The transportation and logistics industry has finally come to the attention of the 10th major industry revitalization plan. The State Council Information Office held a press conference on March 2, 2009, and announced that the adjustment and revitalization plan for the 10 key industries will be implemented in three years (2009~2011). Liu Tienan, deputy director of the National Development and Reform Commission, said that the logistics industry, as an important branch of the service industry, is not only an important link between the other nine industries, but also an important carrier for these industries to connect with domestic and foreign markets. The 10 major industries are an organically linked whole, which can form a combination of industrial structure adjustment and revitalization.
Statistical data shows that my country’s total logistics volume fell by 8.1% year-on-year in 2008, and the profit decline of many logistics companies reached 20% or 30%. The country hopes to prevent the logistics industry from being unduly impacted by the economic crisis by introducing adjustments and revitalization plans, and at the same time provide driving, support and linkage effects on the manufacturing industry. This article will share with readers the challenges and countermeasures faced by transportation and logistics companies in the context of economic slowdown and industry changes.
The impact of the economic crisis on China’s transportation and logistics industry
The impact of the financial crisis on China’s transportation and logistics industry has begun to gradually emerge. The three major trends in the recent industry changes will change the competitive landscape of the transportation and logistics industry and affect the way companies in the industry compete:
Weak demand and changing customer requirements will reshape the content of transportation and logistics services;
Profits have been further squeezed and volatility has increased, and cost optimization is urgently needed;
Investment willingness has heated up and industry integration has accelerated.
Faced with the huge changes that may occur in the industry in the future, logistics companies can only survive the crisis by planning as early as possible and taking the initiative, stand out from the competition, and seize the advantageous position for long-term development (see Figure 1).
Weak demand and changing customer requirements are reshaping the content of transportation and logistics services
The financial crisis has forced consumers to re-examine their consumption habits and significantly reduce consumer spending. Prepare for economic crises since the Great Depression. The decline in consumption has affected both domestic and foreign trade to varying degrees, and is continuously impacting the transportation and logistics industry. Globally, international air and sea cargo volumes fell by 7% and 14% respectively in November compared with the same period last year. Coincidentally, since September last year, the growth rate of freight volume in all forms of domestic transportation, including railways, waterways, roads and air transport, has begun to decline significantly without exception. According to the China Logistics Statistical Yearbook, the year-on-year growth rate of China’s total social logistics costs (including transportation costs, storage costs and management costs) dropped rapidly from 19% in the third quarter of 2008 to 1% in the fourth quarter. These data fully demonstrate that the impact of the economic crisis on the transportation and logistics industry must not be underestimated.
However, despite the overall decline in trade volume, among China's 25 importing and exporting countries, there are still some trade routes that are less affected by the economic crisis and present certain growth opportunities. Even though China's exports to several major exporting countries/regions (the United States, Hong Kong, and South Korea) experienced consecutive negative growth in November and December last year, exports to the United Arab Emirates, Canada, Italy, and Australia still grew at a steady pace in December last year. Double-digit growth. Also in terms of China's imports, the growth rate of imports from countries such as South Africa and Oman still maintained double digits in December last year. Facing changing demands, transportation and logistics companies have begun to adjust routes to better meet the needs of import and export routes that are less affected by the economic crisis.
On the domestic front, driven by government policies and the cost control requirements of enterprises under the financial crisis, manufacturing production bases have begun to move inland, and the demand for transportation and logistics in inland areas has also accelerated. On the one hand, the preferential policies provided by local governments in inland areas to undertake industrial transfers are very attractive to manufacturing companies.
A large part of the country’s series of economic stimulus policies will be used to promote the economy of the western region. For example, trillions of yuan of investment are flowing into infrastructure construction in the western region, which will greatly improve the competitiveness of the western region. On the other hand, in order to reduce costs and cope with the crisis, many manufacturing companies have planned to move inland and will take action in the near future. For example, Intel, a global chip manufacturer, announced that it would close a Shanghai factory in 2009 and move it to Chengdu to reduce costs. In order to seize the new business opportunities brought by this round of westward migration of industries, transportation and logistics companies must quickly enhance local operational capabilities and expand their operational networks to cover the northwest region.
At the same time, transportation and logistics companies have also realized that the industrial upgrading of coastal areas has increased the demand for high value-added and specialized logistics services. Fine chemicals, high-end electronic information industry, high-end textile and clothing industry, modern agriculture and many other industries are included in the industrial upgrading plan. Accompanying industrial upgrading are changing transportation and logistics needs. Taking the clothing and textile industry as an example, high value-added manufacturers pay more attention to safety, zero errors, zero delays, special transportation capabilities for high-end fabrics, and reverse logistics.
For another example, agricultural products are developing in the direction of "green products" and "strict hygiene standards." This will significantly increase the requirements for cold chain logistics capabilities and full logistics control of transportation and logistics companies to ensure that products are free from contamination or deterioration. Transportation and logistics companies should quickly improve their business capabilities to cope with these changes in transportation and logistics demands caused by industrial upgrading.
In addition, in order to improve efficiency and optimize costs under the financial crisis, multinational companies and local companies are considering structural adjustments to the supply chain, which has also directly affected their demand for logistics services. . In addition to cost, customers are increasingly considering supply chain flexibility and the ability to scale quickly, and are adopting the approach of divesting supply chain assets. These structural adjustments have changed customers' selection criteria for logistics services, and transportation and logistics companies should adjust accordingly to provide more customized and potentially more profitable services.
Profits have been further squeezed and volatility has increased, requiring urgent cost optimization
Starting from the fourth quarter of 2008, the overcapacity due to the economic slowdown has forced almost all transportation and logistics companies to There is a trend of price cuts in related fields. In the global shipping market, taking January 2009 as an example, according to data from the French shipping consulting agency AXS-Alphaliner, more than 210 container ships were docked in the harbor, and 550,000 TEU capacity was idle. Other cases of excess capacity are also common in the aviation and land transportation markets. The direct consequence is that China's export container freight index fell by 7% in one month from October to November 2008 (Shanghai Shipping Exchange), and the average price of heavy goods in China's road less-than-truckload freight market fell by 10% during the same period. (China Federation of Logistics and Purchasing). The threat to the survival of enterprises caused by the continuous decline of market prices deserves more attention. For example, the profit margin of a typical road transportation company is 3% to 5%. If some effective cost control plans are not adopted, it will simply not be able to withstand the price drop of one month last year.
According to the recently released refined oil price and tax reform policy, domestic retail fuel prices will further align with the international market. Although the current crude oil price is hovering at a relatively low level, the reduction in crude oil production during the economic slowdown will exacerbate the uncertainty and volatility of future oil prices. Because it is difficult to pass on rising oil price pressure to customers during periods of overcapacity, according to Kearney's analysis, when crude oil prices increase by 20%, a typical road transport company that does not take any avoidance measures will see its profits drop from 3% to 0% . In the future, profits in the transportation and logistics industry will become increasingly sensitive to oil price fluctuations, so how to manage supply fluctuations is an urgent need for transportation and logistics companies to master.
Faced with the current recessionary economic environment, increasing operating difficulties and rapid changes in the competitive landscape, transportation and logistics companies need to re-examine their cost structures and driving factors. If bold and comprehensive actions are not taken in a timely manner, the survival and long-term competitiveness of enterprises at this stage will be seriously threatened.
Investment willingness is heating up and industry integration is accelerating
Even if it is hit by the global financial crisis in the short term, China's economy is still expected to recover steadily in the long term and continue to maintain its status as the world's production base. .
According to data from the Economist Intelligence Unit (EIU: Economist Intelligence Unit), China's foreign trade is expected to stop declining and continue to grow in 2010. In addition, according to data cited by the Financial Times from the economic consulting firm Global Insight, China is expected to surpass the United States and become the world's manufacturing center in 2025. Considering this series of long-term positive expectations, transportation and logistics companies need to build long-term development strategies to expand market share, consolidate market positions and provide more attractive and differentiated service content.
Some transportation and logistics companies with better financial conditions have begun to enhance their business capabilities and are considering making full use of the current external conditions that are conducive to mergers and acquisitions to achieve their long-term strategic goals. Three major factors are accelerating mergers and acquisitions in the industry.
First, the market and customer demands are constantly changing, which requires transportation and logistics companies to have a strong domestic network (sufficient geographical coverage and different transportation modes) or an integrated domestic and foreign transportation network, or is an integrated logistics solution. China's transportation and logistics industry has a very low concentration level. Any company is expected to gain a leadership position, and mergers and acquisitions are one of the ways.
Second, as the economic crisis deepens, merger and acquisition targets that are consistent with the long-term development strategies of logistics companies and have strong networks, brands, and infrastructure resources are gradually emerging. The most important thing is that the current valuation of M&A targets has dropped to a very attractive level compared to before the financial crisis (for example, the market value of a domestic transportation and logistics company fell by 40% in 2008).
Third, local governments support investment and mergers and acquisitions in the transportation and logistics industry through policy support. On the one hand, the government provides assistance to state-owned enterprises to ensure that they have sufficient funds to consider future M&A development opportunities. On the other hand, the government builds a joint venture cooperation platform and establishes an investment promotion committee to promote investment and M&A by foreign companies in local small enterprises.
Although the industry is still in the initial stage of industry integration, driven by the above three factors, mergers and acquisitions in the transportation and logistics industry will become more frequent, and the competitive landscape will also change.
What does the financial crisis mean to China’s transportation and logistics industry?
In this extraordinary period, for logistics and transportation companies, whether it is emergency measures to deal with the financial crisis in the short term, or medium and long-term decisions such as improving development strategy, expanding product structure, strengthening competitive positioning, and optimizing costs, etc. , there is no room for error. A wrong strategic decision or improper strategic focus can put a company into trouble. Therefore, enterprises should find the most appropriate solution from the three countermeasures introduced below based on their development vision, financial status and risk-bearing ability:
Defensive countermeasures – take various quick-effect measures and respond with a defensive posture Economic crisis;
Reconstruction countermeasures – continuously strengthen operational capabilities and consolidate market position;
Offensive countermeasures – carry out structural adjustments and explore business expansion to prepare for the next round of growth.
After determining their own countermeasures, transportation and logistics companies can choose measures of varying degrees that suit their purposes from the following three levels of strategies:
Cost and operation strategies – take cost Optimize measures to cope with weak demand and low prices;
Business and market strategy – manage business portfolio, retain customers and use price leverage to maintain revenue;
Investment strategy – quickly grasp investment and mergers and acquisitions good opportunity.
Cost and operations optimization strategy – take cost optimization measures to cope with weak demand and low prices
For transportation and logistics companies that are looking for cost and operation strategies, they can use the company’s operations to The current situation and identified countermeasures are selected from “quick wins” to “structural optimization” initiatives.
Based on Kearney’s experience, choosing the right measures is expected to reduce costs by 15% to 25%, and can greatly enhance the company’s flexibility to respond to external changes and its ability to quickly adjust scale, helping companies to survive after the crisis. Accumulate but gain little.
Business and market strategy – managing business portfolio, retaining customers and using price leverage to maintain revenue
As the economic crisis intensifies, transportation and logistics companies must act quickly through effective business portfolio, customer management and price leverage to maintain revenue. Likewise, a company's financial health and risk-taking capacity both determine the extent to which the company should take steps within its business and market strategies. Optional measures include price adjustment segmentation, customer retention measures, logistics service innovation, and business expansion into different transportation modes, industries, regions/regions, and supply chain links.
Investment strategy – quickly seize the opportunities for investment and mergers and acquisitions
For companies that already have a good financial situation or have improved their financial situation through defensive and reconstruction strategies, they should make full use of the many current merger and acquisition targets. When opportunities arise, consider M&A investments. However, M&A is a high-risk game and the key to success lies in a highly clear strategy, rigorous due diligence, systematic planning and good implementation monitoring.
Conclusion
In order to better cope with the continuous challenges from the outside, companies need to take immediate action in order to survive the crisis and make great progress after the crisis. Rather than passively waiting for the economic environment to recover, transportation and logistics companies should proactively change their competitive strategies and adopt countermeasures to actively defend, consolidate market positions or take advantage of opportunities to expand business. A company's success or failure will depend on its strategic decisions in the moment and its determination to change. Only companies that are smart, courageous, and responsive can hope to emerge from this economic crisis and stand out.