Logistics in China: what is good to know before you start your research
Our GAP project is to analyze the feasibility of a US-based company entering China’s market through the e-commence channel. This project involves three major aspects: marketing, logistics, and legal. This blog is the third in the logistics series. The first blog discusses China’s logistics & transport infrastructure. The second blog covers the process of meeting international and local logistics. In this third blog, I will share my experience about conducting logistics analysis in China. I hope theses three blogs will be helpful to those working on future projects based in China in the area of logistics.
As mentioned in the first blog, China’s logistics market is fragmented. Basically, the value chain of logistics can be divided into three kinds of third party logistics companies: freight forwarders, warehousing agents, and express companies. On one hand, many of the freight forwarders are usually international companies. They are big players and have higher MOQ demand. Despite of the higher costs, these international companies are usually equipped with strong English communication ability. Furthermore, they usually have offices in the US, which provides flexibility and reduces barriers to working with US companies. Many of them actually provide integrated services that cover all three parts of the value chain, which also reduces management difficulty. On the other hand, warehousing agents and express companies are usually based only in China. One can easily find a lot of Chinese companies in these areas. As a result, the costs are quite competitive. However, given that they are based in China, they cannot provide the same flexibility as international freight forwarders can. The language barrier is also a problem. They usually do not speak English fluently, which increases management difficulty. You can learn more about our meetings with those 3PL in the second blog.
The ability to integrate different information systems is also a key point. It is very important to understand how the third party logistics company handles the information flow. A good 3PL should have their own ERP system that is able to connect with your E-commence platform, so that when a customer places an order on the platform, the 3PL can get the information automatically. In addition, companies with their own ERP system are able to monitor the timely inventory level through the ERP system and adjust their logistics plans at any time.
It is also good to know that in China, cities are classified into tiers based on economic and development levels. Tier 1 cities include Beijing, Shanghai, Guangzhou, and Shenzhen, which are usually considered the most advanced cities in China. Many 3PL have different rates for the same service in different tiers of cities. Usually, in the Tier 1 and Tier 2 cities, services levels are higher and the costs are lower.
The concept of bonded warehouses is also crucial for importers who want to sell their goods through e-commence channels to understand. The second blog explained the benefits of using bonded warehouses. However, it is also equally important to know the restricts of those warehouses. Since bonded warehouses can only be set up in free trade zones, which are only located in certain locations, the locations of bonded warehouses might not be the best location for you. Moreover, since the number of the bonded warehouses are limited, 3PL usually charge higher service fees. Despite this drawback, by using bonded warehouses, companies are not required to have a legal entity in China. Bonded warehouses are a good option for importers who are not sure about their market demand in the initial introductory phase.