Retailers set for logistics slimdown
Large retailers across much of the developed world look set to slim down traditional distribution centres near their stores after local governments in many coastal parts of China made it easier to move sorting work close to Chinese factories.
By Robert Wright, Shipping and Logistics Correspondent, Financial Times

A series of logistics industry professionals and consultants have told the Financial Times that the relaxation of customs procedures in southern China and around Shanghai has encouraged foreign companies to outsource more sorting work to “bonded logistics parks”. Companies have far more leeway to hold goods for long periods in such warehouse developments, which are fenced and guarded by customs officials, than under normal Chinese customs rules.

There are also far fewer restrictions than elsewhere on how goods can be brought in and out of the parks, and tax rebates on exported goods can be claimed earlier.

Bruno Sidler, chief operating officer for Ceva Logistics, the Netherlands-based logistics provider, said that different Chinese provinces were competing against each other to attract such complex logistics facilities.

The inflexibility of many provinces’ customs officials previously meant use of the more sophisticated techniques was confined to Hong Kong, where there are no customs restrictions, and a few specially designated areas around Shenzhen and Shanghai.

“Nowadays we have customs rules in China which are as liberal as any free-trade zone in Europe or anywhere else,” Mr Sidler said. “Then it becomes much, much easier to run such operations.”

Because companies outsourcing distribution work typically avoid publicity, there are no clear statistics on the extent of the change. But those moving distribution to the Chinese logistics parks are known to include retailers from the UK and a number of other developed countries, including New Zealand.

James Gagne, greater China chief executive for Agility, a Switzerland-based logistics provider, said the number of companies sorting their goods in China was “definitely going up”.

Finance directors and logistics officers wanted to keep goods away from expensive-to-operate developed world supply chains until the last possible minute.

“They keep goods in China, where they can pull inventory into the supply chain as needed, thereby keeping just the right amount of inventory,” Mr Gagne said. “They can defer capital expenditure and expansion of distribution overseas."

An invisible change has come over the developed world’s container ports. The containers coming off ships and heading, on trucks and trains, out of the gates still outwardly look the same.

But on their insides, a growing proportion are no longer filled with a single type of shirt, shoe or television.

As a result, growing numbers of containers leave Chinese ports packed with goods in the precise quantities and orders required at stores in their destination countries, often with price tags already attached and ready to go straight on display. The containers often go straight from destination country ports to stores, rather than the distribution centres that traditionally hold and sort goods.

The development is the latest of many waves of outsourcing work from the developed world to China, and has roots in the manufacturing heartlands in the south of the country and around Shanghai further up the coast. A growing number of Chinese customs authorities recognize the potential to attract to their provinces not only manufacturing, but work sorting goods that would normally be done either in developed markets or competing areas of greater China.

Sophisticated distribution techniques were once confined to Hong Kong and environs and Shanghai port. They are spreading further afield.

The growing use of the techniques reflects the latest attempt by developed market retailers to cut the costs of distributing goods and holding them in supply chains.

The spread of such logistics parks to the province of Guangdong, around the Pearl River Delta in southern China, and Ningbo, near Shanghai, reflects now the scope of these operations has expanded considerably.

The techniques were born among the multi-storey godowns clustered in the steep hills around Hong Kong’s container port in Kwai Chung. Exporters initially brought goods that needed some kind of sorting with other goods or packaging to Hong Kong because its status as a customs-free zone made the process easier than on the mainland.

Over the border, restrictions on the length of time goods could stay in warehouses, rules about how goods could be released from warehouses and other regulations made many operations, such as the uniting of Chinese-made electronics with power cables made in Thailand, nearly impossible.

While officials in Shenzhen, Hong Kong and at Shanghai’s port were quick to allow similar techniques, the last two years have seen customs in Guangdong, Ningbo and other areas also loosen their rules.

The techniques will never apply to every container arriving at a port. Fashion retailers and makers of high-end electronics are reluctant to decide exact stock levels for each store weeks ahead of time. Countries’ differing technical and regulatory requirements can make it hard to organize distribution from a single point in China.

For the products where the distribution techniques work, there will be benefits beyond cost reductions. Distribution should become more efficient when the work moves upstream, closer to factories.

(Source: Financial Times)

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