China’s impact on logistics and warehousing

China is described as a powerhouse and that’s nothing but the truth. With a population of nearly 1.4 billion and a Gross Domestic Product of $9.2 trillion dollars, it’s the second largest economy in the world. It’s also the most popular manufacturing location worldwide. What does this mean for UK logistics managers?

Production has moved offshore and so has warehousing

Simply put, many of the goods that were previously warehoused in the UK to ship around the country are now warehoused elsewhere and shipped in. This puts more pressure on shipping container ports like Felixstowe and shortens the amount of warehousing time expected for retail-ready items. Car manufacturers, for example, used to expect to warehouse car components and accessories for up to 18 months. Today they have reduced their warehousing period to around four months. That means that more warehousing is required, but for shorter periods, creating less demand for user owned space and much more for rented or leased warehousing. This is affecting the UK in three ways:

  1. 3PL is on the rise – using third party logistics companies helps with short term warehousing in particular
  2. Owner run warehousing is in decline – fewer industries need to acquire their own warehousing space these days
  3. Repurposing is a priority – retrofitting existing warehouse space is becoming common and allows smaller organisations to benefit from standards they could never achieve in their own warehouse space.

China is moving on from make and ship

It’s an old joke that whenever you turned a product upside down it said ‘made in China’ on the bottom, but today the Chinese economy is moving rapidly from ‘make and ship’ to include ‘buy’ and ‘distribute’ functions. China now buys in a small but significant proportion of part-ready goods to finish assembly and add value to those basic components. With the help of significant government intervention, it is also moving into distribution and while it’s nowhere near ready to challenge developed distribution systems (climate control is a major area of weakness, for example) in some areas, such as robot warehousing, China leads the world.

Taxes and Compliance

It’s simply a fact that Chinese factories do things differently. The World Bank reported in 2013 that of the world’s top twenty most polluted cities, sixteen were in China. The long discredited one child policy created families in which one child had two parents and four grandparents to care for it, leading to a larger workforce willing to work for lower wages. These lower compliance standards allow China to produce more goods at lower costs. In addition the tax rebate for exports (Chinese manufacturers pay no VAT on goods that are exported) makes it attractive and financially rewarding to focus on export markets rather than local ones, creating intense competition with every other economy, rather than inside the national economy. UK manufacturers have much higher compliance thresholds and more interventionist government agencies, meaning that it’s difficult to move into new areas as fast, that pollution controls can inhibit experimentation and personnel heavy areas of enterprise such as order fulfilment services, which can be much more expensive than inside China. This has a plus and a minus. The plus is that many consumers prefer to pay for UK-based goods because they have concerns about quality, environment and human rights issues. The minus is that China is increasingly moving more rapidly into ‘trend’ items (the current one is the child’s toy Squishies, and can dominate trend markets in a matter of weeks.

Fleet factors

If you’re buying from, or doing business with, China, you need to be aware of the reality. China is not homogenous and while dealing with traditional manufacture to export areas like Shanghai is usually straightforward, the hyperlocal nature of Chinese infrastructure can leave you totally adrift if you move just a hundred miles away. Go a whole province away and you’re looking at a totally different culture, different language, population and local administrative systems that are completely unfamiliar. Other issues to bear in mind are that the average fleet size for HGV in China is currently seven vehicles. It’s hardly the kind of national trucking service we’re familiar with and can mean multiple handoffs of goods, leading to delays and even losses along the way from pilferage or simply the fact that half a dozen handovers to different fleets is just more likely to lead to damage, loss or disappearance of goods along the way.

China is online

China has already created the world’s biggest 4G network, with 731 million 4G users. 90% of internet users in China conduct online shopping. This makes them one of the most e-commerce fluent nations in the world and it’s already impacting ecommerce everywhere. For example, Chinese e-retailers have become adept at spotting weaknesses in their online offering such as low numbers of first-time buyers converting to regular purchasing. As a result, they are more likely to use analytics-supported pricing strategies to get volume purchases at tiny margins. Their back-room metrics are much closer to front-end retailing than in other countries, and that’s changing what gets sold, from where, to whom. Small, low-value products like hair combs, pens and pencils and light hand tools are increasingly being purchased from China whilst long-tail products such as a signature pen, a craftsman-made hand tool etc. are not seeing their market share affected by the Chinese price point approach. This means that much more actual retailing is happening from inside China than was the case ten years ago and that UK businesses will need to look carefully at ensuring they have value-added products if they are to retain profit margins. This can only accelerate if the Chinese succeed in their aim to build and implement a 5G network by 2020.

So there are both pinch points and advantages for UK logistics managers in dealing with China and it’s important to be familiar with the way the country operates to benefit from the possible savings that working with China can deliver.

We provide warehousing and distribution for various manufacturing industries.

Simply contact us today on 0800 1707 555 to find warehouse space for rent in your desired location, with warehouse services available to fulfil all your business order requirements.

Comments Closed

Comments are closed.

Copyright © Which Warehouse Blog