Transportation and logistics industry 

Freight Forwarding Business in China - Present and Future


What are "freight forwarding services"?  The definition of Model Rules on Freight Forwarding Services issued by the International Federation of Freight Forwarders Associations is "services of any kind relating to the carriage, consolidation, storage, handling, packing or distribution of the goods as well as ancillary and advisory services in connection therewith, including but not limited to customs and fiscal matters, declaring the goods for official purposes, procuring insurance of the goods and collecting or procuring payment or documents relating to the goods".
   
In China, the domestic freight forwarders are mainly operating on a small scale.  The owners are usually the operators.  A major difference between the operations of domestic freight forwarders and those of international ones is that the domestic freight forwarders usually do not have their own bills of lading.  In addition, due to the small size of domestic freight forwarders, their businesses are limited to a particular seaport or airport and the nearby area.  They are not able to provide one-stop services to customers, like their international counterparts.  However, it is worth noting that only domestic freight forwarders can operate the inland transportation within China to and from the seaports and airports due to the statutory limitations on foreign investment in this business.  For foreign-invested freight forwarders in China, they can only handle the international freight forwarding business.
  
With such differences, usually the international freight forwarders handle goods imported from or exported to overseas markets from the seaports and airports in China using their bills of lading, while the domestic freight forwarders handle goods transportation within China itself.
  
As a result, domestic freight forwarders are currently isolated from competition from the international freight forwarders, in respect of the inland freight forwarding business.  Also, because of the complexity and uncertainty of the regulations in China in the past, not many foreign investors have invested in this business in China.
 
In recent years, the freight forwarding business is booming because of the economic growth in China, leading to the increase in trade between China and the rest of the world.  As a result, both imports and exports show significant increases.  With the accession of China into the World Trade Organization (WTO), it is expected that the growth in trading volumes will continue.  The demand for logistics services, including freight forwarding services, will increase simultaneously.
   
Furthermore, with the "just-in-time" management concept developed in recent years, the manufacturers, the distributors and the retailers rely on frequent shipments to sustain production flows and inventory rather than accumulating inventory in their warehouses.  This is also accelerating the development of the logistics service business.

Threats?  Opportunities?


Although the accession of China into the WTO brings great opportunities for the development of the freight forwarding business, threats also exist for domestic freight forwarders.
   
As noted above, the operations of domestic freight forwarders are usually small and concentrated in particular locations.  With the entrance of international freight forwarders into the market in future, domestic freight forwarders do not have much competitive advantage, in terms of their size or services.
  
Facing such changes in the market, domestic freight forwarders will be forced to consider realigning their business operations in order to meet these challenges.
  
Focusing on the weaknesses, domestic freight forwarders can improve their network of services by forming strategic alliances with other domestic freight forwarders.  In addition, it is time for domestic freight forwarders to consider moving away from operating as a traditional service provider for freight forwarding only to becoming an integrated service provider for logistics services overall.
  
There is another option - with the well-established network in their local markets, domestic freight forwarders are actually attractive targets for mergers and acquisitions by both domestic and international freight forwarders.  Combining the knowledge and human resources from the international freight forwarders and the local experience of domestic freight forwarders, those businesses are likely to be best placed to capture the opportunities presented in the market.

Leading Advisors to the Transportation & Logistics Industry


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Contacts
Alan Ng
Transportation & Logistics Leader
Hong Kong
Tel: +[852] 2289 2828 Email
Reynold Hung
Partner
Hong Kong
Tel: +[852] 2289 3604 Email