China Intends To Compete With Domestic Logistics Juggernauts

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  • China wants to build a global logistics network At its core, logistics is about moving goods from A to B. But that simple act, at scale, becomes the lifeblood of any country.
  • China, like the US, views logistics as a strategically important industry underpinning the efficiency and competitiveness of its economy.
  • One formidable emerging player is Cainiao, Alibaba’s logistics arm, which Chinese analysts have compared to both Amazon and Flexport, the tech-enabled freight forwarder and shipping broker.

TikTok started posting job openings earlier this month in preparation for its venture into establishing a logistics and warehousing network in the US. Jobs at international fulfilment centres in Seattle and Los Angeles, which will support the social networking platform’s e-commerce endeavours, were among those offered.

Logistics superpower

But TikTok, China’s first truly global app, is only one part of the story.

Beijing is pushing to transform China into a “logistics superpower” (link in Chinese), and tapping private firms like TikTok to help it achieve that ambition.

In addition to TikTok, Chinese fast-fashion retailer Shein also plans to build fulfilment and distribution centres in the US.

All this is happening against the backdrop of two related trends.

Global trade disruptions caused by the pandemic have brought about a reckoning over the importance of resilient supply chains and robust logistics networks.

Global leaders 

Meanwhile, the US and its allies have intensified efforts to reduce reliance on China for commodities and technologies.

Logistics is the latest arena where China is applying that strategy.

In the same way, new technologies in logistics—think autonomous robots and high-powered data analytics—could turbocharge China’s competitive position in the industry relative to traditional incumbents.

Once you have drones, robots, and software, it’s plugged in and turnkey.

“I expect a couple of Chinese companies to be the global leaders of this stuff.”

China wants to build a global logistics network

At its core, logistics is about moving goods from A to B. But that simple act, at scale, becomes the lifeblood of any country.

China, like the US, views logistics as a strategically important industry underpinning the efficiency and competitiveness of its economy.

Beijing wants to take that a step further by building what it calls a “modern circulation system” that integrates flows of commerce, finance, transportation, and commodities.

For financial flows, that includes the digital yuan and China’s alternative to Swift, the global payments network.

One metric of progress is China’s total logistics expenditure as a share of its gross domestic product.

One area where China has made significant progress in recent years is the number of overseas warehouses it operates via exporters or cross-border e-commerce firms with operations in international markets.

These now number over 2,000, up from less than 100 in 2015, according to Chinese government figures.

A global network of China-operated warehouses would reduce delivery costs and increase delivery speeds, and “become a new station for ‘Made in China’ to ‘go out’,” as state media outlet People’s Daily has put it (link in Chinese).

Besides physical infrastructure like warehouses, China wants to cultivate a number of homegrown and globally competitive logistics firms.

That aspiration hasn’t fully materialized, yet.

Other components include international storage, distribution, and express delivery networks, as well as a logistics data platform.

That may now be changing.

Is Alibaba’s Cainiao China’s Amazon and Flexport?

One formidable emerging player is Cainiao, Alibaba’s logistics arm, which Chinese analysts have compared to both Amazon and Flexport, the tech-enabled freight forwarder and shipping broker.

But Cainiao has increasingly invested in physical infrastructure, building a network of warehouses, distribution centres, pickup and drop-off stations, and integrated logistics hubs, including one in Belgium and another in Malaysia.

It is underlaid and supported by Cainiao’s proprietary software and automated systems.

Automated robots (lower blue platforms) move products in a Cainiao warehouse in China.

According to company data, Cainiao delivered a daily average of 4.5 million cross-border and international packages in FY2022—a number that puts it in direct competition with legacy logistics giants like FedEx and UPS.

While Cainiao doesn’t physically deliver the bulk of these packages, it is the “main point of contact” and has “full visibility” over the parcel flow, according to a company spokesperson.

But it may not matter so much what fraction, if any, of those 4.5 million packages Cainiao delivers by itself.

“When you move from a dumb system, let’s call it, to a smart system, you can control things without owning things,” said Towson. 

Alibaba has always said they’re asset-light.

Really what they’ve always been maniacal about is controlling the nervous system”—that is, data and analytics.

One example of a logistical “nervous system” that has already caught the attention of US officials is the Chinese state-sponsored cargo data network, Logink.

How Chinese e-commerce will boost Chinese logistics

Meanwhile, TikTok, which has already disrupted short-form videos and influencer marketing, could spur changes in the logistics market.

As Axios reported earlier this month, TikTok plans to build an “international e-commerce fulfilment system” that includes warehouses and product fulfilment centres in the US to speed up deliveries of merchandise from China—anything from quartz crystals to cosmetics—to American consumers and make product returns easier.

“Chinese players have the opportunity to really upgrade their customer experience, and they will become way more competitive versus domestic [US] players,” said Rui Ma, a tech analyst and investor.

For TikTok, that would mean more sales and revenue.

For the Chinese government, the overseas success of an e-commerce firm like TikTok is also a vector through which it can pursue its global logistics ambitions.

How China could weaponize its global logistics network

All of this prompts the inevitable questions about economic security, especially as the US and its allies increasingly need to reduce dependencies on authoritarian countries like China and Russia.

TikTok’s incipient logistics operation may not pose national security threats to the US (though Washington already believes the app’s US user data could help Beijing spy on Americans, a claim the company denies).

But the Chinese government has sweeping powers enabling it to demand widespread access to private companies’ data.

Once aggregated at scale, that kind of information can give China insight into—and potentially control over—global trade.

The US congressional report illustrates some ways this could happen.

Commercial players could potentially complement state-led efforts like Logink, said Isaac.

Kardon, an assistant professor at the US Naval War College, studies the security implications of China’s global network of port terminals.

This is a particular concern because China has already proven itself ready and willing to weaponize trade for political ends.

China blocked Norweigian salmon imports after the Oslo-based Nobel Prize committee awarded the Chinese human rights activist Liu Xiaobo the Peace Prize; boycotted Australian coal after Canberra called for an investigation into the origins of covid; and effectively banned Lithuanian exports after the Baltic country showed support for Taiwan.

“What this does is it gives them a much wider range of instruments to tailor their responses.”

 

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Source: Yahoo News

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