The cost of transport in China is around 30 per cent of the total product cost. This is according to Daniel Brehon, General Manager of Gefco-DTW Logistics, who addressed delegates in a session on day two that focused on supply chain challenges in China.
"This figure is not astronomical. Usually the logistics cost is between 40-70 per cent of the total cost. The company analysed figures that they gathered from a survey of almost half their supplier base. "Does this mean transport costs in China are low?" asked Brehon. "No, they are very high. It is merely that the other components of the total cost are very low." Some surveys indicate that logistics costs in China are some 30 per cent of GDP, compared to 10 per cent in Europe.
"There is still room for improvement," he maintained. Some of the problems facing logistics providers and OEMs include a lack of truck scheduling (there are queues of trucks at the reception plant), vehicles used are of a poor quality and there is a lack of specialisation. Furthermore, packing and handling pallets are rarely used and truckloads are not optimised. The solution has to be to implement standards, but Brehon suggested that "This should be done at a national level. The OEMs and suppliers need to get together to standardise dimensions of trucks, packaging and pallets, like they did in the US and Europe,concluded.

In the first session of the conference, Mike Pilver from APL Logistics gave the LSPs' point of view on how manufacturing and logistics in China will grow and develop.
He told delegates that the expansion of Chinese production of finished vehicles, estimated to be some six million units by 2010, has significant implications for the logistics industry. As the Chinese automotive industry grows, US business seems beset with problems, he said. Congestion on America's West and East coasts continues to affect business. Pilver said: "The congestion issues we are seeing are not going to disappear today." Rising costs of raw materials and fuel is having a negative effect on consumption. He argued: "From the US perspective the joy of owning your own SUV is declining, the five-to-seven miles to the gallon SUV is getting expensive. There is a decline in sales of this model and therefore a decline in the mainstay revenue for North American OEMs." He also identified an industry preference towards asset-owning logistics providers, particularly in markets such as China, where the infrastructure is less developed and shipping is still the most reliable means of transport.
Pilver said: "From an ocean-routing perspective - if you have a hot shipment - an asset owner can prioritise your shipment. That's where we see a lot of the power shift at this time...end-to-end supply chain services must be adaptive to meet security and infrastructure constraints." While asset-owning LSPs seem to be more popular at present, the question-and-answer session quickly identified a problem which exists in China. Steve Wong from Vector SCM said that Western companies are taking a non-asset based approach to trucking and are buying domestic trucking solutions. Claus Schmidt from Panalpina replied: "I believe that Chinese companies are improving and the chance of competition from international companies drives improvements. I believe that international companies will provide trucking services, but that local companies will improve too." Jerry Wang from APL Logistics, who chaired one of the sessions, pointed out that some pan-China players have started to emerge. "They were regional, fragmented, small scale companies, but they are becoming more efficient. The race will become competitive and the competition will increase. This is a good and healthy sign," he said.

Jacky Wang attended the conference in a different guise this year, this time as logistics service provider. He has left Ford and taken over as Managing Director, DHL Solutions China. In his presentation on how logistics companies can improve their supply chains, Wang told delegates: "Logistics is a low-margin business and global automotive has among the lowest margins. Globally, you can make an average of six per cent profit. At the moment, this figure is 10-15 per cent in China. However, this will not last long." He continued: "I'm afraid you could fail if you want to copy American or European rules here. We are all rule makers and we need to watch this market and learn China's business first hand. Be practical, take some risks and come to China."

In a change to the scheduled line-up, Philip Eller, Head of BMW Brilliance Automotive, started the second session of the conference with an analysis of the real problems facing OEMs in China. He also gave an overview of the gaps in the logistics network. Eller cautioned that he wasn't trying to be accusatory, but hoped to start the process of improvement and to pass on some of his experiences of operating in China. Eller also outlined how BMW addresses supply-chain constraints. BMW is building its 3- and 5-Series in Shenyang and has so far invested $179mn in a joint venture with Brilliance Automotive. BMW intends to build 30,000 units, in the medium term, for the Chinese market.
He told delegates that there was a desperate need for logistics companies to deliver good service to OEMs in China. He said: "You have longer lead times, but be reliable in the delivery. We don't want to be involved in logistics processes, it is not our core competency."
BMW Brilliance has to operate using consolidation centres. Eller said: "We don't like this method. We have suppliers in Shenyang delivering JIT into our assembly plant and we would like to increase this." The plant has a 13,000m2 logistics centre to cover and buffer, which is needed because the supply chain is not that reliable. For instance, with emergency shipments, which could take three to five days, airfreight licences are required, which means they can take 10 or 12 days to get clearance. It is not reducing complexity but raising it, without giving benefit to the product," he said

Eller revealed that, in order to address some of the supply chain issues, BMW Brilliance is heading up discussions with Audi and Mercedes for a joint venture on inbound supplies, even though the carmakers are competitors. "Search and actively develop a relationship with potential cooperation partners," he advised delegates. The majority of BMW, Audi and Mercedes suppliers are the same. "Of course we have to get approval from our respective headquarters in Germany to bundle volumes and start to cooperate, whether it is a milk run or direct delivery, for example. We are also talking about reusable bins - we don't support one Discussions
Eller revealed that, in order to address some of the supply chain issues, BMW Brilliance is heading up discussions with Audi and Mercedes for a joint venture on inbound supplies, even though the carmakers are competitors. "Search and actively develop a relationship with potential cooperation partners," he advised delegates. The majority of BMW, Audi and Mercedes suppliers are the same. "Of course we have to get approval from our respective headquarters in Germany to bundle volumes and start to cooperate, whether it is a milk run or direct delivery, for example. We are also talking about reusable bins - we don't support one-way packaging with wooden pallets anymore - but only looking for our 30,000 units is not enough. Therefore we need to bundle and to find common agreements," Eller contended.
Eller also bemoaned the lack of customer-focused thinking in China at present. "Offer better services, save money for the customer and perhaps even expand your business by doing this. Quick wins and money in the pocket is not of interest to us." A lack of EDI technology makes track and trace unreliable. Eller described how the peak selling time - early spring - coincided with the Chinese New Year this year. BMW Brilliance had to sub-contract to a further forwarder to deliver cars to the dealers to meet demand and agreed lead times.
The company has tried to address the problem of tracking deliveries by asking drivers to use mobile phones in every cab. "But it doesn't work if the driver switches the phone off," Eller said. He also mentioned that some drivers had "gone missing for days" and he only found out about this when dealers and customers called him to ask where their cars were. He advised delegates: "In the first years, you have to control the logistics for your yourself. Don't depend on your logistics provider or you will fail."