APL Logistics Presentation

to GAP INC.

Partnership In Retail Sector In China

15th February 2006

APL Logistics CapabilityAPL Logistics Capability

Retail Sector in ChinaRetail Sector in China

Case StudyCase Study

ConclusionConclusion

Ag

end

a

APL Logistics Capability

NOL Group

SCM SpecialtySCM SpecialtyChemicalsChemicalsAutomotiveAutomotiveFMCG/RetailFMCG/Retail

NOL Founded in 1968Global Transportation & Logistics Group2004 Revenue USD 6.5 billion

APLL established in 1980Global 3PL. Exceptional strength in U.S & Asia2004 Revenue USD 1.2 billion

APLL Global Coverage

Chile

Jamaica

United States of America

China

Africa

India

Japan

Philippines

IndonesiaBrazil

Fiji

Sri Lanka

Argentina

Peru

Mexico

SingaporeMalaysia

Taiwan

Korea

Thailand

Madagascar

Mauritius

Egypt

Hungary

Finland

United Kingdom

Hong Kong

SwedenNorway

TurkeyItalyFrance

GermanyCzech Republic

Pakistan

UAE

Netherlands

SaipanDominican Republic

ColumbiaCosta RicaNicaragua

El Salvador

Guatemala

Bahrain

Denmark

Spain5,000 Employees 271 Offices 174 Cities 55 Countries 18.4 m Cbm Turnover 26 m 5,000 Employees 271 Offices 174 Cities 55 Countries 18.4 m Cbm Turnover 26 m ftft22 Warehouse Warehouse

China Office Network

Xiamen

Shanghai

Qingdao

Shenzhen

Dalian

Hong Kong

BeijingBeijing

Tianjin

NanjingNanjing

Ningbo

Guangzhou

APL and APLL in China

1 HQ (BEJ)1 HQ (BEJ) 15 15

branches branches (Taizhou (Taizhou registration registration to be to be completed)completed)

24 liaison 24 liaison officesoffices

1 HQ (SHA)1 HQ (SHA) 10 branches 10 branches

(PEK, GGZ, (PEK, GGZ, FUZ FUZ registration registration to be to be completed)completed)

4 liaison 4 liaison offices offices

North ChinaSouth China/Hong KongHead Offices & Branches

Fuzhou

Liaison Office

APLL Great China Organization Chart

George Goldman

VP/MDNPRC

Dan Ryan

VP/MDHKSC

Jerry WangDirector,

Automotive

(Covered by Paul Tay)DirectorRetail/

Lifestyle

Paul ManDirector, Contract Logistics

& SCS

Raymond ChoyGM,

Service Integrity

(Open)Manager, Marketing

(Open)Manager, Solutions

Engineering

Koay, Peng Yen

President Greater China

Paul Tay

VP, Reg. LogisticsGreater China

Saito TadayoshiSales Mgr, Japanese

Accts

Mike SullivanManager,

Sales/ Key Acct Mgmt

Frank Chen

MDTaiwan

Jacky Li

Director, Logistics

HKSC

Joe Lee

Director, Logistics

NPRC

(Covered by Frank Chen)

Director, Logistics Taiwan

Direct report to Dennis Chan.

Functional report to Paul

Tay

Direct report to Dan Ryan. Functional

report to Paul Tay

APLL Logistics Capabilities In China

• Wholly Foreign Owned Enterprise (WFOE) Wholly Foreign Owned Enterprise (WFOE) LicenseLicense

19971997

• Public Distribution Enterprise License in FTZPublic Distribution Enterprise License in FTZ 20002000

• Non-Vessel Operated Common Carrier License Non-Vessel Operated Common Carrier License (NVOCC)(NVOCC)

20022002

• Class One & Class Two Air Forwarding License Class One & Class Two Air Forwarding License JVJV

• Trucking Operation LicenseTrucking Operation License JVJV

• Import & Export Business License Import & Export Business License JVJV

• Modern Logistics Advisory Board memberModern Logistics Advisory Board member

• Local Logistics Alliances and Joint VenturesLocal Logistics Alliances and Joint Ventures

Global End-to-End and time definite supply chain management services

Distribution Centres

Door / Customer

Factory / DC

ProductShipped

Foreign Supplier

Local Distribution

Local Transportation

Customs

Cleared

Export

Distributors / Wholesalers

Store Door / Customer

Customs

Cleared

Customs

Cleared

Domestic Supplier

Customs

Cleared

Product FlowProduct Flow

Velocity, Flexibility & PredictabilityVelocity, Flexibility & Predictability

Information FlowInformation Flow

Increase Visibility & Accelerate Decision Increase Visibility & Accelerate Decision MakingMaking

Document FlowDocument Flow

Accuracy & TimelinessAccuracy & Timeliness

Financial FlowFinancial Flow

Transactional Speed & SavingsTransactional Speed & Savings

Vision & Strategy

APLLL Warehouses In China

XiameXiamen

ShanghaiShanghai

QingdaoQingdao

Shenzhen

DalianDalian

Hong KongHong Kong

BeijingBeijing

TianjinTianjin

NanjingNanjing

NingboNingbo

GuangzhoGuangzhou

FuzhouFuzhou

ZhangjiagangZhangjiagang

40,000 ft²

38,500 ft²

ChongqingChongqing

19,368 ft²

53,820 ft²

975,126 ft²

180,018 ft²

33,000 ft²

185,000 ft²

129,120 ft²

213,050 ft²

215,285 ft²

560,000 ft²

As of 2005,total of 25 Facilities over 2.5Mil sq. ft of space

550 employees in china.

Formed 2 Joint Ventures in 2002

Handled more than 600,000 CBM domestic cargoes in 2004

Warehouse Management Scopes

• Pick & PackPick & Pack• Consolidation Consolidation • Label printing & Sticking Label printing & Sticking • Floor Planning & Space Optimization Floor Planning & Space Optimization • Product Quality & Quantity Verification Product Quality & Quantity Verification • Expiration Date Control & Alert Report Expiration Date Control & Alert Report • Humidity & Temperature Monitor Humidity & Temperature Monitor • Distribution & Transportation Management Distribution & Transportation Management • JIT JIT • Real Time Records of Inventory Real Time Records of Inventory • PO Validation PO Validation • EDI Data Exchanging EDI Data Exchanging • Customized ReportsCustomized Reports

• Pick & PackPick & Pack• Consolidation Consolidation • Label printing & Sticking Label printing & Sticking • Floor Planning & Space Optimization Floor Planning & Space Optimization • Product Quality & Quantity Verification Product Quality & Quantity Verification • Expiration Date Control & Alert Report Expiration Date Control & Alert Report • Humidity & Temperature Monitor Humidity & Temperature Monitor • Distribution & Transportation Management Distribution & Transportation Management • JIT JIT • Real Time Records of Inventory Real Time Records of Inventory • PO Validation PO Validation • EDI Data Exchanging EDI Data Exchanging • Customized ReportsCustomized Reports

Xi’an

Harbin

Shenyang

DalianBeijing

Tianjin

Kunming

Wuhan

Nanning

Zhengzhou

Chengdu

Changsha

Hefei

Baoding

Shijiazhuang

JinanQingdao

Nanjing

Shanghai

Hangzhou

Ningbo

Suzhou

XiamenFuzhou

Haikou

GuangzhouShantou

Shenzhen

ChongqingWenzhou

Zhuhai

Daqing

Umuqi

XiningLanzhou

Yinchuan

Huhehaote

Changchun

Nanchang

Taiyuan Yantai

Nantong

Wuxi

Zhanjiang

Guiyang

Trucking Services Through Selective Partnerships :

Bonded & Non-bonded trucking services

All truck types/sizes

Full truck load and less-than-truckload service

Cover all major cities in China

Stringent Lead Time control

No Overload Guarantee

APLL PRC Capability – Road Transportation

Trucking Partner Equipments0.5T/2T/3T/5T trailers total 10around 15 controlled trucks60x40' customs custody & 20x40'foot container tailersControlled trucks:more than 200 x 40' cnter tailers non-baonded truck owned 30Bonded truck:5

Wanwang

Beihai

APLL Zhiqin

APLL PRC Capability – River Transportation

Partnership with local carriers to provide barge Service in Yangtze River Delta, Pearl River Delta and Coastal area

Offering domestic consolidation service in Shanghai, Tianjin, Dalian, Qingdao, Fuzhou, Xiamen, Shenzhen, Chongqing & Chengdu

Shanghai

Yangtze River DeltaYangtze River Delta

Chongqing

Kong Hong

Pearl River DeltaPearl River DeltaGuangzhou

Xinjiang

Qinghai

Tibet

Yunnan

Sichuan

Gansu

Ningxia

Shanxi

Shanxi

Henan

Hubei

Guizhou

Guangxi

Hainan

JiangxiFujian

Anhui

Hebei

Inner Mongolia

Liaonign

Jilin

Helongjiang

Hunan

Chongqing

ShanghaiNingbo

Guangzhou

TianjinDalian

Jiangsu

Guangdong

Shandong

Zhejiang

Qinghuangdao

Qingdao

Shenyang

Chengdu

ShenzhenYantian

Xiamen

Fuzhou

Nanjin

Beijing

Hangzhou

Changchun

HongKongC

oas

tal Tra

nsp

orta

tion

APLL PRC Capability – Air Transportation

Xinjiang

Qinghai

Tibet

Yunnan

Sichuan

Gansu

Ningxia

Shanxi

Shanxi

Henan

Hubei

Guizhou

Guangxi

Hainan

JiangxiFujian

Anhui

Hebei

Inner Mongolia

Liaonign

Jilin

Helongjiang

Hunan

Chongqing

Shanghai

Ningbo

Guangzhou

TianjinDalian

Jiangsu

Guangdong

Shandong

Zhejiang

Qinghuangdao

Qingdao

Shenyang

Chengdu

ShenzhenYantian

Xiamen

Fuzhou

Nanjin

Beijing

Hangzhou

Changchun

HongKong

JV APLL-Zhiqin owns Class “A” (international) & Class “B” (Domestic) Airfreight Operator License issued by CAAC

3 regional air freight consolidation hubs in Beijing, Shanghai and Shenzhen airports

Dedicated on-site operation team in the airports

Reliable partnership with main Airlines

APLL’s Customer Service Excellence

Warehouse KPIKPI Description & Measurement Target

Inventory Accuracy Percentage of line items with physical count matches with system record. (By pcs)

>99.9%

Damage Ratio Percentage of stocks damaged with respect to overall cargo volume. (By pcs)

<0.1%

Complete/Accurate order

Percentage of order lines with the right model number & requested quantity picked.(By order lines)

>99%

On-time dispatch Percentage of orders received and made ready for loading within the same day.

> 99.5%

On-time receipt Percentage of goods received and updated into WMS within 4 hours upon arrival.

>99.5%

Safe Operation Number of major accidents occurred during the month.

0 incident

Compliance with Government regulations

Number of violations on local government building/fire/safety regulations

0 incident

Subject to Contract

APLL also provide various tailored KPI services to fulfill different customers requirements.

Transportation KPI KPI Description & Measurement Target

On Time Delivery Percentage of orders delivered to customer within agreed service lead time or promised date. (By order)

>95%

Damage Ratio Percentage of cargo damaged when delivered to customer with respect to overall cargo volume. (By ton)

<1%

On Time D/O Return

Percentage of endorsed D/O signed by end-customer which have been brought back within promised days upon cargo delivery. (By order)

>95%

Success Delivery Ratio

Percentage of correct and completed delivery fulfillment. (By order)

>99%

Customer Complaint Ratio

Percentage of service failure claimed by customer. (By order)

<1%

Subject to Contract

Sample KPIs – Determined to be the Best In Class

End to End Technology

Proactive information technology services and toolsProactive information technology services and tools

Internet Visibility

ASN Compliance (RFID, bar code scanning and labeling)

Transportation Management System (TMS)

Warehouse Management System (WMS)

Yard Management System (YMG)

XML (Transmission Protocol)

Electronic Data Interface (EDI)

Internet Visibility

ASN Compliance (RFID, bar code scanning and labeling)

Transportation Management System (TMS)

Warehouse Management System (WMS)

Yard Management System (YMG)

XML (Transmission Protocol)

Electronic Data Interface (EDI)

Our Customers in China

WMS & TMS In China:

Allenberg

Belden

IKEA

ChangAn Ford

SONY

UCB Chemical

Huntsman

Rohm & Haas

Reliance

Novus

Jinsen

Maxxium…

Apparel Consolidation Customers:The GapPolo/Ralph LaurenTommy HilfigerEsprit Charming ShoppesAnn TaylorNikeTimberlandStride RiteRuss BerrieTarget Corp.J.C. PenneyK martTJ MaxxMay Department Store…

Retail Sector in China

China Retail Market

Traditional grocery store. Still the most important retail format in China with low entry capital.

Supermarket & Hypermarket. Increasing rapidly in China with fierce competition among big retailers in both domestic and international players.

Department stores. Once the most popular retail format in China. Their leading position is gradually losing to modern retail formats.

Flagship/Specialty stores. Including home appliance, pharmaceutical, computer etc. are increasing popular in China these days.

Convenience stores. Quite successful in urban cities like Guangzhou, Beijing and Shanghai. However, the margin becomes thinner and thinner affected by the stiff market competition

Online shoppings. a new format with increasing popular among young generation which has very small sales proportion compared to other channels

Major Retail Formats

Example of Major Supermarket : Example of Major Supermarket : – Global : Carrefour (China), K-mart, Global : Carrefour (China), K-mart,

Lotus, Matro, AuchanLotus, Matro, Auchan– Local : Bailian Group, Beijing Huailian, Local : Bailian Group, Beijing Huailian,

Suguo Supermarket,Suguo Supermarket,

Example of Department Stores :Example of Department Stores : – Global Retailers : Istan, Parkson, Global Retailers : Istan, Parkson,

Pacific, Grand SquarePacific, Grand Square

– Local Retailers : Dashang Group, Local Retailers : Dashang Group, Chongqing Commerce GroupChongqing Commerce Group

Example of Professional stores:Example of Professional stores:– Local Retailers : Gome, Suning, Local Retailers : Gome, Suning,

Yolong (Electronic) Yolong (Electronic)

Example of Brand Chain: Example of Brand Chain: – Esprit, CK,Esprit, CK, Samsonite, SwarovskiSamsonite, Swarovski

Example of Convenience Store: Example of Convenience Store: – C-Stone, KEDI, HaodeC-Stone, KEDI, Haode

13%

43% 40%

1.5%2.5%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

DepartmentStore

Supermarket &Hypermarket

ProfessionalStore

Brand ChainStore

ConvenientStore

Sales Proportion by Retail Channel

China Retail Market Sharing

Source: National Bureau of Statistics of China, top 100 retailers statistics 2004 data

Source: Market information & discussion with FMCG customer

Retail Modes Split by Regions

Beijing Liaoning Shanghai Jiangsu Zhejiang Guangzhou Chongqing Sichuan

Convenient Store

Brand Chain Store

Professional Store

Super Market

Department Store

Retails Sales Rev by Regions (2004 vs 2003)

• Shanghai and Beijing still stay as the top retail markets in China. Their retail sales revenue takes more than 40% of country wide retail sales revenue.

• Retail industry continuously keeps high increasing rates of more than 30% compares to 2003.

0

20000

40000

60000

80000

100000

120000

140000

Sale

s R

ev (

Mil

lio

n R

MB

)

Source: Market information & discussion with FMCG customer

• Brand Chain Store only take about 1% of total retail sales in China.

• Beijing, Shanghai, Guangdong, Zhejiang, Jiangsu lead this brand chain sales mode and show high potential on acceptance.

0

400

800

1200

1600

Sal

es R

ev (

Mil

lio

n R

MB

)

2004

2003

Sales Rev of Brand Chain Stores by Origins

Foreign Brand Apparel Retailers in China

Source: APL Logistics China internal research

Brand Beijing Shanghai Guangzhou Dalian Hangzhou Jinan Wuhan Others Total Chain Shops Other FormatESPRIT 5 10 7 3 2 1 1 20 77 500+

NAUTICA 19 12 2 1 4 0 7 59 104 N/ABENETON 1 1 0 1 1 0 0 14 18 N/AGIODANO 10 7 11 8 0 6 5 N/A 47 600+

Store Location

Retail Market Trend

Market is expected to record massive growth over the next few years with some trends as below:

Intense competition and low profitability due to serious business expansion including both local and foreign retailers.

China Logistics cost in top 100 retailers is 25-27% comparing to 7-8% in the US

More M&A leading to consolidation of retail market.

Growth remains focused on key market cities due to high average individual incomes in China’s rich urban centers such as Shanghai, Beijing and Guangzhou.

Continuous expansion from 1st tier to 2nd tier cities. More retailers are moving to provincial towns and rural areas to capture new market share although these areas are still relatively underdeveloped and less competitive.

Supermarkets and hypermarkets formats are to overtake department stores. While retail chain store is to replace traditional grocery stores, mini-markets and kiosks.

Multi-format operations will be a choice of big retailers to achieve greater economies of scale

Case Study

China Supply Chain China Supply Chain NetworkNetwork

Guangzhou ReDC

Dalian ReDC

Shanghai CDC

Beijin ReDC

Panyu CDC

Case Study – A Famous Garment Retailer

• 153 wholesale routes

• 470 POS’s & 85 POS’s in shanghai

• 8 special Stores

• 58 POS’s in Beijing • 16 POS’s in Dailian

• 10 POS’s in Guangzhou

• 5 wholesale routes

• 15 POS’s

• 6 special Stores

Ports of sales in China Number of Retails : 171+

- 39% Own Retails

- 61% Franchise Number of Wholesale : 496+

Distribution Centers60,000 FT2 (Beijing) 300,000 FT2 (Shanghai) 30,000 FT2 (Shenzhen)

Delivery Cities 70+

POS 500+

Transportation Vehicles 450+

Inventory Accuracy >99.9%

Damage Rate <0.1%

Order Pick Accuracy >99.9%

On time Delivery >99.0%

Snapshot of APLL Existing Distribution Service in China

Conclusion

Document/Data Flow: - Diverse data system cause non-homogenous data modality in

Logistics Chain; - Data Accuracy - Various different level of Requirements for documents as per

different Clients.

Product FlowProduct Flow:: - Proper Packaging to keep damage rate satisfaction;- Proper Packaging to keep damage rate satisfaction; - Timely & Effective Replenishment;- Timely & Effective Replenishment; - Distribution network Design;- Distribution network Design; - Inventory - Inventory rationality & rationality & accuracy.accuracy.

Logistics Challenges for Retailers in China

Logistics Challenges for Retailers in China

Before tailor-made and setup essential solution for GAP’s Before tailor-made and setup essential solution for GAP’s domestic distribution & operations, should know:domestic distribution & operations, should know:

GAP’s SKU ProfileGAP’s SKU Profile

Volume forecastVolume forecast

Planned points of domestic salesPlanned points of domestic sales

Percentage split of domestic sourcing and importPercentage split of domestic sourcing and import

Profile of domestic suppliers (Location & Volume)Profile of domestic suppliers (Location & Volume)

… …… …

Thank You !Thank You !