Asia Logistics Wrap

Logistics Acquisitions Follow China's Deregulation Efforts

Right now I'm digesting some articles in Japanese regarding the road ahead for logistics in Japan and elsewhere, but I saw an article on FedEx's push into China and thought it fits with my recent posts on what leading, logistics players are doing in this region.

With China gradually deregulated its logistics sector, the big global firms are taking advantage and sizing up Chinese partners on the mainland for buy-outs following joint-venture activities. In terms of Fedex, the firm announced on January 24 that its:

"FedEx Express unit has signed an agreement with Tianjin Datian W. Group Co., Ltd. (DTW Group) to buy out DTW Group’s 50 percent share of the joint venture and DTW Group’s domestic express network in China, for $400 million. FedEx and DTW entered into a joint venture agreement in 1999.

"FedEx said it would take over local distribution from DTW, doubling FedEx’s workforce in the country to 6,000 and controlling the venture’s facilities in 89 locations throughout China."

The article notes that this move comes a year after UPS "struck a similar deal with its Chinese joint venture partner, Sinotrans Ltd. UPS took control of the majority of delivery operations from Sinotrans in December 2004 and began using UPS-branded delivery trucks in China last February."

FedEx describes the rational for its latest move:

"“This acquisition deepens our engagement with the China market,” said David L. Cunningham Jr., president, Asia Pacific, FedEx Express, in a company statement released last week. By taking over DTW, FedEx believes it can improve the speed and flexibility of its operations and give its brand a boost—especially in China’s less developed western provinces."

The article goes on to say that "according to a Wall Street Journal article, FedEx, UPS, Dutch firm TNT, and DHL—a unit of Deutsche Post AG of Germany, all serve multinational firms in China and are attempting to make inroads with domestic Chinese companies to remain competitive."

Comments on the Chinese Logistics Market

The article returns to one of its often quoted analysts, Mr. Adrian Gonzalez for perspective on the FedEx move:

"“In the past, companies like FedEx and UPS could only operate in China through a joint venture,” said Adrian Gonzalez, ARC Advisory Group analyst. But, now that the regulatory environment has opened up, he said, FedEx and UPS are taking control and buying them out so they can better integrate operations strategically without having to consider the support of their partner.

""FedEx has been operating in China for more than 20 years, and they now have the resources, capabilities, and experience to operate in China. “It is a smart, strategic option for companies who already have their feet wet,” said Gonzalez.

"The logistics services industry in China is viewed as a large growth opportunity—but the fruits of these labors won’t materialize for years to come, said Gonzalez. “Virtually every logistics services provider is looking at China as a risk and an opportunity,” he said, “The sooner you are in, the sooner you can develop your brand, and the better position you are in to capture market share and close out competitors. But the benefits won’t happen overnight.”"

With this bigger investment and ability to employ greater control over their China operations, I am certain firms like FedEx will be able to wield more of its talent on the ground in China to make sure there is a determinable degree of success that might not have existed previously.

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Prologis Makes Move into South Korea

As I mentioned in an earlier post on Yellow Roadway's China plans, one of the best ways to begin market research on a particular region is to look into what industry leaders are and aren't doing in that region.

I first discovered Prologis during my logistics training. One of its distribution facilities in Tokyo sits right along the freeway near Tokyo Bay. After visiting its website, I realized that Prologis is:

"a leading provider of distribution facilities and services with 371.9 million square feet (34.6 million square meters) in more than 2,300 distribution facilities owned, managed and under development in 75 markets in North America, Europe and Asia, as of Sept. 30, 2005. ProLogis continues to expand the industry's first and largest global network of distribution facilities with the objective of building shareholder value. The company expects to achieve this through the ProLogis Operating System(R) and its commitment to be 'The Global Distribution Solution' for its customers, providing exceptional facilities and services to meet their expansion and reconfiguration needs."

In a press release from January 17, Prologis announces its move into South Korea through the set-up of a "state-of-the-art facility designed to serve the growing demand for well-situated, high-quality industrial space from transport, logistics and other companies operating in Korea (see map)."

To put this move into the context of Prologis' global business and strategy, Jeffrey H. Schwartz, Prologis' CEO was quoted in the press release as saying:

"Over the last few years, ProLogis has enjoyed tremendous success in Asia following the establishment of business operations in both China and Japan. Launching development in South Korea, one of Asia's most important and dynamic growth markets, is a logical next step -- one that we believe will create real value both for our investors and our global customer base. We have built a core team of skilled and experienced professionals in South Korea to manage our development work and look forward to forging strong new relationships with Korean customers."

Leading that core team is Prologis' first VP and country manager of South Korea, Richard Bae, who elaborates further on the CEO's comments:

"ProLogis Park Yongin (a major city of Gyoenggi) will allow us to serve leading participants in the Korean logistics industry, close to 70 percent of which is located in Gyeonggi Province. We believe this facility will help establish ProLogis as a primary provider of industrial space to the Korean market, enabling us to leverage our global presence, industry-leading experience and strong reputation for customer service."

What makes Yongin ideal? The press release offers the following rationale:

"ProLogis Park Yongin will be situated on Korea National Road-17, also known as the "R-17 Corridor." It will feature cross-docking -- uncommon in Korea -- and offer easy access to main transit arteries as well as Incheon International Airport, Incheon Sea Port and Pyungtaek Sea Port. ProLogis recently acquired the land for the facility, and construction is expected to be completed in the second half of 2006."

The company has paralleled this initiative with development of its business in Incheon's Free Economic Zone, which is competing with port-based economic zones in China for logistics-related investments. This project markets its investment environment in the following way:

"The international business center to be established in New Songdo City has a comparative edge in transportation and convenience over its foreign competitors because of its close proximity to the Incheon International Airport and Incheon Port. It will, therefore, easily transform itself into a key facility in international exchange. With the opening of the international airport, Incheon has become a key transportation point that can be easily reached from 51 nearby cities with more than 1 million population within 3.5 hours. With such a good condition, the city now has a good opportunity to develop into a global hub city."

For the Zone to succeed, it will definitely need the commitment of investment from leading firms such as Prologis. At the same time, Prologis can benefit from the incentives while increasing its distribution and port flexibility in servicing customers doing business in Northeast Asia.

Japan Sea/Air Cargo Firms Ramp Investment

As China races to facilitate and drive public and private logistics infrastructure development as seen in previous posts, Japanese firms are participating through their own logistics investments to service business interests on the Chinese mainland.

An article out of The Nikkei Weekly from January 16 (I'm working from the hard copy) and an e-Cargonews Asia article from January 23 focus on the plans of major air freight carriers--Japan Airlines (JAL), Nippon Cargo Airlines (NCA), and All Nippon Airways (ANA)--in addition to a sea freight carrier, Kawasaki Kisen.

The greater flow of goods and services to and from China is driving Japanese transporters to deepen roots on the mainland. For example, NCA has begun establishing its own sales network; Kawasaki Kisen has set up a warehousing company in Tianjin jointly with a local operator; and JAL is expanding its trucking network for hauling air cargo to inner regions of China.

Part of these moves is an effort to deepen connections with local markets on the mainland of China. In the case of NCA, it has put its Chinese offices under direct management in order to strengthen its ties with local forwarders and to develop demand for its carog hauling services from China to other areas.

Another aspect of these moves is the push deeper into the center of mainland China. JAL's new trucking services is an effort to bridge markets where JAL currently does not fly. These services reflect the growing industrial and economic development taking place in inland cities such as Chongqing and Chengdu (see map), in addition to coastal cities.

Kawasaki Kisen, focusing on warehousing to complement its sea cargo services, operates forwarding and land transporting services already in the southern parts of China through its base in Guangzhou and intends to expand operations in the north through the new Tianjin company. The joint venture operates a 13,000 sq-meter warehouse near the port's container terminal.

These initiatives are ready to capture continuing market growth. According to the Japan-Air Cargo Forwarders Association, air cargo shipped from Japan to China amounted to 13,175 metric tons in November 2005, up 25% from the year-ago figure. At the same time, 276,000 20-foot equivalent containers were shipped between Japan and China in October 2005, 16.7% more than the previous year, according to the Shipping Conference and General Administration.

With so many inefficiencies remaining in China's logistics industry, there are plenty of opportunities for firms with available investment capital and the capabilities necessary to move faster than the competition. Of course, these opportunities include a combination of both non-asset-based and asset-based services, although streamlining physical infrastructure is China's top priority. Until that time, those that have the knowledge and network to successfully navigate the current mess will be in high-demand.

Shanghai's Yangshan Port

In my previous post, I presented the statistic that Shanghai is expected to become the world's largest port by 2007. This is in large part due to the expansion of port capacity through the Yangshan Deepwater Port development project. On January 12, Logistics Management issued a comprehensive article, "Shanghai's new Yangshan port could challenge Busan, Hong Kong-analysts," on the details of Yangshan development plans and primary issues affecting its progress.

If you have trouble accessing the above article, readers can find out more regarding Yangshan here.

Introduction

According to many analysts and industry observers, "the commissioning of Yangshan will likely lead to major changes in the port industry in Northeast Asia, especially for the port cities of Hong Kong and Busan, South Korea."

However, the strength of this statement can be qualified by the same analysts and industry observes, who add that "the immediate impact will be most felt by Shanghai's own existing facilities, notably the Baoshan and Waigaoqiao terminals, and that for the Yangshan facility to be competitive it must invest in its management and processes as well as its infrastructure." In other words, logistics professionals are going to be busy in making Yanghshan #1 not only is size but #1 in terms of operational efficiency when compared with more established, albeit smaller, port locations. (Click on image for location of Yangshan).

Yangshan Capacity Plans

Capacity at Yangshan is being developed in phases. "Phase I of Yangshan deep water port, which has five container berths with a designed annual capacity of 2.2 mln twenty-foot equivalent units (TEUs), officially started operations on Saturday," January 7th. Furthermore, "the Shanghai municipal government plans to invest a total of 120 bln yuan to construct 33 deep-water berths on Yangshan Island, which sits 27.5 km to the south of the city."

In terms of overall Shanghai port capacity, "with the addition of the Yangshan facility, the ports in Shanghai are expected to handle more than 20 mln TEUs (20-foot equivalent units) of cargo next year, narrowing the gap with world number one Hong Kong and number two Singapore, the Shanghai government said." In 2005 Shanghai came in third place, "shipping out 14.5 mln TEUs. Its ports are expected to top 18 mln TEUs this year, compared with Hong Kong's 21.9 mln in 2004 and Singapore's 21.3 mln, according to data from the Shanghai government." (See image for TEU growth through 1999).

Chinese Officials are Optimistic

""Shanghai will become the world's biggest container port. Yangshan will play an important role as an international transfer hub and help Shanghai secure its position as an international shipping center," Chen Xuyuan, president of operator Shanghai International Port (Group) Co said at the facility's opening." (Click on the image to see Shanghai's development zone).

In terms of trade-inducement incentives, "China's state council has approved Yangshan's status as a free-trade port, the first in China, meaning operators can offer companies total exemption from import tariffs and commodity and business taxes, as well as use simpler rules for the entry and employment of foreign personnel."

Analysts Weigh the Strengths and Weaknesses

""Shanghai is going to be a threat to Hong Kong as a port because there is much more capacity coming out and the tariffs and handling charges in Hong Kong are higher than those in (China's) domestic ports so we will see more boxes shipped and exported from China directly rather than Hong Kong,"" said Alan Lam, analyst with Guotai Junan Securities in Hong Kong."

""Yangshan has a bright future, especially as a transshipment center. Many goods from China are shipped to Busan and moved to the US, but in the future the ships can use Yangshan port and directly export through the US. In the future Yangshan will be the centre for transshipment in Northeast Asia,' Lam added."

Furthermore, "Lam noted that the Shanghai authorities are looking for a major shipping company to join in the second and third stages of investment, which would help them build the port into a transshipment center and provide a direct challenge to Busan."

In terms of other analyst input, "Niu Yuming, an analyst with Haitong Securities, said the cargo throughput demand in the affluent Yangtze River Delta justifies the port's construction, saying that there is unlikely to be an overcapacity problem at any time in the next five years."

In terms of the port's financial prospects, "Niu expects the first phase of the project to break even for the next year if it can run at full capacity and to become profitable after that."

Industry Leaders Explain their Interest

Of course, any ports future success depends on the demand of its facilities by the worlds shipping and logistics firms. "Shippers Hutchison Whampoa, COSCO Pacific, the port unit of Danish AP Moeller-Maersk, APM Terminals and Oriental Overseas Container Line, have reportedly expressed interest in the second-phase operation."

The article introduces "Max Henry, founder of the China Supply Chain Council (CSCC). When asked about the impact of Yangshan's development, he "agreed that the port could significantly alter the face of the shipping industry in the future, although he said it will need to ensure it has adequate software, personnel and processes, as well as infrastructure hardware."

Expanding on this point, he states "If they are going to be positioning and doing a good job in running operations very smoothly and very professionally - and I think they have the ability to do so because they can learn from Baoshan and Waigaoqiao - and bring some real expertise into this, they definitely have a real advantage over Busan and over Hong Kong as well."

Basically, Henry emphasizes the vision of Yangshan and the reality of Yangshan are too very different things at this point. "When it comes to Yangshan deep port it's really too early to say anything. Having a port and having the facilities is one thing, but getting the operations to run smoothly is another story. What Korea has built, and I have not been to the Busan facility, but they probably have an edge in operating that the Chinese don't have yet."

Impact on Existing Port Facilities

The article very liberally uses Mr. Henry's quotes:

In the immediate term - and until the facilities and its management are tested and shown to be of the same standard as those in Hong Kong and Korea - he said the port will mostly be a challenge for existing Shanghai facilities, as authorities seek to redirect routes from existing Shanghai facilities to Yangshan.

"The big question, and one of the top questions that comes to mind for shippers and freight forwarders, is what is going to happen with the Baoshan and Waigaoqiao facilities," he said.

"The government has been saying that there should be no competition between ports, but at the end of the day looking at what they are doing with Yangshan port it's obvious that the Baoshan and Waigaoqiao facilities are going to be in jeopardy over the next few years."

Impact on Routing Shipments

The article qoutes Mr. Henry as further saying, "some routes, notably Europe-bound shipments, are likely going to be moved to Yangshan while other routes will have to stay in Baoshan and Waigaoqiao...That's an issue for most of the freight forwarders today because most of them had to already spend a lot of money and build their operations and now they are being told that they have to move."

Mr. Henry, in commenting on the CSCC's members' view of the situation added:

"The determination that the Yangshan port will be the gateway to Europe has already caused concern among the CSCC's membership, which includes around 10,000 logistics managers and related professionals in industries such as electronics, automotive, consumer goods.

"Right now the new port is causing a lot of logistic problems, even for freight forwarders...if you are looking to ship a cargo from downtown or the western suburbs of Shanghai and you now have to use Yangshan port it is adding to the distance and adding to the time."

Although the port is officially a Shanghai port, it is still a good distance from the core of Shanghai. The logistics of transiting this distance have yet to be fully developed in terms of efficiency and cost:

"From what we have heard there can be an addition transportation cost of up to 50 pct if you have to use Yangshan port," Henry stated.

"It's adding to local logistics costs to get a container out through Yangshan Port, it's not the most convenient or most cost-effective place to get a container out, and if you are shipping from Zhejiang province it is more cost-effective to use Ningbo (see map) rather than Shanghai."

Justification for Establishment of Yangshan

There seem to be doubts about the timing of Yangshan and the reasoning behind it, but "part of the justification for the Yangshan port has been China's growing exports and the Yangtze River Delta's role as a global manufacturing centre."

Henry is quoted here as saying that:

"Next year I believe the growth in container throughput will be more than 15 or 20 pct, although the overall growing rate will be lower than this year given the high base that will still be an extraordinarily large number."

At the same time he says further:

"I don't think there is any capacity issue in Shanghai at this point in time, things seem to be fine. That's why so many people are scratching their heads about Yangshan port because if you are a shipper or a freight forwarder you can get, most of the time, space on routes."

Crunching the Numbers in China

Mr. Henry also brings up doubts about the statistics used to justify the port's development, critically attacking China's ability to produce reliable statistics:

"Some of those are here to support the new project and as you know there are no real statistics in China. Those guys who are investing money in Yangshan port have to somehow justify their investment. There have been a lot of numbers and statistics about the growth of traffic and so on but our members are the shippers and they are the ones who actually send goods.... and you don't get your containers stuck in port, so it's working very smoothly for Baoshan and Waigaoqiao at this point."

My Comments

As with any strategy, execution is key in making it successful. Assuming the Yangshan strategy is sound, a debatable notion as illustrated in the comments above, the ability of Yangshan to become not only the largest port but also one of the top operating ports in the world will depend on how well Shanghai can deploy its resources to develop a comprehensive, capable and innovative logistics hub. Only this type of hub will survive when growth is not as high as it is now, flat, or even worse decreasing.

The development process is not likely to be smooth at all, and those utilizing Yangshan will need to be quite agile in managing their supply chains when and if the port experiences any "growing pains." If forced by the government to use Yangshan as the primary port station in routing through Shanghai, I am sure its customers will hold it responsible for any failings by finding ways to pressure the pace of reform. This site will keep an eye on any significant issues that arise along the way.

Update on China's Ports

Logistics Management has released a two-page update on China's port development.

First, the basic stats:

1. 10 of the world's top 50 ports are in China
2. China's total port capacity exceeds that of the USA
3. China handles about one-quarter of all containers in global transport
4. Shanghai is tipped to become the world's largest port by 2007
5. Shipping on the Yangtze River is growing by up to 25 percent a year
6. The Yangtze could move up to 300 million freight tons by 2010--a 50% increase over 1999

As the report's author, John Kerr, states, "When so much about China's economy is changing so fast, it's understandable if logistics managers are struggling with how to plan optimal routes in and out of the country. That's especially true when it comes to considering which ports to use."

The general clusters of port activity in China are (see picture on right):

1. Bohai Delta near Beijing in the north
2. Yangtze River Delta (YRD) in the east at Shanghai
3. Pearl River Delta (PRD) to the south at Guangzhou/Shenzhen
4. Wuhan and Chongqing inland ports on the Yangtze

With these four in mind, the report goes on to discuss seven key factors that "are affecting China's port development and provide a framework for" understanding the progress in the above regions.

Government Mandates: Private sector efficiencies have yet to take hold in the logistics industry (as well as almost every other industry) and so port selection can be and is restricted by government decision-making. The report describes one instance where "Shanghai's regional government recently surprised business executives by decreeing that all Asia-Europe shipping services will have to use Yangshan, the new port under construction near Shanghai. Shippers should expect that kind of control under a Communist regime, where government mandates are the operating method."

Patterns of Trade: Trends show that trade momentum is shifting north and west following manufacturing operations. China has a "Go West" policy to bring prosperity to the inland regions and a "Dong Bei" strategy to revitalize the northeast. But the region to watch is the YRD, which has 10 new inland terminals nearing completion based on most recent reports. However, as the article quotes Philip Damas, a research director at Drewry Shipping Consultants, Ltd., "Inland transport costs in China are very high. Once you move into the interior you have a shortage of infrastructure. US shippers have to study in great detail the trade off between higher logistics costs and lower manufacturing costs."

Intermodal Connections: "Many Chinese ports lack adequate feeder systems, particularly multimodal transportation links, notes Ellen Hu, a partner in the Beijing office of Mercer Management Consulting." The report briefly discusses questions regarding the new Yangshan report as an example. I will be discussing this port more in a later post.

Alignment between Port Authorities: Shippers need to be aware of the bureaucratic structure at each of the ports they are considering. The report quotes Tian Zhang, Shanghai-based principal with A.T. Kearney, as saying "Shippers are mistaken if they believe that the overall efficiency of China's ports is keeping pace with the capital investments in those ports' development. Our experience with some ports is that shippers will often need to repeat several approval processes with different organizations, filling in very similar information."

Container Security: Security issues are not about to diminish anytime soon, so it will remain important to assess the freight-screening capabilities of all Chinese ports, even if they are not participating in China's Container Security Initiative (CSI).

Profit Patterns: The report suggests that "logistics managers would do well to see who has control of what--and who's making the most profits as well. In other words, "excessive influence by any one operator could limit logistics pros' negotiating room."

Currency Appreciation: In regards to currency, the report adds that "logistics managers whould include currency-risk scenarios in their plans" due to worries by the Chinese government that "international pressure related to its ballooning trade surplus will force a more significant revaluation of the renminbi, an event that would quickly affect the balance of trade and thus traffic through the ports."

My thoughts are that the momentum of trade and the direction in which it flows will pressure logistics operations targeting China to develop quickly and anticipate the key variables as discussed above. In the process, the most serious bottlenecks to trade will become evident and logistics professionals must be prepared to navigate the complicated nature of doing business in China's hybrid free market/planned economy. As such bottlenecks are eliminated at ports, most likely the first focus in improving efficiencies as they are the first direct contact point with the Chinese market, bottlenecks will shift inland. Some regions will be ahead of this shift in building infrastructure, others will not. In either situation, logistics professionals will be sorely needed to sort out the mess.

The report finishes by saying, "So far, doing business in China has been a wild ride for logistics professionals. Even if the nation's export growth slows, as many economists predict, the ride will still be plenty exciting."

China Logistics Outlook

The people at Logistics Management keep putting out some great articles on logistics developments in Asia. Not unexpectedly, China is often the focus.

One article, "Logistics in China are in early development, but changing quickly," is a summary of the report "State of Logistics in China" published by industry analyst ARC Advisory Group. According to the report, "logistics costs are currently about 21.3% of China's GDP compared to 8.6% in the USA." This 12.7% performance gap is a clear indicator of the inefficiencies still built into the Chinese logistics sector. As the report's author, Adrian Gonzalez, describes in the article "a lack of infrastructure creates a lof these inefficiences. Administration cost is the real culprit. Even though labor costs are low, processes are not streamlined, and information systems and automated processes are lacking."

The article further states, "The government is moving to improve the logistics infrastructure, spending 24 percent more than in 2003 on logistics assets and infrastructure. China invested over $87.8 billion last year—83 percent of this spend was allocated to transportation improvements."

Infrastructure improvement priorities start with targeting rail transport. The article clarifies why this is a priority by saying, "Demand for rail capacity is much greater than supply—roughly 160,000 carloads per day are needed, but the railroads can only support 90,000 carloads per day."

Author Gonzales further adds the fact that “rail is relatively less expensive than building roads and is the most efficient method for moving people and bulk commodities to the mountainous Western region of the country. Over time road infrastructure can be put in place—much like the path taken by the United States took (sic) at the turn of the century."

Trucking is the second priority with the Chinese government primarily focusing on highway improvements, "planning to build over 50,000km of expressways over the next 15 years." Once highways are up, toll charges become the major concern as "each municipality imposes thier own toll to go through their city as a revenue generator and to protect their local economy." But "trucking a 40-ft container from Beijing to Shanghai can involve $400 in toll charges." As I realized in my training, tolls are also still quite expensive in Japan relative to the USA.

Gonzales notices that "China resembles the United States from 130 years ago. Areas along the East Coast of the country are relatively well developed, because China's economy is heavily dependent on trade and ports are located on the Easter border. However, China's rate of progress will be measured in years versus what was decades for the USA."

Yellow Roadway's China Plans

One of the ways to identify and anticipate future trends in the logistics industry, really any industry, is to observe what the industry leaders are doing. By using the term leaders, I don't mean simply the largest firms in your industry. By industry leaders I mean the smartest firms regardless of size. I am willing to bet that most of these firms are taking short-term actions that are linked to a longer term strategy based on carefully considered market trend assumptions.

One of the industry leaders in logistics is Yellow Roadway, and their plans for the China market were discussed in the Wall Street Journal on January 3. The gist of their plans are as follows:

U.S. trucking giant Yellow Roadway Corp. is planning to operate its own trucks in China later this year as part of a global expansion plan, according to Bill Zollars, chairman and chief executive of the company.

Yellow Roadway will change its name to YRC Worldwide Inc. to avoid negative connotations and reflect the expansion and will also change its stock symbol on the Nasdaq Stock Market to YRCW.

This decision reflects the current market realities in China in regards to inland logistics:

The company's global expansion comes amid cargo backups for U.S. manufacturers and retailers in China because of unreliable trucking service there. Yellow Roadway, Overland Park, Kan., said it will introduce a small fleet of modern trucks to connect the manufacturing and distribution facilities of several U.S.-based customers in China with the port of Shanghai.

Mr. Zollars said Chinese trucking remains fragmented with wide variation in equipment, maintenance and service standards. "It is chaos basically, and that's why we think we can provide much-needed services to our customers if we can organize the ground transportation in China," Mr. Zollars said in an interview.

The current status and expected development of Yellow Roadway's business in China is as follows:

So far, Yellow Roadway has become involved in freight forwarding and logistics joint ventures in China, but hasn't yet operated its own trucks in the country. The company plans to start with fewer than 100 trucks to serve four or five major manufacturers or retailers that are moving goods varying from electronics to apparel, toys and shoes to the port of Shanghai to be loaded onto cargo ships bound for the U.S. Mr. Zollars said the company hasn't decided if it will acquire a Chinese trucking company or buy its own trucks. Service will be expanded to other parts of China once the trucking operation is running well.

Driving efficiency in China's logistics sector will provide to logistics firms opportunities for growth and innovation for many years to come. In many cases, speed will be more important than size in taking advantage of these opportunities.

Role of Logistics in Disaster Relief

The year 2005 kicked off with the incredible disaster of the Indian Ocean tsunami and continued with the additional disasters of hurricanes in the southern USA and earthquakes in South Asia. In all situations, never was the complexity and importance of logistics to disaster relief operations under more of a microscope. At the same time, in my opinion, never was the complexity and importance of logistics least understood by media reporting on the above events.

It is not realistic to expect media reporters to be experts in disaster relief logistics, but we should all expect them to at least respect the amount of planning and resources required to execute disaster relief operations under extreme conditions. Even under the best conditions, the top logistics firms in the world sometimes fail to deliver something as common as a book or computer in the right place at the right time. I won't even go into my own experience sitting with a keyboard and computer tower in my Michigan apartment while my monitor was lost in Washington State courtesy of UPS.

When I arrived in Japan last summer and began to feel the random earthquakes again, I immediately contemplated how a sophisticated logistics system might respond to disaster relief in the case of a catastrophic earthquake at the heart of Tokyo. Off the top of my head I thought that the government could assign wards to the most capable logistics firms based on a number of earthquake damage scenarios, ensuring that an emergency response in delivering relief supplies would not be critically delayed, diminished or even destroyed. Someday this year I plan to get around to searching the government sites in Japanese to see if this has been considered.

But for other parts of the world, some are already ahead in the game of employing sophisticated logistics solutions for relief agencies historically uncoordinated, competing for resources, and lacking in operational leadership. On November 22, the Wall Street Journal wrote a fantastic article, "In Year of Disasters, Experts Bring Order to Chaos of Relief"(subscription required), on such efforts employed for the Tsunami, Katrina and Kashmir disasters.

First, in Kashmir:

Amid the chaos of the huge Kashmir earthquake relief effort last month, an experiment took place in Hangar 14 of the Pakistan Air Force base in Islamabad.

Chris Weeks, an executive on loan from express-shipping company DHL Corp., worked with American soldiers to improvise a method for quickly getting food and shelter to some of the hundreds of thousands of quake survivors camping in remote mountainsides in the Pakistani province, where roads and airports are rare. Their solution: the "speedball."

They stuffed tents, food and other supplies into red polypropylene bags that DHL has been using for years to move loose cargo, tossed them into Chinook helicopters and headed for rough landing strips in the hills. In just two weeks, they delivered some 6,000 of the bean-bag-chair-size speedballs, each holding shelter, food and water to keep seven people alive for 10 days. "They would kick them out the door at landing strips," says U.S. Air Force Col. Richard Walberg, the officer in charge at the Islamabad base. "That was quite a system."

The bags are one product of an unusual effort by the global cargo industry to try to transform the notoriously inefficient world of disaster relief. A loose-knit collection of companies and executives are seeking to help governments and private aid groups respond more effectively to major disasters such as earthquakes, tsunamis and hurricanes.

They're applying to emergency-supply chains the nuts-and-bolts logistics techniques that helped revolutionize their industry and helped make global giants of companies like Dell Inc. and Wal-Mart Stores Inc.

The UN has emphasized the importance of logistics for disaster relief:

In a year of unprecedented calamities, that expertise is now in high demand. "The most important thing in a sudden disaster is logistics," says Adrian van der Knapp, who coordinates emergency-relief operations for the United Nations and helps DHL get quick government authorization to go into disaster zones. Aid groups and the U.N. are often deluged with donated supplies but struggle to get them where they're needed, he adds. "There is no U.N. fire brigade or standby army that can be called upon in natural disasters."

The origin of this approach to disaster relief operations can be largely traced back to one pioneer:

The effort to bring modern shipping methods to disaster relief is largely the inspiration of a San Francisco cargo tycoon named Lynn Fritz. He sold his own company, Fritz Cos., to United Parcel Service Inc. in 2001, banked some $200 million and started looking for a philanthropic enterprise. He soon became an evangelist for applying logistics techniques to the delivery of disaster relief, eventually founding the Fritz Institute, a nonprofit devoted to the cause. The slight, frenetic Mr. Fritz, 63, runs it from the suite where he lives at the Four Seasons Hotel in San Francisco.

"I did not just want to be a philanthropist that gave to local charities," Mr. Fritz says. "The supply chain for the humanitarian emergency is highly unpredictable.... We thought we could apply these skills with the help of the private sector."

Although the article goes on to give examples in more detail, the point is clear: an efficient and effective logistics operation is the critical component to saving lives in disaster relief. So the next time you order something online or pick up an item at the store, think about everything required to get it where and when you want it. Then, imagine wanting that same object delivered in extreme weather, locations with no roads, no communications, imperfect equipment and limited resources.

Who are you going to call?

Asian Themes for 2006

Well, it has been a few days since my last post, but I've been collecting articles and opinion pieces that I really want to write or comment on. The first one is another opinion piece by Mr. Pesek, Jr. at Bloomberg. He touches on what he believes will be "six Asian themes to keep an eye on" for 2006.

1. Slow and small Chinese revaluations: Basically, expect Beijing to remain conservative on yuan revaluations despite high economic growth.

2. Higher interest rates: Rate raising the past 30 days in Hong Kong, Indonesia, Malaysia, New Zealand, Sri Lanka, Taiwan and Thailand suggests fears of stifling economic growth is over. Expect more adjustments in the face of higher oil prices and rising demand.

3. Debt may be a big story: Mr. Pesek, Jr. states "once central banks get short- term rates to more appropriate levels, bond yields may stabilize and begin drifting lower. That could offer capital gains for investors as bond prices creep higher."

4. Geopolitics may trump economics: Mr. Pesek, Jr. correlates most of the big market movements and changes the past couple years in Asia on political developments versus economy-oriented developments. My belief is that they are inexplicably tied although Japanese business seems to be doing quite well in the face of Chinese disillusionment at the political level. There's a great amount of truth to the saying "money talks and bullshit walks" in this dynamic.

5. Yen is set to rise: The logic is "Japan is recovering and foreign capital won't be far behind." I say "Go yen, go!!!" Although I am quite biased as this would make my US debt even cheaper.

6. Chinese deflation: "Lower interest rates -- which normally help avoid deflation -- may only intensify downward pressure on prices in China. That's because easy money may encourage capacity growth regardless of corporate profitability or GDP gains."

This year will definitely be interesting, and I'm looking forward to watching especially the Chinese banking sector as it complies with WTO deregulation. Foreign banks are already making moves and I believe this is going to impact China even more so than the removal of the quota regime on textiles. Having done some mid-level consulting for the Chinese banking sector on strategic management tools originating in the US, there will be organizational pain felt that will be interesting to observe and see handled by the Chinese government and private sector.