Changing Lanes

There have been some dramatic changes in China’s automotive industry in the past few years. Demand has soared in emerging markets. The industry is consolidating. Supply chains have become far more complex and internationalised. It’s a fast-moving, dynamic business that presents special challenges to the logistics providers it relies on.

The country’s government sees the automotive sector as a key pillar of economic growth, and that political imperative is helping to drive progress and output. Electric vehicles present an important opportunity, both domestically and internationally with domestic sales already relatively strong, admittedly largely due to subsidies which have thus far kept international competitors at bay.

On the downside, the industry is now more vulnerable to whims of volatile trade relations – though it is has become far better at identifying and costing supply chain risks.

Redefining the supply chain
The future development of the industry will redefine the characteristics of its supply chain, most likely changing them dramatically, and logistics providers will need to adapt to those changes.
Investment is growing in automotive traditional manufacturing, with plants in the industry’s heartlands around Shanghai, Guangzhou and Beijing, as well as in the west along in the Yangtze river, Chonqing in the southwest, and in the northeast of the country. That geographical expansion is driving an increase in the use of intermodal transport, including short sea shipping and rail which is also being used to ship goods via the One Belt, One Road routes that link China and Europe.
Even so, the Chinese auto industry is under pressure to cut costs. One of the areas where it is looking to make savings in through closer collaboration between vehicle manufacturers and their suppliers on volume planning to reduce unnecessary excess inventory in the supply chains. Traditionally inventory was managed by suppliers, who held stock for the manufacturers, but that’s changing. Companies are now turning to lead logistics providers to better coordinate component flows.
Supply chain costs, particularly for labour and warehousing, is under pressure to counter losses that cannot be controlled or avoided. New or tightened regulations are expected to reduce the number of vehicles that can be transported on any one carrier. That will impact profits, but flouting the rules could result in hefty fines.

Exports of finished vehicles are expected to rise strongly, benefitting car-carrying shipping lines. Chinese logistics companies will expand their roles on a global basis encouraged by government policy, complementing the development of Chinese shipping lines such as COSCO which is already a global market leader.

Consolidation
Vehicle manufacturers with production facilities throughout China, and overseas, are seeking ways to consolidate their supplies to eliminate complexities that can result in inefficiency, especially in inventory management. This will bring a major cultural shift as logistics was usually carried out exclusively by a subsidiary of the global manufacturer’s joint venture partner. There is bound to be resistance to changing that, but it is only through such changes that the sector will be able to mature.

At GAC China, we have a head start. As the lead logistics provider for some global key automotive parts suppliers, we have been taking care of the outbound logistics flow (supplier management) from suppliers worldwide to factories in China for some time. With our global network and in-depth local knowledge and excellent relations, we have the resources to manage supply chains, from buyer consolidation, KPI management, freight forwarding, contract logistics to worldwide distribution.
Source: GAC, by Bobby Xu, GAC China’s Automotive Logistics Director