Logistics Players 4.1 Freight Forwarding

4 Logistics Players

4.1 Freight Forwarding

Foreign involvement in China's freight forwarding market is already substantial even though most foreign companies are only authorized to engage in international freight forwarding. International forwarders may also appoint a Chinese forwarder and set up a local representative office. An important reason for foreign Freight Forwarding companies' entry into the China market is to serve their international customers – multinational manufacturers who have established production plants in China. However, as the economy has developed, domestic firms have created a demand for freight forwarding services all their own.

After accession to WTO, demand for both international and domestic freight forwarding services is projected to grow. Exports are expected to rise by an additional 2.4% per year over the first five years of accession, while the effect on imports could be higher. On the domestic front, restrictions on distribution of most products will be phased out over the next few years. Foreign firms will be able to distribute imported products as well as those made in China. Most multinational forwarding companies have already established a presence in China in anticipation of the growing demand.

Sinotrans is the largest Freight Forwarding Company in China with Rmb24 billion in assets and 64,000 employees, combining 47 domestic subsidiaries, 263 joint ventures throughout the country, eight representative offices and 29 enterprises overseas. Sinotrans was founded in 1950 as China’s first foreign trade transportation company. As a state-owned enterprise, Sinotrans has long enjoyed the privileges of its monopoly position at both the national and provincial level in 1980s and early 1990s. During this period, Sinotrans grew to be the country’s largest sea freight forwarder, second largest shipping agent, third largest shipping company, earliest partner of the most profitable joint-venture express companies and a leading airfreight forwarder and trucking operator. The company is in an unparalleled position to provide freight forwarding, ocean shipping, ship agency, air transportation, air courier, truck and railway transportation, multi-model transportation as well as storage and warehousing services. Figure 4.1 demonstrates the segmented logistics market share and customer base of Sinotrans.⁷

4.2 Ocean & Air Carriers

Cosco’s President, Wei Jiafu, reported that ocean shipping accounts for 87% of China’s total import & export volume. It is estimated that after WTO, the ocean shipping market will increase annually by 8-10%. By 2005, China’s total ocean shipping volume is expected to grow to 6.56 billion tons per year. Imports are expected to grow more quickly than exports. There are over 200 licensed international ocean carriers operating in China. Of these around 20 are wholly owned foreign shipping companies and 60 are subsidiaries of foreign carriers. Since 1986, foreign investors also have participated in 60 ports infrastructure projects. Currently world top 20 ocean carriers have substantially involved in China’s market. ⁸

For example, early in 1984, Maersk Sealand established a representative office in Guangzhou. As the first foreign carrier in China, Maersk Sealand received shipping license No. 001 from the Chinese Government. Since then, the company has invested heavily in building a wide network of offices with dedicated staff at key locations. In 1994, it established a wholly owned agent for Maersk Sealand in China, Maersk (China) Shipping Co., Ltd. Today, Maersk Sealand is the largest foreign carrier in China with direct services to Yantian, Ningbo, Xiamen and Shanghai and with dedicated feeder services covering other key ports. The Maersk Group is actively involved in the development of container terminals in Dalian and Yantian. In addition, through its subsidiary, Maersk Logistics (China) Co. Ltd, the company provides services such as supply chain management, warehousing and distribution, air- and sea- freight forwarding, customs brokerage and other value added services. Through the joint venture Shanghai Tie Yang Multi Modal Transportation Co. Ltd. (TMT) between the Ministry of Railways and the A.P. Moller-Maersk Group, the company provides containerized railways transportation services from a large number of cities in China's interior provinces⁹.

Cosco, founded in 1961, is China’s largest ocean carrier with Rmb500 billion in assets and 600 ships of 17 million tons capacity. It is one of world’s top 10 ocean carriers. As a state-owned enterprise, Cosco long enjoyed its monopoly position at both the national and provincial level and substantial support from the Chinese government. The company’s services have expanded to include: freight forwarding, ocean shipping, ship agency, air agency, multi-model transportation, ship maintenance and repair, real estate as well as storage and warehousing. Cosco is ranked the 7^th largest ocean container line operating over 118 container ships with a total capacity of nearly 195,000 TEUs. Figure 4.2 describes the company’s shipping capacity¹¹. It has initiated restructuring plans to provide specialized integrated logistics service through the establishment of Cosco Logistics Co. Ltd. To strengthen the ability of inland transport, Cosco Logistics has launched a new containerized railways liner delivery service through collaboration with china railways.

<1000TEU		1000~1999TEU		2000~2999TEU		3000~3999TEU		>4000TEU
Total TEUs	Number	Total TEUs	Number	Total TEUs	Number	Total TEUs	Number	Total TEUs	Number
29,141	52	44,663	30	39,305	16	50,332	14	31,450	6

COSCO’s container shipping capacity. Source: www.rycbgcgs.com/cbll/0616.htm
Air Carriers
The “Big three”: Air China, China Eastern Airline and China Southern Airline are the dominant air carriers in China. Air China, based in Beijing, for many years a classic monopoly international operator and the only national flag carrier, is the country's largest air Carrier with Rmb35.9 billion in assets. China Eastern Airline is based primarily in Shanghai, while China Southern Airline is headquartered in Guangzhou. The “Big three” primarily operate as passenger carriers, with about 80% of revenue coming from this segment.
The government of China encourages merger and consolidation among the domestic carriers to help create a domestic industry capable of meeting the international competition after WTO. In March 2002, the Civil Aviation Administration of China (CAAC) announced more definite plans to consolidate the industry, following the first across-the-board annual financial loss for 20 years. This may reduce the existing 30 or so airlines to less than 10 major entities. Externally, the forces of industry concentration are almost as strong. Each of the major global airline alliances is courting the ‘big three' carriers. To date, they have entered various bilateral code share and other marketing relationships.
In Oct 2002, Air China was formed from the merger of China Southwest Airline and China Northern Airline. Air China has a total of 118 airplanes, including 18 B747s, 7 B777s, 10 B767s, 26 B737s and 4 B747-200 freighters. It operates 307 routes, including 43 international routes. With annual revenue Rmb250 billion, it operates more than 3000 scheduled flights a week, serving 29 cities in 19 countries and most of the provincial capitals, major cities and tourist attractions in China. Air China has two branches in Tianjin and Inner Mongolia. It has 36 overseas representative offices and 20 domestic ones including: Shanghai, Guangzhou, Shenzhen, Xiamen, Xi'an, Dalian, Qingdao, Harbin, Chengdu, Nanjing, Fuzhou, Kunming, etc. The airline has bilateral code share agreements, SPA and other marketing relationships with Lufthansa and Northwest Airlines. In the air cargo market, Unlike China Southern Airline, Air China offers both combination and dedicated cargo carriage. It is the largest of the “Big Three” in terms of pure freighter operations. Air China is planning to expand its cargo handling terminals at its base hub -- Beijing Capital Airport.¹¹
China Southern Airline (CSA) flies to 65 domestic cities and Hong Kong, as well as 23 international destinations. Its expansion plan in 2002 is to double its freighter operations as it takes delivery of its own freighter aircraft¹². CSA is also marketing higher-value added services as it expands into branded express products beyond airport-to-airport heavy airfreight and mail. CSA is also planning to expand its own cargo handling terminals at its primary cargo hub in Shenzhen and at the new Guangzhou airport.

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