential synergies with world ports. Our assertion will be that by using world ports as their first base when entering new markets Chinese multinationals will be able to take advantage of their unique global enterprise culture while more vitally optimizing the 3 main flows which make up global supply chain:
The Flow of Goods
The Flow of Data
The Flow of Money


SESSION 1: BOB DELANEY 12:00 -14:00

ICHCA International is the only independent world-wide, non-governmental, non-profit organisation dealing specifically with the handling and movement of cargo. ICHCA are focused on driving safety and efficiency in the supply chain.

2002 ANNUAL STATE OF LOGISTICS

The World Port Strategy Forum (WPSF) is the annual general meeting of the Port Authority members of the Institute and takes place each October in Shenzhen.The theme for the 2015 edition of the forum is “The World’s Leading Port Authorities:Their Strategies and Case StudiesThe theme for the 2015 edition of the forum is “The World’s Leading Port Authorities:Their Strategies and Case Studies

SPEAKERS AND PRESENTATIONS FROM THE AFTERNOON SESSION
SESSION 2: BOB DELANEY 12:00 -14:00

ICHCA International is the only independent world-wide, non-governmental, non-profit organisation dealing specifically with the handling and movement of cargo. ICHCA are focused on driving safety and efficiency in the supply chain.

2002 ANNUAL STATE OF LOGISTICS

The World Port Strategy Forum (WPSF) is the annual general meeting of the Port Authority members of the Institute and takes place each October in Shenzhen.The theme for the 2015 edition of the forum is “The World’s Leading Port Authorities:Their Strategies and Case StudiesThe theme for the 2015 edition of the forum is “The World’s Leading Port Authorities:Their Strategies and Case StudiesThe theme for the 2015 edition of the forum is “The World’s Leading Port Authorities:Their Strategies and Case Studies

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