By Jim Serstad
Managing Director Asia, Tompkins International
The demand for increased efficiency in China distribution is driving some incremental improvements in supply chain. Growth is on the rise for domestic transportation, localized supply chain IT solutions are experiencing revenue growth, and the amount of automation installed in new facilities is on the rise. Changes are also happening in real estate and there is an increase amongst importing and exporting.
Change is very slow in domestic transportation, largely driven by the fact that the industry is so fragmented, meaning that there are no players with the mass required to enact widespread change. This is beginning to change as Alibaba becomes more active in logistics. The properties that Alibaba purchased before its IPO are now operating as warehouses and the investments they made in supply chain technology are being used with much of the traffic on TMall, the largest eCommerce platform.
Locally developed IT solutions are becoming increasingly sophisticated and well-suited to China's logistics market. Solutions have been developed, which in some cases rival the technologies available in more developed markets because of the need for tracking, temperature monitoring, etc.
Cold supply chain logistics continue to experience steady growth due to ongoing food safety concerns. With the new traceability regulations, companies find themselves having to provide evidence of measures being taken to monitor their food supply chain. The regulations are still not clear, so actual investment is minimal, but still presents opportunities for technologies which promise greater supply chain visibility.
The devaluation of the RMB in August of 2015 had an effect of encouraging investment in real estate in China. There is ample warehousing space, the overall industrial property market is somewhat soft due to weakness in manufacturing. However, logistics space in particular is still seeing rental increases and consistent uptake of newly developed properties.
As of 2015, the ASEAN Free Trade Agreement tariff rate has dropped to zero, meaning that China can import with no tariffs from eight other Southeast Asian countries. Now even goods sourced for local consumption are increasingly being sourced from Southeast Asia. Tariffs with Korea, due to the China-Korea free trade agreement, will begin dropping and will go to zero by 2025.
Due to changes taking place in China with logistics, real estate, and import & export, we will see a steady change in the supply chain. With the implementation of technology, increased warehousing space, and Free Trade Agreements increased efficiencies in supply chains are taking place.