Those 'not-sexy' companies that ship your stuff face risks

The logistics industry isn't one of those sexy ones, like computing or automobiles. As a result, average consumers in China are probably unaware of the key role freight forwarders have played in enabling China's rapid growth.

The last several years, however, have not been kind to this industry. A prolonged slowdown in Europe and a weaker economy in China have inflicted suffering. The results have produced some strange bedfellows. For instance, State-owned rivals China Ocean Shipping (Group) Co and China Shipping (Group) Co, have agreed to cooperate and share resources in crucial business areas, including ports, logistics and shipbuilding, in addition to actual shipping. The deal underscores the significant financial pressures the industry confronts at a time of low freight rates. With the pact, signed earlier this month, the companies said they hope to "improve the influence of Chinese shipping companies in the world shipping industry."

The global shipping market is entering its sixth year in the doldrums as many large ships ordered during the industry's heydays were put into service just as the economic slowdown slashed cargo demand. Traffic on Asia-Europe routes was particularly weak over the past few years. Overcapacity has meant that freight rates remain subdued, despite a pickup in some key routes, hurting profits of major shipping companies.

But the outlook isn't all bleak. On Tuesday, China Logistics Group Inc, an international freight forwarder and logistics management company, said it "anticipates strong growth in domestic and international end markets" for its logistics operations in 2014.

During the downturn, the company said it launched initiatives aimed at diversifying its client base and expanding the scope of its services. In addition to establishing a South American route in 2012, China Logistics began to strengthen its domestic trucking capabilities through a leasing arrangement with a major trucking company last year. "From a service prospective, the company focused on improving its competitive capabilities in receipt of goods, warehousing, transporting shipments, consolidation of freight, customs declaration, inspection declaration, multimodal transport, and combined large-scale logistics," it said.

Chairman and CEO Danny Chen said "as the domestic economy in China recovers, we believe our efforts to broaden our services and open new international markets place us in a strong position to benefit from improving economic trends in 2014 and beyond." Specifically, "gradual improvements in the domestic economy coupled with continued expansion of logistics exporting through its South American routes will be key drivers of growth for the company in 2014 and beyond," China Logistics said.

Management "further believes this growth will offset any further weakness in European markets", the company said. China Logistics is registered in the US and does business in China through its unit, Shandong Jiajia International Freight & Forwarding Co, or Shandong Jiajia.

Analysts agree that diversity is the key for logistics companies in the months and years ahead. As customers enter new markets, especially in emerging economies, they are demanding "much more than traditional transportation and warehousing services from their freight forwarding and contract logistics providers", according to Accenture's 2013 industry outlook.

"The ability to offer new, value-added services such as warranty processing, returns management and light manufacturing is now a differentiator, as is providing services such as customs and insurance brokerage , and trade and transportation management," according to the outlook.

But companies in the industry face risks - particularly in light of continued global economic instability. Rising oil prices, slowing industrial production, economic challenges in Europe, political instability and natural and weather-related events highlight the often fragile nature of the freight forwarding and logistics business, according to Accenture.

To be sure, the ability to provide one-stop shopping is emerging as a key to success for this important industry at a time of change. Sexy it may not be, but its value becomes apparent each time someone orders something online - and must choose his preferred method of shipping.

Contact the writer at michaelbarris@chinadailyusa.com

(China Daily USA 02/26/2014 page2)