Ready for China’s next logistics challenge?
American shippers may be preoccupied about how the expanded Panama Canal, increasing fuel costs and finding properly trained labor will impact their supply chains in the near future, but they should be careful not to lose sight of where they should focus their energies by the end of this decade.
China is expected to become a major import market for shippers worldwide, especially as the country’s more than 1 billion inhabits increasingly embrace consumerism. Naturally, people who work hard for a living want to enjoy the fruits of their labor, and the Chinese are no different.
“China’s rise as a major consumer economy is not a matter of speculation,” Walter Kemmsies, chief economist for maritime engineering firm Moffatt & Nichol, said. The process is already well underway.
For shippers, this will challenge them to reinvent their supply chains quickly, and not just those who want to serve China’s consumers. U.S. retailers who currently rely on China for many of their products may eventually find themselves sourcing those same goods elsewhere or even placing a portion of these items on store shelves in China.
In the past decade, China has been busy manufacturing products for the rest of the world, as multinational firms have set up factories there to take advantage of the lower labor costs. That’s beginning to change as these costs have started to go up. Some shippers, even those of Chinese origin, have moved their lower-end production requirements to neighboring Asian countries. More North American shippers are considering moving portions of their manufacturing back from China to this hemisphere to shorten their supply chains.
As China’s economy grows, it will increasingly become a significant import market for shippers. The Fortune 100 companies already understand this, and have invested heavily in China, both in terms of their manufacturing and logistics capabilities, realizing the massive consumer potential.
China is now the largest car market in the world, with annual sales of about 22 million. If China’s per person sales were the same as the United States, then given that China’s population is four-times the size of the U.S. population, the country should get to 65 million cars sold per year. That’s more sales than North America, Europe and Japan combined, Kemmsies noted.
With more money in their pockets, the average Chinese citizen will seek better housing and desire more nutritious foods. U.S. agricultural products are already finding their way in abundance to China’s dinner tables.
Many non-Chinese freight forwarders and non-vessel-operating common carriers have set up shop in and around China’s major seaport cities to offer their logistics services. While these operations are still largely focused on China’s outbound cargoes, it gives them a foothold when the imports start to rise.
In addition, China has actively built up its transportation infrastructure, adding new marine port terminals, roads, airports, and rail connections in an effort to reach deeper into the resources of its vast interior. These moves will also require not just domestic inputs, but equipment and materials manufactured overseas.
Yet, many shippers — especially small and midsized firms — remain leery of China, especially with ongoing political spats over the country’s currency manipulation, excessive protections for its domestic industries, and struggle to rein in intellectual property rights violators. As a member of the World Trade Organization and with the desire to demonstrate its business credibility, China is under pressure now more than ever to clean up these undesirable aspects within its borders.
While it may have taken 30 years from when China established the Shenzhen Special Economic Zone in 1980 to where it is today, it’s going to take a lot less time for the country to become the next biggest consumer market, and American shippers and logistics services providers should start preparing themselves now to reap the rewards.