Supply Chain Presentation Vanderbilt
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Transcript of Supply Chain Presentation Vanderbilt
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Changing Supply Chains in China
Russ WhittleSeptember 16, 2008
Vanderbilt China Business Forum
And
Owen Graduate School of Business
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Migration of Export Shipments from Hong Kong to South
China
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HK Share in S China Direct Ocean Cargo
0
10
20
30
40
50
60
70
80
90
100
Percentage
93.3 84.5 76.1 61.6 58.2 53.2
1997 1999 2001 2003 2005 2007
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South China Direct Ocean Cargo: Hong Kong vs. Shenzhen
0
5,000
10,000
15,000
20,000
25,000
30,000
'000 TEUs
HK Direct Ocean Cargo 9,662 10,071 10,478 11,149 22,602 23,998
Shenzhen Direct OceanCargo
698 1,846 3,298 6,936 16,192 21,099
1997 1999 2001 2003 2005 2007
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Comparative Advantage
All major carriers All major carriersService by Steamship lines
Development cost are substantially lower and government is aggressive
Limited due to costs and government inaction
Expansion
More land available to support container terminal productivity and little environmental regulation
Land & environmental constraints limit productivity improvements
Productivity
Regulatory environment is improving fast and should drive convergence
Simple and transparentRegulatory Environment
High quality, state of the art technology for container loading
High quality, state of the art technology for container loading
Port Service Quality
Lower THC at Shenzhen portsTHC are significantly higher, push is on to lower THC to bring convergence
Terminal Handling Charges
Lower shipping costHigh cross-border costInland Transport Linkages
ShenzhenHong Kong
From “Study on Hong Kong Port - Master Plan 2020” by GHK (Hong Kong) Ltd.
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Cost Advantages
$1430$1417$1713Total
$296Differential: HK Relative to Shenzhen
$269$269$366Terminal Handling Charge
$167$154$333Truck to Port Terminal
$994$994$1014Fees (Documentation)
Via Shekou / Chiwan
Via Yantian
Via Hong Kong
Industry data based upon a 40 Foot ISO container
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Future Plan
• Shenzhen investing US$3.3 billion in port development
• Plan to double capacity in Shenzhen• Develop additional deep water ports
– 60 berths in 5 port areas
• Nansha development & expansion• Two new port clusters
– Hainan– Fujian
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Hong Kong
Tianjin
Dalian
Fuzhou
Guangzhou Shenzhen*
Qingdao
Xiamen
Ningbo
ShanghaiNanjing
Wenzhou
* includes: Yantian, Shekou & Chiwan Ports
CHINA
China’s Major Container Ports
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Inland China Transportation & Shipping
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River Traffic
• 133,000 kms of inland river routes open to navigation• 3 major river basins
– Yangtze
– Pearl
– Yellow
• Yangtze & Pearl Rivers account for 80% of transportation capacity
• River ports: Chongqing, Wuhan, Yichang• Small vessel: 50,000 - 70,000 tonnage, up to 150,000
• Transfer points: Rail and Road
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Railways
• Not enough capacity, can service only 35 - 50% of needs
• Central gov’t investing US$150 billion over 5 years
• Developing 10,000 km of track to accommodate double deck containers
• Capable of handling 10 million TEUs• Switching to higher speed electric engines
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Road Network
• Invested US$241bn in road construction from 1990 - 2003
• Added 5000 km of expressway in 2007• Currently 50,000 km of expressway
• Plan by 2020 is 85,000 km of expressway• Local provinces also investing in road
infrastructure and opening to private sector
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Role of Third Party Logistics (3PL) Providers in China
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What is a 3PL?
A third-party logistics provider (abbreviated 3PL) is a firm that provides outsourced or "third party” logistics services to companies for part, or sometimes all of their supply chain management function. Third party logistics providers typically specialize in integrated warehousing and transportation services that can be scaled and customized to customer’s needs based on market conditions and the demands and delivery service requirements for their products and materials.
Source: Wikipedia
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3PLs in China Licenses
• Full business license• Custom Brokerage• Trucking & Cartage
• Warehouse & Distribution• Ocean Freight Agent• Break-bulk Agent
• International Air Transport Association (IATA)• CT-PAT (certification)
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Value Added Services
• QA / Quality control• Barcode labeling• Kitting & assembly
(bundling)• Packaging• Price marking
• Security tagging• Product display units
rbainc
Propeller, Inc.
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Value Proposition
• Reduce end-to-end supply chain costs:– Value added services cost displacement
(PRC labor rates vs. US)– Reduction / elimination in redundant
processes– Lower freight cost (FCL vs LCL)– Eliminate costly surprises (wrong product /
defective product / shortages)
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Bonded Logistic Park, Free Trade Zones and CFS
Bonded Logistics Park
Free Trade Zone Warehouse
Bonded WarehouseGeneral Warehouse
Not allowedMediumMediumLowCost for returning goods from warehouse to supplier
UnlimitedUnlimited6 months (extendable for another 6 months)
UnlimitedStorage Period
Immediate refund after delivery into
warehouse
Refund after goods are physically
exported out of PRC
Immediate refund after delivery into warehouse; may
change to FTZ policy later
Refund after goods are physically exported out of PRC
VAT Refund Policy
YesYesYes
(Customs approval)
NoMulti-country consolidation
YesYesYes
(Customs approval)
NoCo-packing or Kitting or Assembly
YesYesYes
(Customs approval)
NoItem level consolidation
YesYesYesYes
(N. China only)
Carton level / LCL consolidation
Shipper (FOB)
Consignee (FCA)
Shipper (FOB)
Consignee (FCA)
Shipper (FOB)
Consignee (FCA)
ShipperOwnership
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Warehousing & Distribution Strategies out of China
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Distribution
• Consolidate multiple vendors products into one box and ship directly to store or manufacturing site
• Direct to DC. Bar code labeled for distribution• Direct to customer
– Technology– High value
• Rework prior to shipment (product display units)
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Warehousing
• Staging for product launch
• Just-in-time
• Hold components and finished goods at origin (delay shipping cost / duty)
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Value Proposition
• Elimination of supply chain transfer points (DC bypass)
• Lower freight cost (FCL vs LCL)• Less inventory in supply chain
– Safety stocks – Increased turns– Reduced working capital costs
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Changing Nature of Supply-chain and Logistics
in China
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Green Initiatives
• Reducing carbon footprint– EU lead
• Efficiencies– IT & Automation
• CNG Trucks• Packaging • Container Utilization• Reverse logistics• Recycling
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Security & Tracking
• CTPAT– Locks
• RFID– Container
– Pallet– Case
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China
• New labor laws• Greater focus on environment• Reduction in export rebates
• Higher cost • Shift to higher end manufacturing• Supplying components for assembly in other
SE Asia countries• Increased domestic consumption
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Thank you