Car craze keeps logistics turning

Updated: 2013-03-01 07:07

By Zhong Nan (China Daily)

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 Car craze keeps logistics turning

Ceva Logistics is focusing on working with auto producers and setting up an efficient supply chain to reduce logistics costs in China. Provided to China Daily

Dutch firm counts on cost cutting to appeal to Chinese customers

As the country's car industry goes through a process of reincarnation, from one based almost solely on sales of brand new cars to one in which pre-owned vehicles are becoming common, plenty of other industries are cheering.

One such is Ceva Logistics, the world's fourth-largest third-party logistics provider by revenue, which is helping drive its growth in China's huge automotive logistics market.

Third-party logistics companies typically specialize in providing full supply chain solutions, such as design and implementation, warehousing and transport services that can be scaled and customized to customers' needs based on market conditions, specific demands and delivery requirements. These services often go beyond logistics and include value-added services related to producing or procuring goods.

Attracted by the strong growth in China's automotive industry, Ceva of the Netherlands is focusing on working with auto producers and setting up an efficient supply chain to reduce logistics costs to seize more market share in China.

Martin Thaysen, executive vice-president of Ceva Logistics China, says China is a must-win market for Ceva. The company is building capacity and leveraging its global network to meet China's demand for different vehicles domestically and globally, he says.

Since China has become the global automakers' revenue powerhouse, an increasing number of foreign carmakers have set up joint ventures with Chinese companies, and they have synchronized the launches of new models in China with the those in the US and Europe.

The China Association of Automobile Manufacturers says China's auto production and sales set a world record for the fourth consecutive year last year.

In China last year, 19.27 million vehicles were made, 4.6 percent higher than in the previous year. Domestic sales rose 4.3 percent on 2011 to 19.31 million vehicles.

Ceva was formerly known as TNT Logistics, a division of TNT, which was founded in Australia in 1946. The company was an early entrant in China, in 1988, and established its first automotive logistics joint venture, Anji-Ceva Automotive Logistics Co Ltd, with SAIC Motor Corporation in Shanghai in 2002.

The joint venture employs more than 10,300 people, operating 25 vehicle centers, 15 regional distribution centers and 14 parts warehouses all over China, covering more than 250 cities, serving 465 suppliers and 2,200 dealers. Its biggest customers in China have included General Motors, Ford Motor Co, Toyota Motor Corp, BMW AG, and Volkswagen Group.

Encouraged by the booming demand of the domestic market, Chinese commercial vehicle makers such as Great Wall Motors Co Ltd, SAIC Motor Corp Ltd and Chongqing Lifan Industry (Group) Co, are also eager to export. The nation exported 1.05 million vehicles last year, mainly to Russia, South America and Africa, almost 30 percent higher than in 2011.

"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.

(China Daily 03/01/2013 page16)