China Logistics User Survey - Executive Summary

2005 China Logistics User Survey Executive Summary Conducted by the China Supply Chain Council (CSCC) Sponsored & supported by Maersk Logistics

New China survey reveals Third-Party Logistics Provider (3PL) trends in 2005 With China attracting major investments and manufacturers and retailers increasingly realizing the benefits of outsourcing to third-party logistics providers (3PLs), the China Supply Chain Council (CSCC) wanted to determine what the current status towards logistics outsourcing is and what the key trends in 3PL usage are in 2005.

Conducted from February to March 2005, the 2005 China Logistics User Survey drew responses from 438 industry professionals. This latest survey effort from the China Supply Chain Council was supported by Maersk Logistics.

56% of respondents are currently using a third-party logistics provider (3PL), much less than other continents such as North America 79%, or Western Europe 76%, and only 20% of respondents consider 3PL as a "Solution Provider": 3PL in China need to be more professional and differentiate from transporter and warehouse operators. According to the survey, the top three services currently outsourced to 3PL in China are transportation (over 30%), warehousing (15%) and custom clearance (12%).

Over 65% of manufacturers and retailers surveyed acknowledged that their China logistics decisions was taking place within China while 16% in their Asia-Pac Headquarter and 18% outside Asia.

The survey results suggest that the industry as a whole seems to be suffering from the same problems impacting their logistics operations in China. While high logistics cost was cited as their main problem (47%), 13% of respondents also complained about the quality of transport means (e.g. trucks). Reliability of local logistics providers was also cited for 11% of them, with the quality of service level and data tracking as the main concerns. Cost (30% of respondents), just-in-time approach, quicker delivery times (23%), supply chain integration e.g. partnerships, collaboration with trading partners (18%) were also cited as being the strongest forces driving their logistics in China.

The survey also confirmed the unusually high cost of logistics services in China. Among the 288 industry professionals surveyed, the logistics cost of their finished products is around 11%. Additionally, 63% of their spending to 3PLs in China was going to warehousing while 31% to transportation and distribution.

The survey also explores the trends in warehousing/DC facilities in China. Over 20% of respondents shared their plans to open or use another facility in Shanghai in the coming 2 years, while 16% in Beijing, 15% in Guangzhou and 13% in Shenzhen. Chengdu was also cited by over 9% of respondents.

China becoming the factory of the world, the survey confirmed another trend for foreign manufacturers to have pre-storage/consolidation of their goods in China to support their global operations. Today, around 80% of the respondents are working or looking into predistribution solutions in China.

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The survey also uncovers the main criteria when selecting a 3PL provider in China. As expected, price is ranked as the top criteria followed by local market experience, services range and good reputation of the vendor. As a surprising result, the capability to reduce the system inventory was also considered as an important criterion by over 17% of respondents, which shows that enterprises start to consider inventory performance as 3PL's responsibility.

Copyright Š 2005 China Supply Chain Council (CSCC) - All rights reserved

Over 20% of supply chain and logistics managers surveyed cited service level and cost effectiveness as the main areas where they think a 3PL provider can improve in China. Cost effectiveness (19%) and management capabilities (15%) were also cited by respondents.

Also according to the survey, the top three IT systems in which the industry is looking to implement within the next 12 months are Warehouse Management System (WMS) (nearly 17%), Customs Management System (over 12%) and Supply chain Planning/Sales Forecast (close to 12%). Close behind are Transport Management System (TMS) and Import/Export Management Systems. The three technologies currently attracting the least interest are Supplier Relationship Management (SRM) and Radio Frequency IDentification (RFID).

These results clearly signal that the market in China is still not ready for RFID despite the fact that it is slated to be the industry's next big technology shake-up.

Last, the survey suggests that in the next 12 months, manufacturers and retailers will you put more priority on outbound logistics supporting their existing customers, clients, resellers in China. Respondents also ranked inbound logistics (supporting their local suppliers, contract manufacturers) and reverse logistics (supporting after sales, repair and maintenance) as somewhat less important.

About the CCSC The China Supply Chain Council (CSCC) is a leading Shanghai based professional organization providing an unbiased source of information, training and networking to the supply chain, logistics and manufacturing community in China.

With a community of over 10,000 supply chain, logistics, procurement and manufacturing professionals in China, CSCC has researched and presented outstanding conferences and is recognized as a forerunner in providing great-value events in Shanghai and the rest of China.

Methodology The 2005 China Logistics User Survey was sent to over 2,000 supply chain and logistics professionals in China. The names were selected from CSCC’s 10,000+ database and were targeted logistics end-users such as manufacturers and retailers operating in Mainland China. A total of 438 companies responded to the survey with a total of 117 completed questionnaires.

The majority of the companies (over 30% of responses) are operating in Shanghai while a good number are in South China (Guangzhou 13%, Shenzhen 11%, Hong Kong 13%) and Beijing 20%. Organizationally, 51% of the respondents represented wholly owned foreign enterprises, 24% joint ventures and 28% were from foreign representative’s offices.

The majority of respondents (over 70%) hold a management position or above, with the following functional responsibilities: supply chain (over 25% of them), logistics (18%) and corporate management (12%). More than 20 different industries were represented in this survey including Retail & Distribution 12%, High-Tech 11%, Electronics 10% and Industrial Equipment 10%.

The complete set of results is available online to China Supply Chain Council’s members.

For more information on how to get access to the results or CSCC membership, please contact Max Henry at +86 21 27762021 or email max@supplychain.cn

About Maersk Logistics Maersk Logistics is a recognised leader in the international logistics market, providing customised solutions for integrated supply chain management, warehousing and distribution, and sea and airfreight transport. Maersk Logistics employs over 4,500 people in over 200 offices in more than 70 countries.

Maersk Logistics is part of the A.P. Moller – Maersk Group, which has more than 60,000 employees in more than 125 countries around the world. Besides shipping and logistics, the A.P. Moller - Maersk Group is engaged in the exploration and production of oil and gas, shipbuilding, aviation, industry, and supermarkets.

For further information, please refer to the Maersk Logistics website: www.maersklogistics.com

Copyright © 2005 China Supply Chain Council (CSCC) - All rights reserved