DHL Supply Chain is planning to open more warehouses across China to profit from the country’sfast economic growth and rising domestic consumption, senior executives have revealed.
The Deutsche Post DHL contract logistics division aims to grow its relatively small business inChina faster than the market by expanding the network, investing in middle management, focusing onkey sectors and pursuing “selective M&A strategies for scale and expertise”, Paul Graham, CEOAsia Pacific, and Victor Mok, CEO North Asia, told journalists from Europe, including CEP-Research,in Shanghai.
The key factors driving growing domestic demand in China are urbanisation, rising purchasingpower, with a 92% increase in incomes between 2005 and 2012, large-scale transport infrastructureinvestment, regionalisation as well as demographic changes and increasing healthcare requirementsfor an aging population, the two executives pointed out.
But logistics companies also face significant challenges in the country, including the poorcurrent road infrastructure, road tolls and price-based competition from Chinese truckingcompanies, they noted. “The biggest challenge is talent management,” commented Graham, referring tothe relatively high staff fluctuation rates.
At present, the world’s largest contract logistics operator has about 60 facilities in 29Chinese cities covering a total of 600,000 sqm, has 4,000 full-time staff and works for about 200different customers. In comparison, in Asia Pacific as a whole it has some 580 locations with morethan two million sqm of warehouse space, some 20,000 employees and about 300 customers. Worldwideit has about 2,500 facilities, about 23 million sqm of warehouse space and some 140,000employees.
Over the next two years, DHL Supply Chain will “go west” within China by opening more cross-dockwarehouse facilities away from the east coast, mostly in the central provinces and parts of thenorth, Mok said. This would be a “very significant” investment but he declined to put a figure onthe sum.
The present number of 13 cross-dock warehouses for distribution would be increased by four morethis year and a further five in 2011. These 22 facilities could cover most of the ‘tier 1’ cities.The largest 35 cities presently cover about 85% of domestic consumption in China, Yin Zou, managerof the Kangqiao domestic hub, on the edge of Shanghai, explained.
DP DHL CEO Frank Appel pointed out that warehouse investment in China would be “relatively low”since no large-scale investment in technology was required. Labour costs were the main costelement, and warehouses were leased on a long-term basis.
Under its China growth strategy, DHL Supply Chain will focus on various sectors includingservice parts logistics, high-tech, automotive, healthcare, retail & fashion and consumergoods, they said. The company has “a good mix of customers” and is “not dependent on globalcustomers”, local managers pointed out.
Asked about competition with TNT Hoau, the domestic Chinese business of TNT, which now offersday-definite delivery services, Mok stressed that DHL Supply Chain did not compete directly withthe operator. “We are not a trucking company. We are a logistics company and we are offeringbundled solutions.” However, DHL could offer day-definite deliveries as part of its logisticsservices depending on customer needs, he added.
At the Kangqiao shared-user facility, DHL Supply Chain is providing warehousing and distributionservices for a number of well-known international companies. This includes value-added labelling ofbaby food imports for Abbott for tracking and tracing purposes, and regional distribution for BoschPower Tools.
For Hewlett Packard, the company is operating a cross-dock for regional distribution oflocally-made consumer electronics for Chinese consumers. HP, a DHL global customer, had previouslyworked with a large number of delivery companies but last year consolidated domestic distributionthrough DHL, managers said.
