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Express delivery benefits from opening-up policy

By Lu Haoting (China Daily)
Updated: 2008-12-29 07:49

In the eyes of FedEx Express China head Eddy Chan, the most prominent achievement of China's 30-year transition has been the improvement in the country's transportation infrastructure.

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In the 1970s it took a whole day for teenage Chan to travel from Hong Kong to visit relatives in his hometown Bao'an in Guangdong province.

"We had to get up at 5 am, took a train first, crossed the Luohu border (in Shenzhen), and then took a bus. It was already 9 pm when we arrived," recalls Chan, a Hong Kong native.

But now the whole journey takes only an hour.

China's massive investment in building world-class expressway networks, airports, seaports and railways has not only made many Hong Kong people's personal experiences of "going home" more convenient, but also laid a solid foundation for the fast growth of its logistics industry.

The express delivery market is a prime example. Since the 1980s, China's express delivery has been growing at an annual rate of 20 percent, according to China Trade, Marine & Logistics Net. The country now has 2,422 express delivery enterprises with 227,000 employees.

"The express delivery industry is a direct beneficiary of the reform and opening up policy, which has created a fast growing trade volume. Our industry has also improved the economic landscape of China because we are in the business of making goods and information accessible from anywhere," says Chan, FedEx Express senior vice-president for China.

Chan says China has the greatest growth potential for the express and logistics industry amongst emerging markets in Asia. The main reason is the country's position as a nexus of global supply and demand.

China was only a manufacturing center for low-tech, inexpensive consumer products in the 1980s. But since the end of the 1990s, the country has been attracting a growing number of hi-tech factories and its rise up in the industry value chain is creating increasing demand for modern logistics service.

More importantly, with their pockets getting deeper, Chinese people have a growing appetite for all kinds of imported products.

China has been the fastest-growing market for the US. The country surpassed Japan and became the United States' third largest export market in 2007. US goods exported to China increased 17 percent year-on-year in 2007, the eighth straight year of double-digit growth, according to an annual trade report released by the Bush administration in March.

China's total trade volume surged 23.5 percent year-on-year to hit a high of $2.17 trillion in 2007, which made the country the world's third largest trading power following the United States and Germany, according to the National Bureau of Statistics. The country's trade has maintained an annual growth rate of 17.4 percent since 1978, with exports surging 18.1 percent annually and imports growing 16.7 percent annually.

"The Asia-Pacific region is FedEx's fastest-growing international market and China is a very important part of our international business," Chan says.

"While the United States and Europe are now heavily hit by the financial crisis, China is playing an even more important role to drive global couriers' growth," Chan adds.

The Memphis-based company recently announced $800 million in cost-cuttings to cope with a grim 2009, including salary reductions. Its Chief Executive Frederick W. Smith was quoted as saying that the company's earnings are "increasingly being challenged by some of the worst economic conditions in the company's 35-year operating history".

And the slumping US economy has forced German courier DHL to end domestic shipments in the United States. The company said it would discontinue its US domestic-only air and ground services beginning January 30 and focus exclusively on its international offerings.

Wider access

Besides pouring massive investments in building transport infrastructure, the Chinese government has also created a more relaxed and transparent policy environment for the logistics industry, which Chan says, is even more important to international couriers.

Foreign air express companies were required by the government to sign agency agreements or form joint ventures with local firms to enter the Chinese market.

FedEx signed an agency agreement with Sinotrans, China's largest express company, in 1984 to enter China. In 1999 it established a 50:50 joint venture with Tianjin Da Tian W. Air Service Corp to provide international express service. FedEx' rivals, DHL, UPS and TNT, all formed joint ventures with Sinotrans.

Since December 2005, foreign companies were allowed to set up wholly owned express subsidiaries in China thanks to the country's commitments to its World Trade Organization membership.

FedEx reached an agreement with Da Tian in early 2006 to acquire the Chinese company's 50 percent share in the joint venture and Da Tian's domestic express network in China for $400 million. The acquisition was completed in 2007.

UPS ended its partnership with Sinotrans and set up wholly owned operations in China in 2005. TNT Express also suspended co-operation with Sinotrans and turned to a little-known domestic express agency. Only DHL still shows no signs of splitting from Sinotrans.

From 1999 to 2007, FedEx substantially expanded its footprint in China by serving 220 Chinese cities in 2007, up from 144 in 1999. It also increased its flight frequencies from four per week 10 years ago to 30 in 2007.

That is a direct result from two important bilateral aviation agreements signed between China and the United States.

The agreement in 2004 allowed the number of weekly flights between the two countries to increase nearly fivefold, from 54 weekly round-trip flights to 249 at the end of a six-year phase-in period. The agreement in 2007 allowed US carriers to more than double the number of passenger flights to China to 23 a day by 2012 and it said all government-set limits on the number of cargo flights and cargo carriers serving the two countries would be lifted by 2011.

"That was a huge boost to our confidence in the China market and was one of the reasons we decided to open an Asia-Pacific hub in Guangzhou," Chan says.

FedEx will open a $150-million Asia-Pacific hub in Guangzhou Baiyun International Airport in the first half of 2009. FedEx's major Asian hub was previously mainly based in the Philippines.

"We looked at four criteria: geographic location, trade flow, business environment and human resources. Guangzhou is a perfect choice for us," Chan recalls.

FedEx is not alone. China has also become the focal point of other international couriers' multi-hub strategies as they seek more efficient air service.

UPS opened an international air hub in Shanghai in early December with a total investment of $125 million. The hub is the US company's largest international transit facility in Asia. UPS is also moving its intra-Asia air hub to Shenzhen from its current location in the Philippines. The new hub will be activated in 2010 and involve an estimated investment of $180 million.

"When you have a worldwide network, you have to plan for the future. This facility is a long-term investment for UPS for the next 20-30 years. It is a great testament of our confidence in the ability of China to be a big part of the future of UPS," Daniel Brutto, president of UPS International, told China Business Weekly when launching its Shanghai hub.

DHL will spend $175 million to build its North Asia express transferring hub in Shanghai and the facility will be completed in the second half of 2010.