Freight In The Year Of The Monkey
The world’s second-largest national economy has settled into the Year of the Fire Monkey, an ambitious but devious primate.
China’s role in world trade is so large that even small changes can have a broad impact on the international freight industry. So we’ve mapped out five changing Chinese trends that will echo throughout global logistics this year, carving out opportunities for ambitious logistics experts to realize serious gains.
1. “Uber for Truck” Platforms
Road infrastructures are typically underdeveloped in emerging economies. But as e-commerce takes off, new truck delivery platforms (typically mobile apps) are emerging. These provide a premium solution for the growing middle-classes that want the full “Amazon” experience.
While China’s domestic transport infrastructure is ranked high on global indices (e.g. 22nd on the 2014 World Bank Infrastructure index), improvements – especially in rural areas – can have a huge impact.
Chinese carriers are increasingly using these platforms to consolidate LTL loads, driving more effective shipping. Given China’s fragmented trucking market and heavily tolled road infrastructure, platforms introducing more cost-effective shipping should become even more popular.
For local forwarders these platforms will drive more orders, more choices, reduced costs, and the opportunity to consolidate, allowing them to catch up with freight forwarding in advanced economies. For international forwarders, this development should translate into cheaper door-to-port costs.
2. One Belt One Road (OBOR)
This initiative, which promotes connectivity for countries along land-based and maritime China-Europe routes, is taking off.
The “Economic Belt” shortens rail transport time from China and Europe, with the prospect of spurring Central Asian and Eastern Europe economies, with better trade connections to Western Europe and North East Asia. It’s not just talk. On February 15th, 2016, the first freight trainfrom China reached the capital of Iran, shaving 30 days off the standard port-to-port transport time. Which is impeccable timing, as the lifting of Iran’s sanctions may open the door for new trade opportunities.
Image Source: Brics-Info.org
3. China-US freight is getting Amazon’ed
Amazon is looking to expand into international freight…and the implications for the freight industry are clear.
Amazon has recently registered in China and the U.S. as a freight forwarder, filed an application with the Shanghai Shipping Exchange to serve as a shipping broker for 12 trade routes and advanced US domestic trucking and air shipping opportunities.
There’s a reason that in a recent SEC filing, Amazon added logistics providers as potential competition.
The good news? Despite reshoring from China, Amazon still believes in the potential for the China-US shipping route. The flip side is that if Amazon can drive real efficiencies with technology, forwarders specializing in China-US lanes may get pushed out.
We may live to see the day that Amazon-branded carrier ships make the Shenzhen-Long Beach run every week.
4. China’s economic “slowdown”
The Chinese leadership is pushing for more economic growth from domestic consumption rather than government investment. This would be good for long-term Chinese growth, but the benefits may not be apparent for some time. Some sectors in advanced economies have already been left stranded, including mining, manufacturing, and steel.
Gauging the slowdown isn’t as straightforward as it sounds. While official growth rates are not necessarily reliable, most expert estimates come close to the official 2016 growth estimate of 6.8%. – still enviable by most economies.
With such an explosive growth rate, forwarders should only blame China for a decline in business? There are other factors to blame, like a flagging Euro and Yen, excess capacity and yield dilution.
5. China’s Burgeoning Middle-Class
China’s burgeoning middle class should be a boon for international trade (although some may disagree).
Just look back at the track record. Between 1981-2010, China pulled 680 million people from poverty, a number that is unprecedented in the global economy.
Which is why top forwarders see huge opportunities here. DHL’s new US CEO recently pointed to greater trade flows in China, making US-China shipping routes more two-sided.
With consumer demand for foreign goods rising, and foreign companies now finding niches in the domestic market, chalk this up as a massive Year of the Monkey opportunity for manufacturers, retailers … and logistics professionals.