Finished Vehicle Logistics

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CHINA IN FOCUS CHINA EXP RTS

45FINISHEDVEHICLELOGISTICS APRIL-JUNE13

hinas phenomenal rise to becoming the worldsargest vehicle sales and production market waslargely a domestic affair. As sales for commercialand passenger vehicles roared ahead in the headydays of 2009 and 2010, exports including semi-

and complete-knockdown kits (SKD and CKD) fell from ahigh of 681,000 units in 2008 to just 370,000 in 2009, and didnot surpass the previous high again for several years.

However, since 2011 exports have rocketed, rising 50% inthat year and another 30% last year to surpass the millionmark for the first time. The leading brands were Chery,which shipped around 200,000 units of finished vehicle and

noc own its,

llowed by Geely andreat Wall, which

ach exported around00,000 units. Withrowth in Chinasomestic market

now somewhatmore subdued,especially for manyof Chinas domesticmanufacturers,exports are

anticipated tosteadily increaseas a proportion ofproduction.

With this rise in exportshas come an increase inthe demand for logisticsservices, including inlandtransport, port handlingoperations, shipping andeven rail towards Russia and Central Asia. Carmakers arestarting to see more options for ports of exit, as well as theentry of specialist logistics providers, such as GermanysBLG Automobile Logistics, which offers services like vehicletracking and adding accessories.

However, there are important differences in the nature ofthe current growth and logistics operations for China when

compared to other nations that have recently experienced astrong rise in vehicle exports, including Mexico and the UK,let alone compared to the export stalwarts like Germany, Japanand South Korea.

The most obvious difference is the mix of marketdestinations and the product mix. China exports fewerpassenger cars, at 45%, than it does commercial vehicles.The great majority of these vehicles are destined to low-costand developing markets such as Iraq, Algeria, Chile and theUkraine, although Chinese brands have started to gain astronger footing in major markets like Russia and Brazil, aswell as Iran. Furthermore, according to Mark Morley, director

of industry marketing for manufacturing at supply chainconsulting firm GXS, some observers expect that Chinesecompanies will increase exports significantly in the comingyears to markets such as India, Thailand and Vietnam.

Chinas increasing export

volume, particularly to low-

cost markets, has resulted in a

challenging, fragmented logistics

sector. Anthony Coia reports

e1

Whowespoketo:

MarkMorley,directorofindustry

marketingformanufacturing,GXS

JennyJin,vice-president,

GeelyInternational

ChuckGuo,manager,Europeregion,

GreatWall

BobTang,headofcommercialoperatio

ns,

China,HeghAutoliners

TangZhe,marketingdepartmentdepu

ty

manager,TianjinPortRo-RoTermina

l

PaulusLee,marketingmanager,Guangzhou

PortNanshaAutomotiveTerminal

ThomasLeiber,generalmanager,Chin

a,

BLGAutomobileLogistics

RinaldySudyatmiko,seniordirector

Automotive,AsiaandEurope,APLLo

gistics

Developingwith demand

IN THIS STORY...

p45 Chinas export destinations

p46 Geelys expanding needs

Great Walls ambitions

p47 Ro-ro shipping servicesp48 Terminals and 3PLs

p50 Cars in containers


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While all of these developing markets have wildly differentcharacteristics, they share some common difficulties. Smallermarkets often lack frequent and regular ro-ro services, aswell as adequate terminal and inland infrastructure to handlevehicles, which can make shipping cars in containers a morepractical option. Likewise, whether in larger markets likeBrazil or Russia, or smaller ones in Latin America, manyemerging markets like China itself have industrial policiesand import duties that encourage, if not mandate, settingup knockdown kit assembly plants or working with localmanufacturers.

The result is that logistics services for Chinese exports arein some ways more fragmented than those of other markets.OEMs require a mix of ro-ro shipping, containers and CKDoperations, often split between many trade routes. And withsome carmakers expecting to increase the proportion of CKDmanufacturing in their international networks, demand lookslikely to remain splintered.

Geelys export mixAn important example of how logistics services for exports

are developing in China can be found at Geely, which wasChinas second largest exporter last year with 100,279 units.The carmakers top five markets in 2012 were Russia, Iraq,Saudi Arabia, Ukraine, and Iran. Geelys exports were 68%finished vehicles, 29% CKDs and 3% SKDs, according to JennyJin, vice-president of Geelys international division. Marketsto which Geely sends finished vehicles currently includeIraq, Australia and the Ukraine, while knockdown kits go tomarkets like Brazil, India, Iran, Mexico, Russia, and Malaysia.

in predicts that the composition of Geelys exports willshift further in 2013 as it targets a 60% rise in exports, to morethan 160,000 units. She expects the proportion of CKD to riseto 40-45% as new assembly locations open in Egypt, Belarusand Uruguay, where Geely plans to ship 3,000 units each.In actuality, some of our markets may change from CBU[completely built units] to KD [knockdown] and vice-versa.For example, Ukraine was an SKD market a few years ago. Itdepends on the import duties, says Jin.

According to Jin, Geelys current export logistics demandsare significant for both finished vehicles and for kit handling.

She says that the carmaker is seeking more options for loadingports in China based on the location of its plants and pointsto further need for logistics service providers and ro-roservice. When choosing ocean carriers, for example, we needones that are reliable and offer competitive lead-times andguaranteed space, she says.

But Geely also needs freight forwarders to providecompetitive destination services for its CKD shipments. Jinsays the company is aiming for more door-to-door services forCKD shipments, over which it wants to gain greater control.

Great Wall wants more ro-ro frequencyChinas other major exporters have a similar export mix toGeely, with CKD representing around 30-40% of vehiclesexported. Although Chery was not available for interview inthis article, last year it told Finished Vehicle Logisticsthat CKDmade up around 40% of its exports in 2011.

Great Wall Motor Company exported 96,500 vehicles lastyear. According to Chuck Guo, manager of the Europe region,

actua ty, some o our mar ets may c ange rom to

d vice-versa. For example, Ukraine was an SKD market a fe

years ago. t epen s on t e mport ut es enny Jin, Ge l


46 FINISHEDVEHICLELOGISTICS APRIL-JUNE13

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ource: h na Assoc at on o Automob le Manu acturers

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CHINESE CAR EXPORTS (VEHICLES AND CKD)


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41FINISHEDVEHICLELOGISTICS APRIL-JUNE13

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Head Office: Hegh Autoliners AS, P.O Box 4 Skyen, NO-0212 Oslo, Norway, Telephone: +47 21 03 90 00. For local offices, please refer to our website: www.hoeghautoliners.com

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the company shipped about 72% of the vehicles as finished

vehicles and 28% as kits. At present, Great Wall Motors exportsmainly to Russia, Iraq, Australia, Algeria, and South Africa,which account for nearly 70% of its total export volume. Inits export-concentrated markets, such as the Middle Eastand South America, Guo says Great Wall plans to establishvehicle distribution centres. Like Geely, it has set extremelyhigh growth targets for its exports this year and beyond. Guosays the company expects to export 140,000 vehicles in 2013and 300,000 vehicles by 2015. By that time it expects to beproducing vehicles at a factory in Bulgaria that would serve

the wider European market. Last year, it also entered the UKmarket with a pickup truck.

Whether or not Great Wall meets these ambitious exporttargets, the need for more logistics services will be essential.According to Guo, the OEMs finished vehicle flows currentlysplit across three transport modes with 55% moving by ro-rovessels, 20% in container ships, and 25% by railway containers,the latter of which move mainly to Russia and Central Asia.

For ocean shipping, Guo says that ro-ro vessels have theadvantages of scale and efficient handling but the companysuffers from a lack of shipping frequency, something it ishoping to address through carrier contracts. In the meantimehowever, container shipping allows for more frequency.Compared to ro-ro vessels, ocean container shippingprovides a considerably stable sailing schedule of almostonce weekly, less sensitivity to climate changes, and shortdemurrage time, he says. It works as the supplement when

ro-ro shipping is insufficient.

Expanding ro-ro servicesAlthough Chinas exports move through a variety of transportmodes to a fragmented list of markets, the countrys export-related logistics services are undoubtedly growing. And whilero-ro services have been among the areas that manufacturerssay are in need of further development, shipping lines havebeen adding new routes and ports of call.

One of the leading ro-ro carriers serving China is

The Tianjin Port Ro-Ro Terminal is aiming to develop an integrated logistics

service platform to boost its export offering


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Hegh Autoliners. Bob Tang, the lines head of commercial,says that its primary export ports in the country are Shanghaiand Tianjin (near Beijing). However Xiamen, located on thesoutheast coast, about 700km northeast of Guangzhou, is thefastest growing export hub for Hegh.

The shipping lines trade lanes from China include routesto Europe, Africa and South America. Somewhat surprisingly,given the current climate, Tang says that the fastest growingroute is to Europe, where Chinese-made vehicles move ortranship to the Mediterranean region, Eastern Europe, Russiaand North Africa in some cases.

The biggest difficulties for Hegh include the volatility

of these volumes, as well as port congestion, particularly inmarkets with inadequate infrastructure. Our main challengesinvolve port congestion and infrastructure deficiencies, saysTang. On the destination side, this is something that weexperience quite often in North Africa, such as at the port ofDjen Djen, Algeria.

However, with the current growth, Tang reveals the companyis expanding its fleet and service, and predicts improved portconnections. We want to further develop regular trade lanes

out of China and increase our vessel sizes. With the increase inexport volumes, we will also see positive developments in portinfrastructure, which will enable quicker turnarounds for thevessels, he says.

More export terminal options developChinas terminals for handling vehicles have also beendeveloping with the growth in exports. While the ShanghaiHaitong International Terminal has been the countrysdominant port for vehicles, a number of other terminals have

also been expanding. The Tianjin Port Ro-Ro Terminal, forexample, consists of two terminals with an annual handlingcapacity of 600,000 imports and exports. In 2012, the terminalhandled about 120,000 exports from mainly Great Wall,Foton, FAW, and Hafei, according to Tang Zhe, the terminalsmarketing department deputy manager.

Destinations for vehicle exports include Australia, Chile,Peru, Ecuador, Algeria, Nigeria, Jordan, Iraq, and Saudi Arabia.For 2013, Tang says that the terminal expects an increase ofnearly 8%. Great Wall opened a plant in Tianjin in 2011. Wehave seen few exports thus far, but it will increase, he says.

Tang adds that the terminal is aiming to develop an

integrated logistics service platform. We have constructeda carport in the terminal, a one-floor covered building thatshould be open in April, he says. We are also building a newyard, which should be ready in May or June. Tianjin is alsodeveloping a multi-level car park, which will take about twoyears to complete.

Other terminals are developing besides Shanghai, Tianjinand Xiamen. Important nodes that Geely uses, for example,include the ports of Ningbo, 225km south of Shanghai, and

Yantai, which is 600km southeast of Tianjin. In southernChina, Guangzhou Port Nansha Automotive Terminal expectsto begin operations in the second quarter of this year. PaulusLee, marketing manager, expects to export 15,000 vehiclesfrom Guangzhou to Pakistan in 2013.

3PLs get in the mixAs exports and port terminals develop, third party logisticsproviders have been expanding export services. An example isa joint venture between BLG Automobile Logistics and ChinasCinko SCM, which opened its first terminal in Tianjin last yearand now operates in Beijing and Shanghai.

Last year BLG handled about 60,000 exports at the terminal

in Tianjin. Around 40% of the vehicles were shipped to theMediterranean Sea region and 35% to the South Americawest coast, while smaller volumes were sent to the PersianGulf (10%), Sub-Saharan Africa (10%), Southeast Asia andAustralia 5% . South America and Southeast Asia were thefastest growing markets.

According to Thomas Leiber, general manager for China,BLGs export services range from repairs and accessories tobuilding entire special edition cars; it also includes softwareflashing, as well as tracking and tracing vehicles. The fastestgrowing export service for the company is labelling vehicleswith barcodes and entering them into a BLG system called

C@rin. This system provides tracking throughout theentire journey from our compound to final destination at thedealership, says Leiber.

Leiber says that although almost all of its exports are



r t years, we ave set up a new og st cs epartment n r

vide one-stop service, including inspection and distribup

ang Zhe, Tianjin Port Ro-Ro Terminal

According to BLG, Chinese OEMs are often more reluctant to pay higher prices

for value-added services, whereas as many foreign carmakers will pay for such

services as a matter of course


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finished vehicles, he is expecting growth in the number ofCKD and SKD shipments as BLG prepares to offer servicesthat supply its clients domestic and foreign assembly lines.

Cars in containersAnother area of potential growth is the containerisedmovement of vehicles from China using specially fitted racks,particularly for Chinas less developed export destinations.We ship to countries that ro-ro vessels do not serve, includingdestinations in Asia, South America, the Middle East andAfrica, says APL Logistics Rinaldy Sudyatmiko, seniordirector, automotive, Asia and Europe.

APL Logistics ships volumes of up to 10,000 units onaverage, says Sudyatmiko, with a service that leaves fromYantai APLs main port as well as Tianjin and Shanghai.The service is door-to-door, according to Sudyatmiko.

In November, APL began exporting General Motors

Chevrolet Sail model from China to Laos. The process beginswith General Motors in Yantai delivering to APLs local yard.The cars are loaded at the yard using Trans-Rak InternationalsR-Rak solution, which is removable equipment that allows the

secure loading and bracing of four vehicles in one container.Once the containers are loaded, ocean carrier APL ships them

from Yantai to Dalian by barge, and from Dalian to Bangkokby ocean. At Bangkok, the containers move by truck a distanceof 640km to Vientiane, the capital and largest city in Laos.

The entire process, from vehicle receipt in Yantai to deliveryat Vientiane dealerships, takes 30 days within GMs lead timeexpectations, says Sudyatmiko. In Bangkok, APL Logisticscollects the R-Raks and returns them to Yantai by loading 55units in one container.

Lack of rail and added valueWhile the Chinese export and logistics service market isgrowing across numerous modes, it is still suffering from

deficiencies in infrastructure and, arguably, in quality control.There is a general lack of rail links between plants and the

major exit ports, which slows down lead times and increasescost. According to GXSs Morley, Chinese OEMs need to

ensure they have the appropriate logistics infrastructure inplace to support exports, particularly as higher wages onthe east coast, together with government policy, have ledcompanies to build plants further inland. The problem is thatthe road and rail infrastructure that is used to support thetransportation of vehicles to the east coast for export is only

just starting to become established, says Morley.BLG, for example, moves vehicles to Tianjin port solely by

truck. According to Leiber, the average distance from vehicleplants to Tianjin port in the northeast is around 400km.

Another characteristic of the Chinese export market hasbeen the slow uptake of value-added services. Leiber saysthat whereas foreign OEMs view BLGs quality and technicalservices as a matter of course, Chinese carmakers often donot want to pay higher prices for such service. Even damagerate competitiveness ranks second after service costs [forChinese OEMs]. The consequences of costs and savings are

not evaluated sufficiently, says Leiber.Tang adds that one of Tianjin Port Ro-Ro Terminals main

difficulties is that the Chinese authorities have not entirelysupported the expansion of its terminal logistics servicesbeyond cargo handling. In recent years, we have set up a newlogistics department for customers in order to provide one-stop service, such as inspection and distribution, he says.This logistics department receives limited policy assistanceas the authorities believe that we should only handle ro-rovessel loading and unloading, not logistics. This is unlike theShanghai Haitong Ro-Ro Terminal, which is a five-storeyfacility that offers a variety of storage vehicle and services.

Chinese OEMs must get sophisticatedWith generally low-cost vehicles and a popularity indeveloping markets, Chinas OEMs depend on a logisticssystem that has global reach but can keep costs down. In manyways, this system is remarkable for its extensive range despiterelatively small volumes on many trade lanes.

For example, although rail is lacking for domesticmovements, it has begun to develop across the Eurasian landbridge, with manufacturers making use of Russias Trans-Siberian railway to connect China with the West. GXSs Morleypoints out that a number of European OEMs have used thisroute to transport knockdown car kits to plants in China.

Likewise, some Chinese carmakers, such as Great Wall andChery, are using the rail network to export kits to Russia.

But as exports grow, the need for more frequent andreliable services is evident. Chinese OEMs are currently at adisadvantage to competitors as they face long shipping timesto market. Also, given the fractured nature of their exportflows, these OEMs cannot make full use of economies of scalefor shipping when it comes to cost and service frequency.

Furthermore, if Chinese OEMs aspire to break intomore established markets, such as Europe or the US, thecompetition will be fierce, especially at the low end of themarket where the likes of Renaults Dacia brand or Volkswagen

will be hard to match, says Morley. In such areas, speed tomarket, the need for more sophisticated services and a focuson quality, including damage prevention, will be essential forany Chinese export.q



APLs door-to-door containerised shipping service for M begins with the

loading of four vehicles using Trans-Rak Internationals R-Rak equipment

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