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Thu 1 Feb 2007 01:56 PM

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Logistics growth in Chinese auto sector

The rapid growth experienced by the Chinese automotive sector has created domestic and export opportunities for logistics companies.

The rapid growth experienced by the Chinese automotive sector has created domestic and export opportunities for logistics companies. In particular, the transportation infrastructure presents a market opportunity for third party logistics providers.

Strategic analysis of the 3PL markets in the Chinese automotive sector from industry analysts Frost & Sullivan has found these markets earned revenues of US$10.45 billion in 2005 and are likely to reach $59.91 billion by 2012.

"An increasing number of automotive companies prefer to focus on core competencies and outsource non-core activities such as logistics to specialised 3PL service providers, to benefit from cost savings and enhanced efficiency," said Keow Soon Hiong, research associate, Frost & Sullivan.

"At the same time, the Chinese government's focus on improving the country's logistics infrastructure has been instrumental in encouraging significant investment from multinational 3PL service providers," he added.

A growing number of multinational automotive companies are outsourcing to 3PL providers sparking interest from other companies to the concept. Accordingly, 3PL providers are preparing to meet the demand by expanding services and adjusting prices.

However, the 3PL sector is set to face challenges in the form of regional variations of logistics infrastructure and development across China. Additionally, significant differences are found between regions in terms of consumer habits, business, tax, and administrative rules.

Currently, the automotive sector in some parts of the east and south of China has developed faster in comparison to the central and western regions. Providers have been warned of the difficulties surrounding a complete nationwide logistics solution, and are advised to accurately assess the specific needs of a particular region and offer services accordingly.

"Since the Chinese automotive sector is continuously developing, it is important for service providers to grow in tandem with automotive companies so as to emerge successful," said Hiong. "Service providers also need to assess the geographic needs and expansion plans of end users and offer appropriate services including advanced concepts such as JIT (just-in-time logistics)."

Following China's accession to the WTO (World Trade Organisation) in 2002, restrictions on foreign enterprises operating in the region has been eliminated. This has also been identified as an influential factor in the potential increase for the logistics industry.

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