finished vehicle logistics magazine china - developing with demand

CHINA IN FOCUS CHINA EXPORTS

45FINISHEDVEHICLELOGISTICS APRIL-JUNE13

China’s phenomenal rise to becoming the world’s

largest vehicle sales and production market was

largely a domestic affair. As sales for commercial

and passenger vehicles roared ahead in the heady

days of 2009 and 2010, exports – including semi-

and complete-knockdown kits (SKD and CKD) – fell from a

high of 681,000 units in 2008 to just 370,000 in 2009, and did

not surpass the previous high again for several years.

However, since 2011 exports have rocketed, rising 50% in

that year and another 30% last year to surpass the million

mark for the first time. The leading brands were Chery,

which shipped around 200,000 units of finished vehicle and

knockdown kits,

ollowed by Geely and

Great Wall, which

each exported around

100,000 units. With

growth in China’s

domestic market

now somewhat

more subdued,

especially for many

of China’s domestic

manufacturers,

exports are

anticipated to

steadily increase

as a proportion of

production.

With this rise in exports

has come an increase in

the demand for logistics

services, including inland

transport, port handling

operations, shipping and

even rail towards Russia and Central Asia. Carmakers are

starting to see more options for ports of exit, as well as the

entry of specialist logistics providers, such as Germany’s

BLG Automobile Logistics, which offers services like vehicle

tracking and adding accessories.

However, there are important differences in the nature of

the current growth and logistics operations for China when

compared to other nations that have recently experienced a

strong rise in vehicle exports, including Mexico and the UK,

let alone compared to the export stalwarts like Germany, Japan

and South Korea.

The most obvious difference is the mix of market

destinations and the product mix. China exports fewer

passenger cars, at 45%, than it does commercial vehicles.

The great majority of these vehicles are destined to low-cost

and developing markets such as Iraq, Algeria, Chile and the

Ukraine, although Chinese brands have started to gain a

stronger footing in major markets like Russia and Brazil, as

well as Iran. Furthermore, according to Mark Morley, director

of industry marketing for manufacturing at supply chain

consulting firm GXS, some observers expect that Chinese

companies will increase exports significantly in the coming

years to markets such as India, Thailand and Vietnam.

China’s increasing export volume, particularly to low-cost markets, has resulted in a challenging, fragmented logistics sector. Anthony Coia reports

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Who we spoke to:Mark Morley, director of industry

marketing for manufacturing, GXS

Jenny Jin, vice-president, Geely International

Chuck Guo, manager, Europe region,

Great Wall

Bob Tang, head of commercial operations,

China, Höegh Autoliners

Tang Zhe, marketing department deputy

manager, Tianjin Port Ro-Ro Terminal

Paulus Lee, marketing manager, Guangzhou

Port Nansha Automotive Terminal

Thomas Leiber, general manager, China,

BLG Automobile Logistics

Rinaldy Sudyatmiko, senior director

Automotive, Asia and Europe, APL Logistics

Developing with demand

IN THIS STORY...

p45 China’s export destinationsp46 Geely’s expanding needs Great Wall’s ambitionsp47 Ro-ro shipping servicesp48 Terminals and 3PLsp50 Cars in containers

FVL apr-jun China exports.indd 2 14/03/2013 16:20

While all of these developing markets have wildly different

characteristics, they share some common difficulties. Smaller

markets often lack frequent and regular ro-ro services, as

well as adequate terminal and inland infrastructure to handle

vehicles, which can make shipping cars in containers a more

practical option. Likewise, whether in larger markets like

Brazil or Russia, or smaller ones in Latin America, many

emerging markets – like China itself – have industrial policies

and import duties that encourage, if not mandate, setting

up knockdown kit assembly plants or working with local

manufacturers.

The result is that logistics services for Chinese exports are

in some ways more fragmented than those of other markets.

OEMs require a mix of ro-ro shipping, containers and CKD

operations, often split between many trade routes. And with

some carmakers expecting to increase the proportion of CKD

manufacturing in their international networks, demand looks

likely to remain splintered.

Geely’s export mixAn important example of how logistics services for exports

are developing in China can be found at Geely, which was

China’s second largest exporter last year with 100,279 units.

The carmaker’s top five markets in 2012 were Russia, Iraq,

Saudi Arabia, Ukraine, and Iran. Geely’s exports were 68%

finished vehicles, 29% CKDs and 3% SKDs, according to Jenny

Jin, vice-president of Geely’s international division. Markets

to which Geely sends finished vehicles currently include

Iraq, Australia and the Ukraine, while knockdown kits go to

markets like Brazil, India, Iran, Mexico, Russia, and Malaysia.

Jin predicts that the composition of Geely’s exports will

shift further in 2013 as it targets a 60% rise in exports, to more

than 160,000 units. She expects the proportion of CKD to rise

to 40-45% as new assembly locations open in Egypt, Belarus

and Uruguay, where Geely plans to ship 3,000 units each.

“In actuality, some of our markets may change from CBU

[completely built units] to KD [knockdown] and vice-versa.

For example, Ukraine was an SKD market a few years ago. It

depends on the import duties,” says Jin.

According to Jin, Geely’s current export logistics demands

are significant for both finished vehicles and for kit handling.

She says that the carmaker is seeking more options for loading

ports in China based on the location of its plants and points

to further need for logistics service providers and ro-ro

service. “When choosing ocean carriers, for example, we need

ones that are reliable and offer competitive lead-times and

guaranteed space,” she says.

But Geely also needs freight forwarders to provide

competitive destination services for its CKD shipments. Jin

says the company is aiming for more door-to-door services for

CKD shipments, over which it wants to gain greater control.

Great Wall wants more ro-ro frequencyChina’s other major exporters have a similar export mix to

Geely, with CKD representing around 30-40% of vehicles

exported. Although Chery was not available for interview in

this article, last year it told Finished Vehicle Logistics that CKDsmade up around 40% of its exports in 2011.

Great Wall Motor Company exported 96,500 vehicles last

year. According to Chuck Guo, manager of the Europe region,

In actuality, some of our markets may change from CBU to KDInIn DKDnd vice-versa. For example, Ukraine was an SKD market a fewanananan wfew

years ago. It depends on the import duties –ye Jenny Jin, Geelyyely


46 FINISHEDVEHICLELOGISTICS APRIL-JUNE13

0

100

200

300

400

500

600

2002 2003 20082004 2009

700

800

900

1,000

2005 20102006 20112007 2012

In thousandunits

Source: China Association of Automobile Manufacturers

02 2003 20082004 20092005 20102006 20112007 2012

CHINESE CAR EXPORTS (VEHICLES AND CKD)



41FINISHEDVEHICLELOGISTICS APRIL-JUNE13

We help your customers’ dreams come true

Head Office: Höegh Autoliners AS, P.O Box 4 Skøyen, NO-0212 Oslo, Norway, Telephone: +47 21 03 90 00. For local offices, please refer to our website: www.hoeghautoliners.com

Deepsea transportation since 1927

Dreams Onboard

the company shipped about 72% of the vehicles as finished

vehicles and 28% as kits. At present, Great Wall Motors exports

mainly to Russia, Iraq, Australia, Algeria, and South Africa,

which account for nearly 70% of its total export volume. In

its export-concentrated markets, such as the Middle East

and South America, Guo says Great Wall plans to establish

vehicle distribution centres. Like Geely, it has set extremely

high growth targets for its exports this year and beyond. Guo

says the company expects to export 140,000 vehicles in 2013

and 300,000 vehicles by 2015. By that time it expects to be

producing vehicles at a factory in Bulgaria that would serve

the wider European market. Last year, it also entered the UK

market with a pickup truck.

Whether or not Great Wall meets these ambitious export

targets, the need for more logistics services will be essential.

According to Guo, the OEM’s finished vehicle flows currently

split across three transport modes with 55% moving by ro-ro

vessels, 20% in container ships, and 25% by railway containers,

the latter of which move mainly to Russia and Central Asia.

For ocean shipping, Guo says that ro-ro vessels have the

advantages of scale and efficient handling but the company

suffers from a lack of shipping frequency, something it is

hoping to address through carrier contracts. In the meantime

however, container shipping allows for more frequency.

“Compared to ro-ro vessels, ocean container shipping

provides a considerably stable sailing schedule of almost

once weekly, less sensitivity to climate changes, and short

demurrage time,” he says. “It works as the supplement when

ro-ro shipping is insufficient.”

Expanding ro-ro servicesAlthough China’s exports move through a variety of transport

modes to a fragmented list of markets, the country’s export-

related logistics services are undoubtedly growing. And while

ro-ro services have been among the areas that manufacturers

say are in need of further development, shipping lines have

been adding new routes and ports of call.

One of the leading ro-ro carriers serving China is

The Tianjin Port Ro-Ro Terminal is aiming to develop an integrated logisticsservice platform to boost its export offering


Höegh Autoliners. Bob Tang, the line’s head of commercial,

says that its primary export ports in the country are Shanghai

and Tianjin (near Beijing). However Xiamen, located on the

southeast coast, about 700km northeast of Guangzhou, is the

fastest growing export hub for Höegh.

The shipping line’s trade lanes from China include routes

to Europe, Africa and South America. Somewhat surprisingly,

given the current climate, Tang says that the fastest growing

route is to Europe, where Chinese-made vehicles move or

tranship to the Mediterranean region, Eastern Europe, Russia

and North Africa in some cases.

The biggest difficulties for Höegh include the volatility

of these volumes, as well as port congestion, particularly in

markets with inadequate infrastructure. “Our main challenges

involve port congestion and infrastructure deficiencies,” says

Tang. “On the destination side, this is something that we

experience quite often in North Africa, such as at the port of

Djen Djen, Algeria.”

However, with the current growth, Tang reveals the company

is expanding its fleet and service, and predicts improved port

connections. “We want to further develop regular trade lanes

out of China and increase our vessel sizes. With the increase in

export volumes, we will also see positive developments in port

infrastructure, which will enable quicker turnarounds for the

vessels,” he says.

More export terminal options developChina’s terminals for handling vehicles have also been

developing with the growth in exports. While the Shanghai

Haitong International Terminal has been the country’s

dominant port for vehicles, a number of other terminals have

also been expanding. The Tianjin Port Ro-Ro Terminal, for

example, consists of two terminals with an annual handling

capacity of 600,000 imports and exports. In 2012, the terminal

handled about 120,000 exports from mainly Great Wall,

Foton, FAW, and Hafei, according to Tang Zhe, the terminal’s

marketing department deputy manager.

Destinations for vehicle exports include Australia, Chile,

Peru, Ecuador, Algeria, Nigeria, Jordan, Iraq, and Saudi Arabia.

For 2013, Tang says that the terminal expects an increase of

nearly 8%. “Great Wall opened a plant in Tianjin in 2011. We

have seen few exports thus far, but it will increase,” he says.

Tang adds that the terminal is aiming to develop an

integrated logistics service platform. “We have constructed

a carport in the terminal, a one-floor covered building that

should be open in April,” he says. “We are also building a new

yard, which should be ready in May or June. Tianjin is also

developing a multi-level car park, which will take about two

years to complete.”

Other terminals are developing besides Shanghai, Tianjin

and Xiamen. Important nodes that Geely uses, for example,

include the ports of Ningbo, 225km south of Shanghai, and

Yantai, which is 600km southeast of Tianjin. In southern

China, Guangzhou Port Nansha Automotive Terminal expects

to begin operations in the second quarter of this year. Paulus

Lee, marketing manager, expects to export 15,000 vehicles

from Guangzhou to Pakistan in 2013.

3PLs get in the mixAs exports and port terminals develop, third party logistics

providers have been expanding export services. An example is

a joint venture between BLG Automobile Logistics and China’s

Cinko SCM, which opened its first terminal in Tianjin last year

and now operates in Beijing and Shanghai.

Last year BLG handled about 60,000 exports at the terminal

in Tianjin. Around 40% of the vehicles were shipped to the

Mediterranean Sea region and 35% to the South America

west coast, while smaller volumes were sent to the Persian

Gulf (10%), Sub-Saharan Africa (10%), Southeast Asia and

Australia (5%). South America and Southeast Asia were the

fastest growing markets.

According to Thomas Leiber, general manager for China,

BLG’s export services range from repairs and accessories to

building entire special edition cars; it also includes software

flashing, as well as tracking and tracing vehicles. The fastest

growing export service for the company is labelling vehicles

with barcodes and entering them into a BLG system called

‘C@rin’. “This system provides tracking throughout the

entire journey from our compound to final destination at the

dealership,” says Leiber.

Leiber says that although almost all of its exports are



n recent years, we have set up a new logistics department in order toIn receIn recen ordeder to order toprovide one-stop service, including inspection and distributionpropro on tion

– Tang Zhe, Tianjin Port Ro-Ro Terminal

According to BLG, Chinese OEMs are often more reluctant to pay higher prices for value-added services, whereas as many foreign carmakers will pay for suchservices as a matter of course


finished vehicles, he is expecting growth in the number of

CKD and SKD shipments as BLG prepares to offer services

that supply its clients’ domestic and foreign assembly lines.

Cars in containersAnother area of potential growth is the containerised

movement of vehicles from China using specially fitted racks,

particularly for China’s less developed export destinations.

“We ship to countries that ro-ro vessels do not serve, including

destinations in Asia, South America, the Middle East and

Africa,” says APL Logistics’ Rinaldy Sudyatmiko, senior

director, automotive, Asia and Europe.

APL Logistics ships volumes of up to 10,000 units on

average, says Sudyatmiko, with a service that leaves from

Yantai – APL’s main port – as well as Tianjin and Shanghai.

The service is ‘door-to-door’, according to Sudyatmiko.

In November, APL began exporting General Motors’

Chevrolet Sail model from China to Laos. The process begins

with General Motors in Yantai delivering to APL’s local yard.

The cars are loaded at the yard using Trans-Rak International’s

‘R-Rak’ solution, which is removable equipment that allows the

secure loading and bracing of four vehicles in one container.

Once the containers are loaded, ocean carrier APL ships them

from Yantai to Dalian by barge, and from Dalian to Bangkok

by ocean. At Bangkok, the containers move by truck a distance

of 640km to Vientiane, the capital and largest city in Laos.

The entire process, from vehicle receipt in Yantai to delivery

at Vientiane dealerships, takes 30 days – within GM’s lead time

expectations, says Sudyatmiko. In Bangkok, APL Logistics

collects the R-Raks and returns them to Yantai by loading 55

units in one container.

Lack of rail and added valueWhile the Chinese export and logistics service market is

growing across numerous modes, it is still suffering from

deficiencies in infrastructure and, arguably, in quality control.

There is a general lack of rail links between plants and the

major exit ports, which slows down lead times and increases

cost. According to GXS’s Morley, Chinese OEMs need to

ensure they have the appropriate logistics infrastructure in

place to support exports, particularly as higher wages on

the east coast, together with government policy, have led

companies to build plants further inland. “The problem is that

the road and rail infrastructure that is used to support the

transportation of vehicles to the east coast for export is only

just starting to become established,” says Morley.

BLG, for example, moves vehicles to Tianjin port solely by

truck. According to Leiber, the average distance from vehicle

plants to Tianjin port in the northeast is around 400km.

Another characteristic of the Chinese export market has

been the slow uptake of value-added services. Leiber says

that whereas foreign OEMs view BLG’s quality and technical

services as a matter of course, Chinese carmakers often do

not want to pay higher prices for such service. “Even damage

rate competitiveness ranks second after service costs [for

Chinese OEMs]. The consequences of costs and savings are

not evaluated sufficiently,” says Leiber.

Tang adds that one of Tianjin Port Ro-Ro Terminal’s main

difficulties is that the Chinese authorities have not entirely

supported the expansion of its terminal logistics services

beyond cargo handling. “In recent years, we have set up a new

logistics department for customers in order to provide one-

stop service, such as inspection and distribution,” he says.

“This logistics department receives limited policy assistance

as the authorities believe that we should only handle ro-ro

vessel loading and unloading, not logistics. This is unlike the

Shanghai Haitong Ro-Ro Terminal, which is a five-storey

facility that offers a variety of storage vehicle and services.”

Chinese OEMs must get sophisticatedWith generally low-cost vehicles and a popularity in

developing markets, China’s OEMs depend on a logistics

system that has global reach but can keep costs down. In many

ways, this system is remarkable for its extensive range despite

relatively small volumes on many trade lanes.

For example, although rail is lacking for domestic

movements, it has begun to develop across the ‘Eurasian land

bridge’, with manufacturers making use of Russia’s Trans-

Siberian railway to connect China with the West. GXS’s Morley

points out that a number of European OEMs have used this

route to transport knockdown car kits to plants in China.

Likewise, some Chinese carmakers, such as Great Wall and

Chery, are using the rail network to export kits to Russia.

But as exports grow, the need for more frequent and

reliable services is evident. Chinese OEMs are currently at a

disadvantage to competitors as they face long shipping times

to market. Also, given the fractured nature of their export

flows, these OEMs cannot make full use of economies of scale

for shipping when it comes to cost and service frequency.

Furthermore, if Chinese OEMs aspire to break into

more established markets, such as Europe or the US, the

competition will be fierce, especially at the low end of the

market where the likes of Renault’s Dacia brand or Volkswagen

will be hard to match, says Morley. In such areas, speed to

market, the need for more sophisticated services and a focus

on quality, including damage prevention, will be essential for

any Chinese export. q



APL’s ‘door-to-door’ containerised shipping service for GM begins with the loading of four vehicles using Trans-Rak International’s ‘R-Rak’ equipment


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