Logistics trends in China: looking back to navigate the future

In the early days of the pandemic, logistics leaders throughout China – like many of our peers around the world – faced a number of unprecedented challenges. These ranged from a sharp drop in demand, to shortages in transportation capacity and heavily disrupted transport networks.

To give you a sense of the initial impact, according to the China Federation of Logistics and Purchasing¹, China’s total logistics freight volume was down by 19.8% from January to February 2020, compared to the same period in 2019.

If I cast my mind back, what made things even harder was that the pandemic emerged during the Chinese Spring Festival, when many of us had returned to our hometowns and were away from our workplaces.

With lockdowns in place, China’s logistics capacity - particularly road freight - was severely constrained.

From my conversations with customers and other industry leaders at the time, it was clear there was immense and immediate pressure to keep their teams safe, while controlling costs and trying to deliver the quality service their customers expected of them.

But that is a tricky balancing act.

Workforce shortages were contributing to higher labor costs. Uncertainties in lockdowns and restrictions made it harder to plan transportation routes, resulting in increased transport costs. And doing the right thing in terms of long-term outreach prevention (for instance, contactless facilities and disinfection of parcels), was obviously impacting their bottom line.

Despite these hurdles, there was some light at the end of the tunnel. After a hard-hitting Q1, China’s V-shaped recovery throughout 2020 was stronger than many of the world’s top economists could have even predicted.

A recovery in domestic and international demand is driving the strong growth.

While domestic demand was suppressed in the early phase of the outbreak, growth in online consumption since then has surged. According to the National Bureau of Statistics of China², online retail sales increased 16% year-on-year in the January to October 2020 period, accounting for 24% of total consumer goods retail sales.

What’s more, capitalizing on export demand from countries whose supply chains remained disrupted, China has quickly resumed manufacturing activities and continues to enjoy stronger than expected export performance since Q2.

While none of us have a crystal ball to predict the future, what I’m seeing and hearing is that the most resilient logistics companies are staying focused on growth, making bold moves where required and remaining flexible enough to respond to ever-changing market conditions.

There’s no denying that COVID-19 will leave a lasting legacy on China’s supply chains.

Here are three significant trends we expect to shape the logistics industry here in 2021 and beyond.

Digitization is critical to long-term success.

Against a backdrop of efficiency enhancements and cost reductions, along with rising labor costs and customer service demands, investment in digital technology is clearly top of mind from the board-level down.

Interestingly, a lot of logistics leaders I speak to believe their companies became digital-centric much quicker than they ever imagined. The pandemic pushed them to accelerate their digital transformation initiatives, with many implementing in months things they originally thought would take them years.

For example, according to LT Huang, Managing Director of Chinese freight forwarder, Sanco International, their decision to roll out our integrated logistics execution platform, CargoWise, in 2019 meant that they were ahead of the curve.

With many of Sanco’s customers, employees, and partners scattered all over the country during the pandemic, CargoWise's cloud-based model facilitated seamless communication and collaboration with their network and meant they were able to quickly recover from uncertain market conditions and increasing client demands.

In fact, in the first three quarters of 2020, Sanco exceeded their volume target by 15% and have already achieved 86% loading volumes against the annual volume target. They have also exceeded their profit target by 5% and have reported a 50% improvement in operational efficiency, taking their customer service and business operations to new heights.

Industry centralization and integration will continue to accelerate.

According to data compiled by Bloomberg³, about US$5.5 billion worth of acquisitions of Chinese logistics firms have been announced so far this year, the strongest first quarter ever.

Undeniably, the pandemic has fast-tracked what was once the gradual elimination of smaller players. And we’re also seeing leading logistics companies expanding their focus on serving the entire industry value chain, to enhance competitiveness and profitability.

One interesting expansion opportunity is in areas like cold storage, which has taken on critical importance as countries aim to roll out vaccines and other supplies to fight the coronavirus.

Strengthened regional economic cooperation is driving growth opportunities for Chinese enterprises.

A major shift last year was that the Association of Southeast Asian Nations (ASEAN) became China’s largest trading partner in the first three months of 2020, surpassing both the United States and the European Union for the first time ever.

What’s more, with China’s Ministry of Commerce ratifying the Regional Comprehensive Economic Partnership in early March 2021, the opportunities for trade liberalization among all 15 members and the economic growth of the Asia Pacific region as a whole, are substantial.

The agreement’s rules on tariffs, accumulation of regions of origin and negative investment lists, will further strengthen the economic and trade ties between member countries, make the layout of the industrial supply chain within the region more flexible, and solidify economic cooperation.

Of course, it should be noted that there are significant gaps in the level of economic development among countries in the Asia-Pacific region. However, the general trend of regional cooperation has taken shape and is expected to flourish in the coming months and years.

¹ China Federation of Logistics and Purchasing, “Analysis of Logistics Operation from January to February in 2020”.
² National Bureau of Statistics of China, “Total retail sales of consumer goods went up by 4.3 percent in October 2020”.
³ Bloomberg, “PE firms are feasting on China’s $5.5 billion logistics M&A”.