DHL as pulled out of its money-losing domestic delivery business in China last week. DHL-Sinotrans International, the 50-50 joint venture with Sinotrans, had sold its entire domestic courier business to Uni-top, a tiny Chinese delivery company.

Just a year ago, in June 2010, DHL Sinotrans set-up Sinotrans-Apex in a bid to develop its domestic express delivery business in China. At its inception, a lot of buzz was made with Sinotrans-Apex claiming it was active in 662 Chinese cities, with plans to increase that number to 800 by the end of 2011, and also aimed to have 25 hubs and sorting centres in operation across China by that time.

But after a year of continued losses, Sinotrans sold its domestic operations to small Chinese courier firm Uni-top, according to Reuters. Sinotrans blamed “overly fierce competition in the domestic courier service sector” for the poor financial performance of the venture and subsequent pull-out, adding that “foreign companies lack cost advantage”. According to the Sinotrans statement, the DHL-Sinotrans domestic delivery arm lost RMB 99.2 million (around US$ 15 million) as of the end of 2010, with no sign of improvement.

Despite huge investment on the last few years, DHL, FedEx, TNT and UPS have failed to compete with state-owned giant EMS and a growing number of private express delivery companies. Shunfeng (SF Express), Shentong, Yuantong, Yunda, Zhongtong and Huitong have reaped annual revenue of nearly 30 billion yuan in total, accounting for half of China's express mail market.

The lower-priced services and franchise businesses played a big role in the success of these companies, but weaknesses were exposed during their fast expansion. Most private couriers charge a price much lower than state-owned and foreign express delivery companies. While the state-owned EMS charges at least RMB 20 (or US$ 3) for a delivery in the same city, a private courier charges only RMB 5  (or US$ 0.80).

Shentong for example became China's biggest private express delivery company with more than 4,000 outlets and 50 distribution centers. Its revenue in 2010 exceeded 10 billion yuan (US$1.52 billion). Shentong invested RMB 200 yuan in setting up a sorting center in its headquarters in Hangzhou Tonglu county and expanding a transit hub in cities allo over China.

Yuantong will invest RMB 350 million in mega operation centers in major cities such as Shanghai, Guangzhou and Hangzhou, as well as launching services in the Middle East and Southeast Asia. Meanwhile, Zhongtong invested 120 million yuan in constructing a new headquarters in Shanghai's Qingpu District and Yunda invested 150 million yuan in setting up new transit hubs.

Some of them are also in talks with private equity and capital venture firms about absorbing investments to support their expansion.

Other divisions of DHL in China have suffered from increasing competition over the last few years. DHL Supply Chain division nearly collapsed a few years ago recently with all its management in China leaving the company. Despite the domestic withdrawal, DHL said it will continue its efforts to develop its international express market across Asia.

When contacted, DHL executives in China refused to comment.

A train filled with chemical materials left the Port of Antwerp in Belgium at 8 p.m. on May 9 and headed for remote Chongqing, a major city in western China. This marks the official launch of a freight rail connecting Antwerp and Chongqing and a new stage of development for the Eurasian Land Bridge.

Antwerp is not only the second largest port in Europe, with a cargo throughput that reached 178 million tons in 2010, but also Europe's second largest rail hub, conducting 250 freight trains per day. Antwerp has become one of Europe's most important logistics centers thanks to its advanced multimodal transportation services.

Liao Qingxuan, deputy secretary-general of the Chongqing municipal government, said during his current visit to Antwerp that the freight rail link between Antwerp and Chongqing is significant in promoting China's western development and changing the structure of China's logistics sector.

The freight rail journey from Antwerp to Chongqing currently requires 20 to 25 days, it but can be shortened to only 15 to 20 days in the future. This is compared with the 36-day journey required by maritime transport between China's eastern ports and Europe's western ports. The faster rail transportation will provide China's southwestern interior regions and even some countries in Southeast Asia with an additional option for trade with Europe.

As the largest transportation hub in western China, Chongqing put a freight rail terminal with an annual cargo management capacity of about 2 million TEU containers into operation in 2009. The city opened freight services for the southern section of the Eurasian Land Bridge in 2010. The Eurasian Land Bridge passes Xinjiang's Alataw Pass and Kazakhstan, ends in Russia's Moscow, and the freight rail was extended to Germany's Duisburg via Poland in March 2011 before further expanding to Antwerp in May.

Belgium has also put great emphasis on the opening of the freight rail linking Antwerp and Chongqing. The POM Antwerp (Development Authority of the Province of Antwerp), the Antwerp Port Authority and the Belgian Administration of Customs & Excise jointly participated in the preparations for the launch of the freight rail link in 2010 and entrusted Swiss-based land inter-modal operator Hupac, along with its partner Russian-based Russkaya Troyka and Eurasia Good Transport, to offer related freight transportation services. This has ensured the sufficiency of return cargo, smooth customs clearance and one freight train journey a day.

The president of an Antwerp transportation and logistics union said that he is optimistic about the outlook of the freight rail linking Antwerp and Chongqing. He asserted that a 10 to 15-day cut in the transportation duration is significant to enterprises that produce high-value-added products and rail transportation is safer than maritime transportation. He added that there are no problems for the availability of sufficient goods for the rail transportation from Antwerp to Chongqing.

This is its eighth logistics base in China, the 100,000 m2 base is located in the Kunshan Huaqiao Economic Development Zone.

The two-warehouses site will be put into use in July and September, respectively.

"All the online orders in the Yangtze River Delta region will be dealt with and delivered from the newly built logistics center in Kunshan upon its completion in July," said a source close to the center, adding that delivery time will be shortened to half a day as a result.

Upon completion, the logistics base will be the largest among those already in operation in China.

Amazon has so far established seven logistics bases in several Chinese cities, including Beijing, Shanghai, Guangzhou and Suzhou, to offer millions of goods to consumers, including electronic products, daily necessities and automobile goods.

"We are excited to welcome Deppon Express to our portfolio in western China," said Michael A. Evans, AMB's managing director, Asia.  "This build-to-suit highlights our ability to service customers in fast growing markets such as Chengdu.  We are pleased to expand our relationship with Deppon Express, which also leases facilities in Jiaxing and Ningbo."

According to Deng Xiaobo, vice president, Deppon Express Co., Ltd, “The modern facility will support our expansion in Chengdu and the greater western China region in an efficient and cost-saving manner.”

Based in Shanghai, Deppon Express is a logistics provider dedicated to the domestic road and air freight services.
 

Warburg Pincus India Pvt Ltd, the private equity firm which has deployed $2.5 billion in India, recently confirmed its investment in Chennai-based logistics firm Continental Warehousing Corporation (Nhava Seva) Ltd (CWCNSL), a subsidiary of NDR Group.

The NDR Group currently has one of the largest warehousing network in the private sector in the country, encompassing 6.5 million sq. ft. of storage area in 70 strategic locations across the country.

The investment by Warburg Pincus will be used to fund the expansion and strengthen CWCNSL’s position as an end-to-end logistics solutions provider by developing rail-linked inland container depots at various locations across the country.

Some existing minority investors will also divest part of their ownership stake to Warburg Pincus as part of this transaction.

“Their support will enable us to achieve our vision of further consolidating our leadership position as a ‘one-stop’ logistic facilities and solutions provider to clients across sectors in India,” said N. Amrutesh Reddy, executive director, CWCNSL.

Vietnam now has 49 ports and 217 wharfs. However, many of them still cannot meet international standards, while Vietnam still lacks transport infrastructure items which link different regions.

Logistics companies too small

According to the Vietnam Freight Forwarders Association Viffas, Vietnam now has more than 1000 enterprises which provide logistics services, most of which, about 600-700 enterprises, are located in HCM City.

Commenting on the capabilities of the enterprises, Mai Xuan Thieu, Head of the Vietnam Logistics Institute said the majority of enterprises have a modest capital of 1-1.5 billion dong.

As a result, they mostly work as agents for multinational groups and undertake some phases of the logistics value chain.

According to Thieu, the declared number of logistics enterprises is not reliable. Sometimes he heard that Vietnam has 1200 enterprises, but other times he was told that there are only 800 enterprises.

Thieu believes that Vietnam still does not have exact figures because many people still do not understand what “logistics” means.

Thieu said that Vietnamese enterprises are not capable enough of providing transport services throughout Vietnamese territory with competitive costs, while there are different service providers who provide different kinds of services.

Currently, Vietnamese companies only can meet 25 percent of the total domestic demand.

Regarding the port development, Thieu said that developing ports does not mean to try to have as many ports as possible.

Vietnam only needs several ports, but the ports need appropriate investments to meet international standards, where logistics services can be provided.

“In fact, there are many ports in Vietnam, but most of them cannot be applied to logistics, except Tan Cang.

In HCM City, 80 percent of containers go through Tan Cang Cat Lai, while the road linking to the port is not good. Therefore, other ports appear to be redundant,” Thieu said.

Logistics development doesn’t match potentials

At the forum held several days ago on logistics and the development of seaport services in the context of international economic integration held Vung Tau City, Deputy Minister of Transport Nguyen Hong Truong said the logistics services in Vietnam are still in the first stage of development.

Therefore, the total expenses of Vietnam’s logistics in 2010 reached 20 billion dollars, equal to 20-25 percent of GDP, nearly double that of Singapore, at 8-9 percent.

Of these expenses, the spending on cargo transport alone accounted for 50-60 percent. Meanwhile, if Vietnam can cut down one percent of its logistics expenses, it will be able to save 0.15-0.2 percent of GDP.

Currently, Vietnam ranks the 53rd among 155 countries which have logistics services and ranks the fifth among ASEAN countries. Experts have pointed out that Vietnam’s logistics services have not developed well to fit the existing potentials.

According to Nguyen Hung, Chief Secretariat of Viffas, Vietnam has to open the logistics market to foreigners by 2014 at the latest as per WTO commitments. Meanwhile, Vietnam’s logistics development is still in its infancy, and it is a bit late.

Hung has asked the government to take actions to develop logistics services. Specifically, it needs to think of offering tax incentives to encourage enterprises to make investment to develop.

Besides, it is necessary to set up a national logistics committee that connects ministries, branches and enterprises. If no such a committee is established, there will be no common voice in the development of ports, transport infrastructure and industrial zones.

Wal-Mart is building its seventh Sam’s Club outlet in the northeastern port city of Dalian, on the first plot of land it bought in the country, said Ed Chan, chief executive officer of the company’s China operations.

“When the location is suitable and site is available and meet our needs, we’ll go and work with the government directly to acquire” the land-use rights, Chan said today at an investors’ conference broadcast on the company’s website.

China’s soaring real-estate prices are seeing some foreign retailers switch their business model in the country from leasing property to acquiring land and building their own stores. Tesco Plc (TSCO) this month formed a $280 million joint venture with HSBC’s Specialist Investments Ltd. and Metro Holdings Ltd. to develop three shopping malls in China.

Inter Ikea, a mall developer part-owned by Sweden’s Ikea Group, plans to spend about 5 billion yuan ($763 million) to build a shopping center in Beijing to which the furnishings chain’s second store in the city will be connected. It is to be the biggest investment by Ikea and Inter Ikea in the world.

Premier Wen Jiabao said on March 5 that China will “resolutely” press ahead with controls on the property market to curb speculation. About 40 Chinese cities said they will cap new home prices below annual economic and disposable per-capita income growth after local governments were ordered to submit home price control targets by the end of March.

The Chinese government is intensifying efforts to keep housing affordable after prices gained 19 consecutive months to December. Spending on affordable housing gained 15 percent last year to 13.6 billion yuan, according to a report by the finance ministry.

Wal-Mart, based in Bentonville, Arkansas, is speeding up its store openings in China, where it had 329 outlets at the end of its fiscal year in January. The China operations generated $7.5 billion revenue, or 1.8 percent of the company’s $420 billion total, during the year, according to Scott Price, chief executive officer for Asia.

Wal-Mart rose 0.2 percent to $52.36 in New York trading yesterday. The stock has lost 5.8 percent in the past year.

The retailer will increase its penetration in smaller Chinese cities, Chan said today, with the proportion of stores located in tier one cities falling to 18 percent in 2014 from 20 percent last year.

China will be the world’s largest grocery market by 2014, Roland Lawrence, Wal-Mart’s chief financial officer in the country, said at the same briefing.

The company will have Sam’s Club outlets in 17 Chinese provinces in five years, from four provinces now, said Sandy Tam, a vice president with Wal-Mart China. Sam’s Club is a membership division of Wal-Mart that offers warehouse shopping services.

Chan reiterated today that the company will close its purchase of Chinese supermarket operator Trust-Mart in the 2011 fiscal year. The U.S. retailer delayed the closing of the deal to May this year so that some conditions in the contract could be fulfilled, it said in December.

To contact the Bloomberg News staff on this story: Michael Wei in Beijing at mwei13@bloomberg.net

To contact the editor responsible for this story: Frank Longid at flongid@bloomberg.net

Michael Cole, Research Director, Colliers International Shanghai

The surge in economic growth that has followed China's stimulus measures of 2009 drove consumer retail spending in Shanghai up by more than 17% in 2010, increasing demand for warehouse space and putting pressure on logistics developers to bring new projects to market.

Prior to the global economic crisis, the market for investment grade distribution centers that could service the needs of international clients was dominated by international logistics developers such as AMB, Gazeley, Goodman, ProLogis and others. In particular, these primarily publicly-traded developers had been able to rely on their superior access to capital to dominate the market for distribution centers built to lease out on the open market with their only significant domestic competitor being Baowan Logistics (BLogis). However, as the world economic crisis deprived the international developers of their access to capital, the existing order of China's logistics real estate market began to change.

 

Growth in Consumer Spending Fueling Demand

At the same time that capital sources for most international warehouse developers were still being restricted by the after-effects of the financial crisis, the success of China's economic stimulus was leading to a boom in consumer spending and retail development.
Through November 2010, while Shanghai抯 warehouse space grew by 4.5%, the city抯 retail sales grew at an annual rate of 17.6%, nearly equaling the November 2008 high of 17.7%.

This retail growth is attributable to a number of factors, including the country抯 rapid urbanization, the strength of the RMB, and rising incomes among the population.

And, all of this retail growth requires warehouse space so that new products can be shipped, stores can be refilled, and consumers can keep spending.

 

Vacancy Rates
The result of this retail boom is that there is very little grade A warehouse space available for lease in the Shanghai area. According to a survey by Colliers of distribution centers in the Shanghai area, vacancy rates in the city are currently averaging less than seven percent.
This very high rate of absorption means that retailers are lining up for space in the best locations, while developers are now scrambling to bring new projects online before their competitors and to secure sites for future development.

 

Rental Rates
The lack of available space has enabled logistics developers to do away with rental incentives such as rent-free periods in most areas of Shanghai, and driven rents steadily upwards. On average rental pricing for grade A warehouses in Shanghai increased by 5.71 percent from 2009 to 2010, rising from an average of RMB 0.89 to RMB 0.96 per sqm per day, and by January 2011, average rentals in Pudong are already at RMB 1.00 per sqm per day. As the amount of new space coming online is still expanding much less rapidly than the demand from the region抯 retail sector, these rates are projected to rise another five to seven percent during 2011.

 

Opportunities for Developers
The current situation is offering opportunities for developers who have access to capital and favoring companies which kept more projects in the pipeline and retained rights to future sites through the crisis.
Unlike 2010, many developers are now proposing speculative distribution centre projects for 2011 to be leased out to customers on the open market when they are completed. The greatest challenge is that, due to the time necessary for bringing new projects online from the time financing has been secured, developers are now essentially in a race to open their new facilities before their competitors.

 

Competition for Sites
During 2011, the biggest challenge for logistics developers will be access to sites, particularly in prime locations accessible to downtown shopping districts or near major manufacturing centers. This is due to the overall growth of the real estate market which is pushing residential and retail developments into areas which might previously have been available for distribution sites.

According to Shanghai government data, from 2008 to 2010 while the average prices paid for land to be developed for logistics purposes actually went down by 2.6%, from RMB 600 per sqm to RMB 584 per sqm in the outlying districts of Baoshan, Jiading, Qingpu, and Songjiang. The residential market in these same areas boomed. In these outer districts of Shanghai the price paid for residential land increased by 206% during the 2008 to 2010 period, rising from an average of RMB 4932 per sqm to RMB 15129 per sqm.

As China's retail and residential real estate sectors have boomed during 2009 and 2010, the amount of sites being snatched up by developers in these sectors has increased dramatically. While the rental yields available on warehouse developments in the Shanghai area still average around 8%, the return to the developer for a new logistics project is still not sufficient for them to outbid a retail developer putting up a 30 story apartment block which they can begin pre-selling as soon as the structure is topped off.

This means that logistics developers are having to search for sites in more distant locations and has increased the level of competition for strategically placed plots.

 

Demand to Continue Increasing
According to a recent PriceWaterHouseCoopers study, China's retail growth is slated to reach 14% in 2011, despite the recent cutbacks in stimulus measures by the government. This ongoing growth in the country's retail spending should continue along with the retail trend.

With this ongoing demand for warehouses, and the scarcity of sites, the edge should belong to logistics developers which have invested in their local networks so that they can gain access to new sites as they become available. As the advantage in securing sites often goes to domestic developers with stronger ties in the local governments, international developers will be pressured to offer high enough prices to secure sites without driving up their costs to levels that reduce the current 8% average yields that Colliers estimates these developers are currently earning in Shanghai.

 

Developer Outlook
Given the ongoing increases in demand for warehouse space, it is clear that developers who were able to maintain their access to capital through the credit are now in the best position to profit from current demand, and other developers who gave up too many sites during the downturn will now struggle to bring enough stock online to maintain market share.

Wu Liu, pinyin for the modern word “Logistics” is starting to gain importance in China, mainly due to the relocation of production facilities from western-countries to the Far East. Many foreign forwarding companies in China are looking to recruit local staff that have an academic degree in logistics.

When assessing the current state of logistics education at the undergraduate level (i.e. Bachelor) at universities in China, several observations can be made.
First of all, the number of schools that are offering a major in logistics and the number of logistics programs have been greatly increasing since the first logistics department in China was set up in 1994 by Beijing Wuzi University. Today there are 284 universities offering logistics management and 58 universities providing classes in logistics engineering.
Secondly, more students are beginning to study logistics. There are six universities in Beijing offering logistics programs. The largest logistics
faculty is at Beijing Normal University with 1,990 students.

Also, the curriculum content has been improving. The majority of logistics departments or institutes have also launched logistics labs. In these logistics labs, Students get to know the technology, such as: forklifts, high-rack stackers, high-bay racks, pick by light or pick by voice? said Prof. Dr. Armin F. Schwolgin from Baden-Wuerttemberg Cooperative State University Loerrach.

Now Beijing Wuzi University has the biggest logistics laboratory in China that cost about 2.4 million Euros (US$3.2 million). The logistics laboratory at Beijing Transportation University is only half the size. Other than logistics labs that have been applying advanced technologies, more and more universities have begun collaborating with foreign universities to broaden students?horizons - like Beijing Wuzi University and Baden-Wuerttemberg Cooperative State University‘s (DHBW) collaboration on their bachelor program. Each year more than 10 Chinese students go to Loerrach for a full year.

 

The proficiency in logistics nkowledge and technology has increased significantly, especially at the postgraduate and PHD level.“The advanced international logistics technologies have been applied in some projects for frontier studies in postgraduate studies or PHD studies? ” suggested Mrs. Deng, a lecturer from the Logistics department at Beijing Normal University.

 

However, logistics education in China still fails to compete at the same level as other foreign universities. The frontier research and theoretic studies are quite restricted by the country’s reality, especially for undergraduate studies. "It is not advanced as those in many foreign countries like America,Japan, etc, because theoretical studies should always be lead by real-world practice," commented Deng.

Logistics appeared as an academic discipline in China just 20 years ago, and until 2001 Beijing Wuzi University remained the only university that offered a major in logistics. The next two departments for logistics engineering were founded in 2002 at Shanghai Maritime University and Wuhan University of Technology. Many logistics institutes or departments were transformed from former departments of transportation, delivery, communication, etc. Currently there is hardly any university or logistics institute in China that can penetrate into every aspect of logistics education. The programs are quite focused on one, or several aspects of logistics. For example, if the institute was originally a transportation department, then it will focus more on delivery of logistics. ·····Tsinghua University’s strength lies in industrial technology, so in its logistics program, it focuses more on equipments/facilities or logistics engineering,?explained Deng.

For logistics education out of Beijing, according to Mrs. Yang, a professor assistant from Wuzi University, the majority of teachers don't really come from a logistics background."Most of them were studying transportation or engineering before and they haven't got enough practice in the logistics industry",Mrs.Yang told us.

 

Based on the analysis and experience in foreign countries, there is still room to improve higher logistics education in China.First of all, the public awareness of logistics as an academic discipline has to be increased. Also, it is crucial to continue to push logistics knowhow and to strengthen the teaching quality of all staff, not only their proficiency, but also the practical capability. "It would be great if educators could go abroad to visit foreign logistics institutes. They could learn more, bring back advanced theories and have more oppotunities to develop exchange programs.?Furthermore, it is necessary for universities to implement their experimental classes.

In addition, Chinese logistics professors believe that a standardized logistics curriculum would be extremely helpful. Chinese professors, as a group, should work on a standard curriculum and syllabus, as it is seen by most them as a necessity.It is also becoming more popular for universities to coordinate with logistics companies. Take Wuzi University as an example, it has been coordinating with almost all of the logistics companies in the south-east coastal area of China, such as PGL, and this has enabled both teachers and students to get more involved in actual logistics practices.

Last but not least, "Teachers believe that the relationship between logistics engineering and logistics management should be clarified. In addition, we believe that the management aspect (finance, controlling, risk management, compliance management. etc.) should also be emphasized,"added by Prof. Dr.Armin F. Schwolgin.

 

As "Wuliu" gains importance in China with local professionals and talent becoming one of top priorities for the region, Chinese educators begin to realize the significance of being more specialized in logistics on a global scale. The ability to be more tech-savvy and more international will help to catch up with the quick development of the industry.

 

Logistics labs have been launched featuring new and advanced technologies. Schools are also grasping at opportunities to coordinate with foreign schools and logistics companies, in order to broaden students' horizons and provide more chances for practice for both teachers and students. For example, Beijing Wuzi University has been collaborating with many logistics companies, like PGL, in the Southeast coastal region of China.

CHaINA received comments from several Chinese professors in logistics institutes regarding the development of education in China. All of the professors share in the belief that, although there are many improvements in school facilities, curriculum as well as awareness of logistics education, the level in China still remains in the early stages.

 

Professor Deng, from Beijing Normal University, believes the frontier research and theoretical studies in China's logistics education is equivalent to that of the development of logistics in China. Therefore it cannot compare to the levels of advanced nations like America or Japan. "Theoretical studies should always lead the practice", Deng continued, "Yet in China, theoretical studies are quite restricted to the reality, especially for undergraduate studies." Currently, China does not have any school that can benchmark its logistics program at close to a 5 star level.

 

Logistics really began to develop in the early 90s. Since then, logistics education started to be pushed by some universities and colleges in China. Some logistics departments were actually transformed from other faculties, like the communications or transportation department. If the original curriculum consisted of studying transportation, the focus would be shifted more towards delivery. "A School like Tsinghua University, which is good at industrial technology, focuses its logistics education on equipment and facilities, or logistics engineering", suggested Deng, "but it抯 hard to say which school can be considered the best."

 

It seems to be even harder to determine a top school if you involve postgraduate studies and PHDs, since "they are much more focused on certain aspects of logistics, instead of studying logistics as a whole", explained Yang, an assistant professor at Beijing Wuzi University. "Some of the research and  projects at the PHD or postgraduate level has reached the standard of international logistics technology."

 

To really take the overall logistics education in China to a world-class level, much remains to be implemented. Many Chinese professors believe that the most important aspect will be to improve the quality and standards of teachers. "In many schools out of Beijing, teachers in logistics departments don't come from a logistics background. They originally studied transportation, engineering, etc. More qualified teachers are needed," commented Professor Yang. In addition, it is also necessary for teachers "to improve their expertise in the theoretical and practical studies," comments Professor Deng. "They will benefit from visits to logistics schools abroad to learn more and in turn will be able to introduce advanced technology and projects."

 

The road to improving China’s logistics education programs has yet to come to a close, nor will it be easy to accomplish. With the support of the logistics industry and passionate educators, the evolution of logistics curriculums is sure to take place in the near future.

 

 

A merger of epic proportions has been agreed upon between logistic real-estate giants AMB Property Corporation and ProLogis. The deal will effectively merge more than US$46 billion in gross assets owned or managed. William Sullivan, the CFO of ProLogis, estimates the merger deal will cost roughly US$150 million, however will produce US$80 million in annual saving effective immediately. ProLogis, valued at US$8.7 billion before the merger, operates in 105 countries in 19 countries; while AMB Property, valued at US$5.5 billion before the merger, operates in 48 markets in 15 countries. Coming together will give the company 5.4% global market share, a bigger piece of a very fragmented pie.

The details of the deal swing back and forth, and it's difficult to determine whether or not this a erger of equals?as the official press release claims. The company will operate under the ProLogis name, and shares will be transferred to AMB Shares, but traded under the ticker sign PLD (Prologis?ticker). The existing CEOs will become Co-CEOs for the time being, while Sullivan (ProLogis) will take the CFO position and former AMB CFO Thomas Olinger will become Chief Integration

Officer.It's interesting to note that both ProLogis executives have announced they will retire at the end of 2012, leaving AMB's top executive to run the mega-company.

 

The deal will also allow ProLogis to re-enter China, after selling its assets to GLP and exiting in 2008. Prologis has been burdened with debt for the past several years, which forced their former CEO, Jeffrey Schwartz, to resign in 2008. Since then, Prologis has been refinancing and raising capital to pay off its debts. ProLogis is the larger of the two companies; however has a weaker financial situation. AMB's properties are much more valuable as well, due to their locations near ports and airports, so the merger seems to be more of a purchase. "This is two parties coming together and saying how can we make this work in a way that's beneficial to both, even though AMB is buying ProLogis," said Ian Goltra, portfolio manager with Forward Management.

CHaINA Magazine asked AMB executives in China for their perspective on the merger, however they declined to make any comments at this time. What do you think? Email ?Editor@supplychain.cn

Final delivery to a customer is the last link in a long chain. Improving the efficiency of that chain can help a company save millions of dollars. It can also make products safer and businesses more environmentally friendly. Listen to this exclusive radio program on the latest in supply chain in China.

With guests:

Max Henry, Founder & Executive Director of the Global Supply Chain Council.

Chung Tam, Chief Representative for the American Society of Transportation and Logistics in China (Beijing based).

Hour 1
Hour 2

Meet Paul Sun, the man who brings fresh mushrooms to Shanghai daily.

How many kinds of mushrooms are you sourcing?
I have nearly one hundred different kinds of wild and farmed mushrooms.

Where are you sourcing them from?
Most are from Yunnan, some from Tibet, some from Changbai Mountain in north-east China. My supplier in Yunnan has been in business for 10 years, specializing in supplying fresh vegetables to Shanghai.

How are they shipped to you?
My partner company in Yunnan sends those mushrooms to us by air – usually with China Eastern Airlines or Spring Airlines - almost every day to Shanghai. Most of the time, they arrive at Hongqiao Airport before 3 am.

How big are your daily orders?
We can sell 150 kilos of fresh mushrooms like Porcini and Chanterelle every day. For farmed mushrooms, every day we sell at least 100kg of the Portobello and at least 40 kilos Golden Thread mushrooms. For frozen and dried mushrooms, we just get 20-30 kilos every day. For fresh truffles, we sell at least 8 kilos every day in Truffle season (from end October to next March).

So how do you deliver those mushrooms?
We've got one car and a driver who also helps us with the packaging and we also have two motorcycles for emergencies. The driver starts to deliver before 6:30 am in case there’s a traffic jam and all the deliveries are done before 3pm.

Who are your main customers?
Most of them are hotels and restaurants. We supply to roughly 30 hotels like the Ritz Carlton, Peninsula, and nearly 70 restaurants like Madison and M on the Bund. We deal with some online shops like Feidan.com and of course some personal customer, local celebrities, investors, bankers, etc. We supply to some of the Chambers of Commerce as well, like the French Chamber.

What kind of problems have you encountered?
There are problems regarding the quality. Some mushrooms are big, some are small. I can't control the size, which I have to explain to the chef. Depending on the weather, the mushrooms might be covered in mud and it takes a long time to clean them, which affects delivery time. Sometimes the mushrooms are broken during delivery. Sometimes the airplanes are delayed due to the weather, that’s another thing that we can't control. But luckily the airplanes haven't been delayed more than four hours, so it hasn’t been a serious problem yet.

How has the recent inflation affected your business?
It has affected it a lot. The price for many wild mushrooms has increased. For example, truffles’ retail price has gone from RMB300-500 per kilo to RMB800-1200 per kilo. Hotels like Ritz Calton, and restaurants like M on the Bund and Johnson have removed truffles from their menu.

What are you plans for expansion?
Our business is growing well and our revenue has doubled since last September, to RMB500,000-600,000. We want to expand around the Yangtze River delta region. And for next step, I want to go to Beijing, the capital! We have launched QQmuchroom.com to help attract more people and promote our business.

Manufacturers unlicky in the Year of the Rabbit

The Year of the Rabbit is upon us, and with it has begun a dramatic battle to find labor for China’s factories. Before Chinese New Year, many migrant workers made their annual plans to return home for the celebrations, with bosses becoming more and more aware that many workers would not be returning to their posts.

As expected, many Chinese laborers shrugged off the 10-15% higher salary they were promised by their former employers, which has left a severe shortage in my factories, especially in the southern and eastern regions. The headlines in local newspapers are laden with cries for help. “The Pearl River Delta encounters a massive labor shortage”, “Enterprises in Ningbo are plagued with labor shortages…” It’s also affected common greeting in the regions, which are now more like: Happy New Year…Have you got any referrals for labor? “Less than 50% of workers have gone back to their original factory in many small labor-intensive enterprises in Wenzhou,” according to Wang Hailong, from Aokang Group. “Roughly 80% of workers in Aokang went back home before the Chinese New Year and only 100-200 have no returned, which is somehow not that bad.”

Facing major labor shortages on their assembly lines, manufacturers have enacted solutions to combat the “60%-back-to-factory-ratio”. Incentive programs with catchy names like “Back-to-factory bonus” and “Back on time! Lucky Pocket” give bonuses ranging from RMB400-700 per worker. Other incentive systems like referral programs can deliver RMB500-1000 per new worker found. Salary and benefit increases have also been reported, with offerings like free time increases by 10% and wages raises of 15-20%. In Wuhan, factory wages for general labor now range from RMB1600-2800, compared to those who work in the booming service industry where minimum wage is now RMB1200. Many governments have also increased their minimum wage to lure people to their regions. Beijing now has a minimum wage of RMB1160, Jiangsu is now RMB1140, and RMB1300 in Guangdong. Shanghai has yet to increase its minimum wage; however it’s scheduled to rise in April by 10%, from the current RMB 1120.

The fight for labor has begun between factories looking to fill positions on their assembly lines. Several high-tech manufacturers including Foxconn set up signs at railway stations to direct workers to employment registration desks. On the other side of the fight are inland governments, who are pushing new policies to keep their local workers in local factories. Provinces like Sichuan and Hubei, which are famous for exporting labor to neighboring provinces, have unveiled their own incentive programs to keep their laborers. Wuhan’s government has placed “Spring Breeze Cards” (brochures that provide job offer information and hiring details) at railway stations, bus terminals and local labor markets. 

Moving Inland

Chinese workers are known to be quite attached to their hometowns, which has played a factor in the shortage of labor in many regions. Government and company policies have also provided new incentives to stay closer to home. Mr Xie, a manager from Xingchao Textile Factory, claims that the labor shortages stem from emerging manufacturing in Inland China. With the development of manufacturing inland, factories in coastal regions are slowly closing down and moving towards the cheaper labor pools. Workers who were originally forced to travel and find work in the coastal regions, now have the opportunity to get equivalent or even higher wages, closer to their hometowns. So why not stay?

An increase in salaries will help retain workers, but in the end the consumer will be the ones who lose. Higher wages will force companies to raise their prices to compensate for the increases. When you add the additional cost of hiring new workers and increases in raw materials prices, and profits start to wither away. Analysts are now predicting that salaries in China will increase by 15-20% annually over the next few years, which will force manufacturers to shift their assembly lines inland and further west, or to pack up and leave China altogether.

The Tech-giant shows supply chain prowess

For a few months now, bloggers and geeks have been speculating on what the uber-popular tech company Apple Inc. had spent US$3.9 billion on. Guesses ranged from liquid metal to new 3D technology.

The speculations can finally cease as Apple announced it has secured suppliers for its display panels for the next 2 years. It’s uncertain who the three suppliers actually at this time, however based on past cooperation, LG Display, Sharp Corp. and Toshiba Mobile Display are cited as the likely partners. All three companies have had previous access to the intellectual property, licensing and technology of Apple, so the choice in partnerships is a logical move.

The Apple Way
In 2005, Apple made waves by signing a US$1 billion dollar agreement with Samsung to buy NAND flash memory for use in the iPod. Then in 2008, they signed another deal with Samsung for the iPhone, which forced the Korean tech company to focus on Apple above all other companies. In 2009, Apple had a US$500 million deal with Toshiba to provide screens. These strategic and large scale deals have worked heavily in Apple’s favor. Not only have they ensured that their productions needs are met, but purchasing large volumes of components, Apple usually ends up setting a benchmark for technology in the industry.
The latest and greatest multi-partner deal will ensure that component supplies are fulfilled for the next two years of production for their high-density display panels. This US$3.9 billion deal will provide Apple with a comfortable buffer for display panels to be used on future generations of the iPhone and iPad.

All about the Screen
Apple’s move is very strategic and comes at a time where a massive influx of companies are trying to enter the tablet and smart-phone market. "In the era of the iPad and iPhone, the user interface - particularly the display and touch screen - has become the most critical competitive differentiator for tablets and smart phones," noted Vinita Jakhanwal, director for small and medium displays at IHS.
There are two different technologies which are used to create the high-resolution screens we all know and love, which Apple calls its Retina Screens. In-plane switching (IPS) and low-temperature polysilicon (LTPS) technology are used to create the high-resolution screens. The pixels are so small that they are not clearly visible to the naked human eye.

Limiting the supply
Since IPS technology is quite difficult to come by due to a license that restricts the number of manufacturers and LTPS technology at very limited production (likely due to very low margins) levels, the global demand will far outweigh supply. Samsung, one of the bigger rivals to Apple and its tablet, has chosen to invest in a different technology called active matrix organic light- emitting diode (AMOLED) displays.
So, with Apple having bought up capacity from arguably the three largest manufacturers, and Samsung investing heavily in the major alternative, the swarms of manufacturers now jumping on the tablet bandwagon will find it very difficult (and expensive) to acquire the components they want.

Apple’s Leverage
How does Apple keep cornering the market on the components every company wants? Well, as the most cash-rich tech company today, Apple is able to negotiate huge volume discounts with its suppliers. With 50 billion dollars in liquid assets at Apple’s disposal, the company can pretty much be certain that they’ll get the supplies they need at scale. They also leverage more than ten million advance orders with partners like Foxconn to ensure that margins on their hardware remains high. According to the latest iSuppli teardown, Apple pockets roughly 50% in gross margin on the iPhone, while competitors settle for anywhere between 20 and 40 percent.

Final thoughts
The iPad has yet to celebrate its first birthday, but rumours surrounding production of the second generation iPad are fuelling internet news sources. Sales for the first generation iPad totalled 4.6 billion in the final quarter of 2010 alone, which is only 17% of Apple’s total sales revenue! A lighter, faster iPad, will make its way to retailers in the next few months. Even with all the new gadgets that Apple has added, the retail price is still lower than HTC’s, RIM’s and Motorola’s first Tablet offering. The news should definitely have the competition concerned.
As long as Apple keeps buying up global capacity, setting high industry-wide standards, and making innovative and creative products that everybody wants, don’t expect them to budge from the position in the market. They’ve got a mountain of money, the right technology, the coolest products, and most importantly, the right ideas about their manufacturing. They are currently sitting as the number 2 purchaser of semi-conductors, and are on pace to reach number one in 2012. When that happens, they’ll further tighten their stranglehold on global tech components.

Illegal  Chinese manufacturers are faking drugs, endangering patients’ lives, and undermining legitimate brands, especially those from India. Bian Zhenjia, deputy commissioner of the Chinese State Food and Drug Administration (SFDA), told a news conference last year that reports claiming the country was a major exporter of fake drugs were unfair. “I don’t agree with what the foreign media has been saying. The Chinese government has always paid great attention to cracking down on fake drugs.”

But new data from the drug samplings that my research team has undertaken show that China is largely responsible for the fakes attributed to India. The sample sizes are small but indicative of a larger problem, a signal that New Delhi has every right to pressure Beijing to act on rogue manufacturers within its borders.

Indian companies provide vast amounts of generic drugs to mid-income and developing nations. By some estimates, 80% of HIV drugs for the developing world come from India, and probably half the antimalarials and antibiotics too.
Counterfeiters copy popular brands even when they’re not the most expensive, since the market accepts a familiar product more easily and without suspicion. This means many fakes may be sold before they are detected. And since Indian generics dominate many therapeutic categories of these markets, it is not surprising that they are the ones faked.

My research team collected drugs from 22 cities in 20 countries over the past four years. Of these, 911 antimalarial and antibiotic products were, according to their packaging, made in India. They were procured from 14 countries, mainly in Africa, but also in Thailand and India. Of those products, 79 (or 8.7%), failed basic quality control tests and hence were unfit for their intended use. Of these 79 products, we were able to establish that 37 were counterfeits. More products may have been counterfeit, but without responses from the manufacturers or regulatory agencies, it was not always possible to be sure. Of the 37 counterfeits identified, 22 were definitely faked in China and delivered straight to African nations from China. Hence, from our small sample, over half (59%) of the fake Indian drugs were actually made in China.

Dr Paul Orhii, head of Nigeria’s anti-counterfeit drug agency NAFDAC, helped us track where some of the alleged “Indian” fakes had come from. He told us of the astonishing Chinese criminal counterfeiting drug networks his investigators had unearthed. The networks are run from China and employ Nigerians and people of other nationalities. They have successfully infiltrated the entire supply and distribution chains—from producer to patient—across continents. Orhii said they either bribed employees of customs departments, or, in numerous instances, had their own personnel apply and get jobs in places ranging from Nigerian and Chinese customs to two Middle East airlines, which then unwittingly transported the fakes from China to Nigeria.
Each compliant official had responsibility at key parts of the distribution system, starting with manufacturing in the Chinese Shenzhen free-trade zone until they arrived in Lagos, Nigeria’s largest city. Remarkably, legitimate or unbribed officials had very little chance to spot the fakes being transported. In one instance, the drug traded by a gang was a fake of an Indian antimalarial drug called Lonart DS. The proper drug is made by Bliss Gvs Pharma Ltd, of Mumbai. The fake didn’t contain any of the correct active ingredients and had it been distributed, might have left untreated thousands of malaria-stricken children. Fortunately, this shipment was caught through routine surveillance work.

But this was not the only example in 2010 where a Chinese-made fake was passed off as an Indian generic in Nigeria, said Orhii. His department has clamped down on those selling fakes from China and now it inspects factories exporting drugs to Nigeria. As a result, Beijing has sentenced six Chinese nationals to death over their part in selling fake antimalarials. The sentence is yet to be carried out.

In 2009, our Nigerian colleague Thompson Ayodele came across another fake of an Indian drug, this time an antibiotic. Later, we found out that it, too, had been made in China.

But Chinese gangs do not discriminate whose drugs to fake. Indeed, every major drug company and every country has probably had drugs faked by the Chinese. They’ll fake anything popular. Take Artesunat, the brand of a Vietnamese antimalarial, made by the Ho Chi Minh-based Mekophar Chemical Pharmaceutical. Ongoing research shows that fake Artesunat was found in Nigeria, Ghana, Kenya, Uganda and Tanzania, and also in Thailand—all the handiwork of Chinese counterfeiters.

India has a problem with counterfeit and substandard drugs. Many are made by Indians for India’s market. But it may be less India’s fault than we thought. In addition to the examples discussed above, in our ongoing research, we have even come across Chinese fakes in India that sported “Made in India” labels.
Obviously, Beijing needs to improve oversight of drug production within its borders, but India must also act. Through the World Health Organization, it must push for strengthening of public health laws against trading fake drugs. It is in India’s interest, and of patients globally, to do so.