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China Freight Transport Report Q1 2011
Business Monitor International, Dec 2010, Pages: 32
China Freight Transport Report provides industry professionals and strategists, corporate analysts, freight transportation associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on China's freight transportation industry.
Growing intra-China trade volumes are attracting the attention of domestic and international logistics and freight transport operators alike with news of several companies angling to increase their presence in the market in Q410. Global logistics firm TNT reiterated its commitment to its China operations by announcing plans to invest US$216mn in its road distribution network in the country. The plans include the upgrading of hundreds of depots to make them fit for day-definite road services. Local subsidiary TNT Hoau introduced the service in February 2009. Currently, only 800 of the company's 1,500 depots in China are used for day-definite services. Investments will also be made in hiring and training new staff, bar-coding and GPS technology to improve tracking, and eight mega-hubs will be constructed. Michael Drake, regional managing director of TNT North Asia, stated in July: 'Our continuous investment demonstrates TNT's long-term confidence in China and our commitment to enhancing our service capabilities.'
Among the companies entering the Chinese domestic logistics market for the first time was US firm United Parcel Service Inc (UPS). The company revealed plans to establish a China-based express delivery service pending the approval of the country's State Post Bureau. UPS International's president, Dan Brutto, said: 'The opportunities are tremendous. If you take a look at the growing middle class, in the future the domestic market is going to be worth billions.'
Meanwhile, established Chinese freight operators, which had previously looked to the international trade sector for growth, are also starting to shift their gaze inwards. Sinotrans' president, Zhang Jianwei, said the logistics firm would seek to take advantage of growing intra-China trade volumes in the wake of the country's economic recovery in 2010, shifting its attention away from China's export market. Zhang said: 'Export trading volumes are still a major contributor to our businesses but this will likely change'. At the time of writing Sinotrans domestic operations accounted for just 20% of its overall revenues meaning there is considerable room for expansion.
This steady growth in domestic trade volumes is expected to provide a platform for continued growth across China's freight transport sector in 2011, following on from the strong performance register by all major transport modes in 2010.
In the airfreight sector BMI is forecasting total volumes carried to grow by 7.9% year-on-year (y-o-y) in 2011 in real terms. This is slightly below the estimated 11.3% increase registered in 2010, which was driven by the strength of the Chinese economy's recovery after the global economic downturn.
Rail freight volumes are also expected to narrowly fail to match their 2010 growth patterns but should grow solidly this year nonetheless. BMI predicts volumes carried to increase by 7.2% y-o-y compared with a rise of 7.8% in 2010.
Meanwhile, We maintain our view that road transport is set for continued strong growth as road connections across the country improve, the number of vehicles grow, and the pattern of freight demand shifts in a lower bulk/higher value direction. These factors should allow the road haulage sector to continue to outperform in 2011 when volume increase on 8.1% expected in 2011 compared with last year's estimated 7.5% rise.
However, transport modes with a greater exposure to China's international trade sector are expected to fare poorly in 2011 as a consequence of an anticipated drop in consumer demand across the country's major export markets (notably the US and Europe) coupled with an expected appreciation of the Chinese yuan. China's largest international port the Port of Shanghai, is expected to bear the brunt of the country's shifting trade dynamics with an increase in the facility's total tonnage throughput expected to grow by a meagre 2% y-o-y in 2011, down from an estimated 16% increase last year.
China's port sector malaise will be reflected in the growth of the country's total trade (imports + exports) where we see a real increase of just 2.5% y-o-y occurring in 2011, compared with a rise of 20.3% experienced in 2010.
While we see China's international trade making something of a recovery in 2012 we caution that growth rates are likely to remain moderate over the mid-term as the balance of the Chinese economy shifts from exports to internal demand. We believe this trend will see both domestic and international freight and logistics firms continue to shift their focus towards the domestic market over the next few years.
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