Unveiling the names of the 156 companies of the company’s supply chain was an unusual move for Apple, which is known to be notoriously secretive.

Its recent supply chain audit also revealed that only 38% of the company’s suppliers adhered to its internal standard of a 60-hour, 6-day work week.

Ishan Palit, CEO of the product services division at TÜV SÜD, a provider of testing, inspection and certification services, shared that this revelation demonstrated the “severity and prevalence of inhumane working conditions within the global supply chains and the drastic requirement for immediate action”.

Yet, this move by Apple also placed the spotlight on the challenges of securing supply chain integrity, recognising that there’s a need to take control.

So what are some lessons that the supply chain industry can learn from this unprecedented move by Apple?

According to Palit “Standards such as SA8000® and BSCI have developed into effective tools to address these issues in a balanced and human manner, allowing organisations to educate the young workers and re-integrate them into society,” he said.

Palit also added that putting in place such a standard to conduct on-site audits to ensure compliance from factories is necessary. Improvements and corrections can then be identified and put into practice, which brings social, branding, productivity and risk management benefits.

“For example, it ensures workers’ health and safety, which helps boosts production efficiency, facilitates further penetration into international markets, and protects brands against the often irreparable consequences of a scandal,” he said.

Singapore’s Maritime and Port Authority reported a 5.3 per cent increase in container movement in 2011, having handled 29.9 million TEU compared to 28.4 million TEU in 2010. December container volumes are expected to increase 11 per cent to 2.6 million TEU year on year making the island state the 2nd busiest port in the world after Shanghai.

The city aims to become an influential financing and shipping hub by 2020 and has rolled out a number of financial products to help exporters and shipping companies manage growing volatility in freight rates.

The Shanghai Shipping Exchange for example,  plans to expand its shipping derivatives market over the next few years after it launched derivatives based on container freight this year.

What is interesting about this service is that DHL will be using 12 foot instead of the standard 20 and 40 foot containers that are in use globally today. Aside from the special equipment that may be needed to handle these multi-modal shipments, repositionong of empty containers back to China or Japan due to imbalance of demand between these two countries would be an added costs to overcome.

The multimodal service comprises the use of ferries, rail and trucks. Goods are picked up from any location in China, mainly Shanghai, Ningbo, Hangzhou, Suzhou, Nantong, Wuxi, Nanjing, Hefei and Wuhan, and brought to Shanghai by truck, taken across to Hakata in Japan by ferry and then transported across Japan via Japan Rail.

In Japan, pick-up and delivery is done through Japan Rail and taken across to Shanghai by ferry, with final delivery to destinations in China completed by truck.

“We are not experiencing the most dramatic climate change in recent history,” said Liu Yu, the academy’s Institute of Earth Environment deputy director. “In northern China, the warmest period occurred from 401-413 AD, which had an annual mean temperature 0.16 degrees Celsius higher than today’s.”

Global air, sea and land transport sectors have been faced with huge expenses to meet rising regulatory compliance costs, some of which are set in ways to drive smaller operators out of business.

The timing of China’s statement, based on a study of Tibetan tree rings, is also significant because of the current international climate change talks in Durban, South Africa and China’s opposition to carbon taxes imposed by the European Union on aircraft flying in and out of EU territory.

Continuing, Prof Liu said: “Popular belief is that industrialisation has led to the fastest rate of warming witnessed by humans, that we are at the warmest time of the modern era and that we are causing global warming by emitting carbon dioxide into the atmosphere. None of that fits the records in tree rings.

“The climate change debate has more political significance than scientific. Diplomats can sit at negotiating tables talking about carbon caps while scientists have not reached an agreement on the role of carbon dioxide in global warming,” he said.

“Political decisions must be based on sound scientific foundation, or they will be useless, if not dangerous,” he told the SCMP in an extended interview.

Prof Liu has studied untouched forests dating back thousands of years along the remote Tibetan Plateau to assess current weather patterns and said that tree rings are key to understanding and predicting climate change.

For more than a decade, he has run simulations on computers to determine annual temperatures in the region over the past 2,485 years.

Prof Liu said the sun, and not man-made factors. cause climate changes. “We believe that the sun and atmospheric circulations play a vital, if not decisive, role,” he said.

Armed patrols from China will be coming from a special armed force established under the Yunnan Provincial Border Control Corps comprising nearly 1,000 police officers along with five patrol vessels adapted from merchant ships.

The area had been void of all shipping activities after the sailors were murdered on 5 October, with commercial traffic expected to resume by the end of this month, according to secretary-general of the Lancang River Shipowners’ Association, Fang Youguo.

The patrol force will be tasked with escorting all ships, according to a Mr. Yang Xi, press officer from Yunnan Provincial Border Control Corps.

He added that China and the other three partners are still in talks regarding the details of their plans and will be divulging more information in the near future, China Daily reported.

The other partners in this armed force are Laos, Myanmar and Thailand, where the four countries agreed to exchange intelligence to completely eradicate criminal gangs along the river.

The latest figures from the China Federation of Logistics and Purchasing (CFLP) showed that China’s Social Logistics Costs , which are the cost of all logistics activities in the country, increased 18.7 per cent to CNY5.8 trillion (US$912 billion).  This is up 0.2 percent faster than the growth in the first half of year and 3.8 percent higher year on year.

The ratio of the cost to the country’s GDP was 18 per cent, up 0.1 percent year on year, meaning that logistics costs are still high in China, said the report.

Transport costs increased 15.4 per cent to CNY3 trillion because of surging fuel prices and labour costs. Fuel costs soared four fold since January.

Storage costs increased 23.8 per cent to CNY2.1 trillion, one per cent higher than the increase in the first half, and 10.5 per cent more year on year.

Management costs climbed 19 per cent to CNY710.7 billion, up 19 per cent year on year. The growth is 0.8 per cent slower than that in the early half of year, but 1.9 per cent higher year on year.

A report by KPMG International revealed that while “no single country can match the scale of China, countries such as Bangladesh have large low-wage workforces that are now starting to be employed, while Southeast Asian countries are making moves to remove tariffs and customs restrictions”.

Countries like Indonesia, India, Vietnam, and Cambodia will be benefitting in various ways, especially in areas of specialised production such as footwear, hand-stitched fabrics and metalware, Asia Times Online reported.

The report “Product Sourcing in Asia Pacific: New locations, extended value chain” pointed out that preferential trade terms have benefitted exports from Cambodia and Bangladesh to the European Union, while Indonesia has been an increasingly popular sourcing destination for Japanese and North American buyers.

Most companies have shifted “closer to end markets over the past three years driven by high transportation costs, concerns over further carbon taxes, and the development of centralised approaches to inventory” despite them having accepted their continued reliance on China.

The changing environment is leaving companies no choice but to reassess sourcing strategies, according to KPMG’s Asia Pacific chair of consumer markets Nike Debnam, pointing out the trend where soft demand in many Western consumer markets is making it difficult for companies to pass on higher costs to consumers.

Companies that source in China are finding it necessary to consider new supply models or destinations to sustain productivity gains.

China is still an important source for food and beverage and consumer goods, but the crucial need of optimising costs has spurred the frequency of production being scattered across several countries.

Bangladesh is well-positioned to improve as a sourcing destination due to its strong sectors such as apparel, frozen food, and agricultural products.
With an export target of US$26.36 billion for the year ending next July, executive director of the Bangldesh Frozen Food Exporters Association Mohammad Abul Bashar believed the country is likely to exceed the target by 20-25%.

While poor foreign direct investment inflows and intra-regional trade may hamper the country, it is seeing a growing number of exports of non-conventional goods and services such as jute and IT

China’s logistics sector once focused on moving products from factories within China to the ocean ports for export to developed markets. Now the emphasis is just as much on moving goods within the domestic market to reach increasingly prosperous consumers, located all over this huge country. In particular, the residents of second- and third-tier cities in central, western and northeastern China are driving a new wave of domestic consumer demand.

Although logistics in China is the backbone of the supply chain, the industry itself remains complex, inefficient and fragmented, with the top 20 companies sharing just 7 percent of the total domestic logistics market.

Despite these issues, the domestic contract logistics industry grew at 18 percent during 2008 according to Transport Intelligence, who also predict that by 2013 China’s contract logistics industry will overtake Japan’s to become the largest in Asia Pacific.

Change and consolidation

For quite some time, one of the biggest questions to consider when outsourcing logistics in China to a Third-Party Logistics service provider (3PL) was whether to work with a local Chinese 3PL or an multi-national 3PL. Each category had their respective strengths and the options were reasonably clear.

Local Chinese 3PL companies had the on-the-ground knowledge, local connections and operated on a lower cost basis, whereas international 3PLs such as Exel Logistics (now DHL), TNT and UPS offered management expertise and sophisticated technology solutions, together with international best practice and sector specific expertise.

Today, the differences between these categories of logistics providers are becoming increasingly blurred – multinationals have extended their expertise and geographic reach in China, while local service providers have gained more international exposure and experience.

In recent years, a few privately owned Chinese 3PLs such as Guangzhou’s PG Logistics Group (PGL) and BEST Logistics Technology, headquartered in Hangzhou have grown to become nationwide service providers.

However, PGL and BEST are the exception rather than the rule. In the fragmented China logistics industry, servicing nationwide domestic distribution requirements typically involves several third party providers – in some cases shippers are using more than 20 different companies to distribute their goods throughout China.

Following China’s accession to the World Trade Organization (WTO) in 2005, foreign logistics companies were able to establish “wholly owned foreign enterprises” (WFOEs) for the first time. Some foreign 3PLs bought out of their existing joint venture (JV) arrangements, while others acquired their JV partner, as TNT did in 2006 when it acquired Hoau Logistics. More recently, in May 2009 Toll Holdings reached an agreement with China Merchants Group to acquire the remaining 49 percent shares in its joint venture – Shenzhen-based ST-Anda Logistics.

Clearly, this kind of consolidation among service providers will continue, in order for the industry to become more efficient and to meet the market demands. More local Chinese companies will group together to form stronger regional and national networks and we can expect more formal mergers between local Chinese companies. Meanwhile, the international 3PLs will continue to seek acquisitions as a means of expanding their network within China.

Government support

At the same time as these market-led factors are driving improvements in the China logistics industry, in March 2009 the State Council issued the “Plan for the Restructure and Revitalization of the Logistics Industry”.The plan is significant because it recognizes that logistics is a significant component of China’s overall economic prosperity, is an industry in its own right and is in need of modernization.

Writing in the International Freight Weekly, Lee Perkins of China Intelligence Online explained that while specific details have not been finalized “the proposed legislation aims to transform a regionally fragmented, under-agglomerated domestic industry into globally competitive, international logistics firms; to increase the role and scope of 3PLs; to achieve 10 percent growth in added value in the industry; and to substantively reduce logistics costs as a percentage of GDP in line with developed nations like the US”.

A shortage of skilled logistics personnel is consistently identified as one of the greatest challenges for businesses in China and the plan recognizes the importance of training and developing local expertise. To achieve results quickly, the government emphasizes the need for more skills training and certification, which will require increased cooperation with overseas research institutes and education providers offering international standard training courses.

The government’s support for greater 3PL outsourcing and consolidation will effectively encourage the industry’s own drive for consolidation. In the long term we can expect to see larger logistics companies with broader ranges of services and greater geographic reach, which will also reduce cross-boundary barriers resulting in more efficient and competitive companies.

For the customer these changes can only be good news. The service levels of the industry should come up, costs should come down and therefore customers will get better value. These are encouraging developments, which we will watch with great anticipation.

Mark Millar

Logistics industry veteran Mark Millar is Managing Director of M Power Associates – a specialist provider of industry-specific Marketing, Consulting and Education services that empower superior performance and enhance competitive advantage. Mark has recently been appointed as President of the China Chapter of the Logistics & Supply Chain Management Society and will lead the expansion of LSCMS China in promoting the professional development of Logistics and Supply Chain Management in the China market. Mark was named as one of the “2009 Providers Pros to Know” by Supply & Demand Chain Executive Magazine and can be contacted at mark@markmillar.com

Logistics Insight Asia Article

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