Opportunities in the Chinese Transport and Logistics Market

Today’s article will bring you a step closer to the opportunities in the Chinese market for Transport and Logistics and it will reveal the reasons why the supply chain market in China still remains very attractive.

Recently, when coming back home from working, I noticed numerous people in my condominium carrying packages back to their apartment from the management office. At least twice a week I have to go the management office to pick-up my packages and I am surprised every time by the amount of packages I see there being bought via the internet.

Then one day I could not stop thinking all this merchandise has to be delivered somehow. By searching on the internet I learned ofthe huge growth of both the Courier and Express Post (CEP) system.

Important Facts

  • In 2008, the Chinese Transport and Logistics Market (T&L) was estimated at $506bn.
  • The industry has been experiencing consistent expansion rates of 25% from 2006 until 2009 and the 20% in the first quarter of 2010.
  • 400 out the world’s 500 biggest companies already have investment projects in China.
  • For more than 20 years China’s CEP market has been growing at over 20% which represents almost 3 times of the country’s GDP growth.
  • DHL, FedEx, TNT or UPS have been growing by 20% to 40% annually and are important players in the Chinese logistic market.

Important Structural Changes in the Chinese T&L industry

In the past, most foreign direct investments (FDI) flowing into China’s logistics industry were focused on the developed coastal areas such as Bohai Rim, Zhujiang Delta and Yangtze Delta. However a strong trend towards extending geographic focus can be observed with the government providing incentives for companies to go to less developed provinces.

Another interesting observation is that sole ownership is becoming more prevalent over joint ventures, because China has committed to opening up its roadway transportation after entering the WTO. Furthermore, mergers and acquisitions are picking up in order to increase the scale of companies and enhance their value of services provided.

A Delphi survey from PWC considers the CEP market an important segment for future growth not only in China, but in all emerging markets. Furthermore, it foresees a two-digit growth rate and multinationals will not be the only ones getting their piece of that pie.

Around 10% of China’s 420 million internet users have already purchased products online and created demand for CEP services. Therefore, the e-commerce and online business will create a strong economic and trade platform for continued demand increase in the CEP market.

However the CEP market structure is likely to change in the future. The current market consists of 60% of low-cost solutions. As the size of Chinese middle class population rapidly increases in the next decades, the demand for high-end logistics services will also climb.  According to the Labor China International Freight Forwarders Association, labor cost advantages of small courier companies will diminish over the next decade. Future customers will put more focus on reliable delivery over price, an area multinationals services have a strong advantage over small domestic courier companies.

Actionable Opportunities for the Chinese Transport and Logistics Market

The opportunities in the Chinese Transport and Logistics Market can be categorized into 4 groups: Products & Services, Positioning & Strategy, Research & Education, Organization & Processes. Furthermore, it can be broken down into the following time frames for being the most appropriate time to invest on the them: 2015-2020, 2020-2025, 2025-2030. This opportunity map framework  can be better represented in the figure below, the so called opportunity radar.

Below is a summary of the opportunities I found the most interesting.If you would like to see all of them I would encourage you to visit the PWC website.

  1. Products & Services
    Liberalisation Advisory: Entities in developed countries, which have already undergone privatisation, would be able to serve as advisors in sharing best practices and lessons learned for Chinese T&L companies undergoing privatisation.
    Reverse Logistics: 3PLs in developed countries have been able to make profits around 12-15% by offering reverse logistics services.
    Online Platform to Organize Logistics: The market in China is very fragmented, lacks of both transparency and efficiency. The online platforms would better coordinate logistics services with relevant information about services providers and serve as freight exchanges or tendering platforms. Customers could also tender their mandate on the platform and allow logistics services providers to bid and eventually win the contract.
  2. Positioning & Strategy
    Social Network Broker: Professional Social Network Brokers (SNB) could help in connecting the right people. Foreign companies could enter the Chinese market this way.
    Consolidation Scouts: Use their knowledge and experience about logistics markets in China or Asia and help in identifying potential mergers and acquisitions  targets. They could not only help with financial situations but also with distribution networks and cultural fit as well.
    Customs in Country of Origin (CCOO): This could be a big opportunity in China for quickly perishable products like flowers for instance.
  3. Research & Education
    Strong Cooperation between logistics actors in emerging markets: By intensively engaging with logistics associations like China Logistics Club, logistic services providers in emerging markets could increase their ability to shape and design the future.
    Gross-border Innovators: Many useful and innovative ideas in emerging markets lack sufficient financing. Establishing an institution with the mission to finance outstanding examples of innovation in the T&L industry in emerging markets could help in providing the required funds to turns ideas into reality.
  4. Organization & Processes
    Mobile Tracking and Tracking: O
    ne could use this technology to localize truck drivers via their mobile phones, which could give the location of the transported goods and products. This could be very cost effective since the technology is already in place in China.
    Pictogram-based Logistic Language: Already used in Japan, these easy to understand pictures can be interpreted by anyone regardless their reading and writing skills or language. A similar concept could be transfered to the logistics industry in order to improve processes.

As you can see there are many ways to profit from the T&L Chinese industry’s rapid growth. Which one will you choose? Share with us.

About Thiago Gomes de Lima

My Name is Thiago Gomes. I am Brazilian Swiss, based in Shanghai. I hold a trilingual and tri-national bachelor degree in International Business Management from the University of Applied Sciences Northwestern Switzerland. My working experience ranges from commercial to supply chain in different parts of the world such as: Europe, Brazil, SEA and China.

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