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Logistics sector delivering, though maritime industry still all at sea

The challenge of m-tailing, cross-ASEAN trade and the over-supply of super-ships were all on the agenda at the Asian Logistics and Maritime Conference, with troubled waters still lying ahead for many in the sea-going sector.

Photo: The ALMC in session: marine-minded and logistically-led.
The ALMC in session: marine-minded and logistically-led.

The fact that people now spend more time on PCs, smart phones and tablets than engaging with their spouses or partners was one unlikely concern that emerged at the Asian Logistics and Maritime Conference. Apparently, though, it's good news for the logistics business.

According to Robert Li, Lenovo Asia's Executive Director of Supply Chain, 85% of people now multi-task, using their smartphone while doing other things. This, he told delegates, affects all aspects of their lives, from shopping to relationships. The upshot of this is that both etailing and m-tailing are growing hugely in Asia, presenting both huge benefits and challenges to the logistics sector.

Li's assessment of digital penetration was echoed by Mark Millar, Chairman of the International Relations Committee of the Hong Kong Logistics Association. Addressing the Forum, he said: "Internet activities and devices dominate Chinese life, with the PRC population now owning 246 million smart and hand-held devices, 10 per cent more than the 230 million in the US. Smartphone penetration in China is now at 66 per cent – compared to 53 per cent in America."

Overall, views varied as to the likely impact of online shopping trends. Scott Price, President and Chief Executive of Walmart Asia, said: "Today internet shopping is worth US$1.4 trillion globally. Far from being history, though, bricks-and-mortar stores still have a bright future and have not been ousted by virtual retail. There's room for both, but the models need to evolve.

"In terms of China, the growth of high street shops continues, in tandem with their virtual counterparts. Our expansion programme still includes investment in traditional shops and online, as we see opportunities for both.

"Shoppers now buy cross channel, not single channel. So retailers who want to optimise their options need both. People are buying online, they are buying in stores; sometimes they are buying online and having it delivered in stores. Then they may be online comparing prices, while actually in-store.

"Any online retailer, though, needs to prioritise China. In virtual retail, the PRC leads the charge. This year the mainland will surpasses the US in terms of the value of the e-commerce market. It is growing at an extraordinary rate."

Price also noted the different trends emerging around the world. In the UK, where Walmart trades under the "Asda" brand, he said customers frequently want to order online, then collect in-store.

He said: "After having had their online purchase delivered to the store for collection, some 65% of shoppers continue on into the store and carry on shopping, often for fresh produce. So it does not have to be a choice of on- or off-line – it can be both."

He also commented on a phenomenon that seemed to be uniquely popular in China – the augmented reality store, a real/digital world hybrid. This sees shoppers walk into a real space, where roughly a thousand items are displayed, but they actually click and buy online. The items are then subsequently delivered to their homes.

Aside from growing demand for deliveries from online shopping platforms, the other major development in the logistic sector is the growing trade between ASEAN and the Chinese mainland. According to a number of delegates at the event, this is not without its own challenges – especially in the field of refunds and exchanges.

Outlining the scale of the problem, Justin Zatouroff, Global Head of Logistics for KPMG, said: "In terms of clothing, people now buy three sizes – the one they hope will fit, plus a size bigger and a size smaller. They then return the other two.

"This cost and inconvenience has to now be factored into the fashion supply chain, with arrangements made for collecting the returned items across territories. This highlights an increasing need and opportunity for de-centralised distribution and localised collection points to cope with the problem."

With intra-region logistics requirements set only to increase, a number of other developments were seen as high on the agenda for consideration by the logistics industry. Most notably, there were concerns about the impact of the Sunda Strait Bridge, the mainland-funded initiative that would link the two Indonesian islands of Java and Sumatra. With its inevitable contribution to further opening up the Indonesian market, the Bridge was seen as a major opportunity for the region's logistics players.

Photos: High profile speakers at the ALMC: Hong Kong’s Chief Executive, C Y Leung (left) and Scott Price, President of Walmart Asia (right).
High profile speakers at the ALMC: Hong Kong's Chief Executive, C Y Leung (left) and Scott Price, President of Walmart Asia (right).

Myanmar was another hot topic for those considering new markets. Assessing its potential, George Yeo, Chairman of the Kerry Logistics Network, said: "China has big plans for this rapidly developing country, plans that will change the face of goods transportation and distribution in that part of the world. Among many infrastructure schemes, they intend to bypass the South China Sea with a trans-Myanmar highway running directly from China."

The expense of doing business in different locations was also widely-debated, with China's second-tier cities – unsurprisingly – seen as far cheaper than either Shanghai or Beijing. Chongqing emerged as a particularly favoured base of operations, largely thanks to operating costs that are only 60% of Shanghai's, its highly educated workforce, and its low wage regime.

Far from ship-shape

Despite the largely upbeat tones of their counterparts in logistics, the Maritime Forum was, overall, far less optimistic. Delegates were faced with gloomy accounts of oversupply, alliances, rate wars and service disruptions.

Addressing the problems facing super-sized container ships, Alan Murphy, the Chief Operating Officer of SeaIntel Maritime Analysis, said: "Demand is picking up over last year, but only marginally. We're talking about very slow growth rates, a couple of per cent for Asia and America.

"European demand is coming up, but from a very low point and the US has potential to come up, but we should not underestimate the ability of US lawmakers to snatch defeat out of the hands of victory. They seem determined to destroy any potential upswing.

"In terms of demand, things are far from positive and, looking at the supply side, we've had massive over-capacity for the last three years. We're still having 6, 7, 8% growth rates in capacity.

"That wouldn't be a problem, if we had the growth rates of the past and were not already overcapacity. There is no doubt that this overcapacity has set the stage for the market.

"To make matter worse, there are already a large number of additional mega vessels on order. To be honest, we don't need any more vessels. Carriers, though, are persisting in ordering them. These people are not stupid, however, and should know what they are doing.

"The trend for reduced demand and the over-supply of vessels has dragged down rates. Paradoxically, this makes sense of the move by carriers to buy big vessels. This allows them to secure the 'slot advantage', even though it is destroying the whole industry.

"The answer to oversupply is reduced capacity which, unfortunately, means vessel layoffs. Hopefully we will see this put into practice – it's desperately needed in the market.

"Generally, any attempts to secure rate increases, since early 2012, have not been successful. The only thing that truly seems to have gone up is rate volatility.

"In fact, there have been massive swings in week-on-week rate developments. Volatility has exploded on Asia- Europe. Disappointingly, there are few market drivers that are sending out positive signals for 2014 – nor 15 nor 16. I think it's going to be a long while before we see an upswing in the market."

Dr Martin Stopford, President of Clarkson Research, shared Murphy's pessimism. He said: "There are still big issues facing the tanker market. It is now five years since the Lehman Bros collapse, but I reckon we are only about halfway through the shipping downturn."

If you measure cycles from peak to peak, the next five years, in theory at least, ought to take us backup to a new peak of some sort. That, of course, also depends on a number of other factors, particularly shipyard capacity management."

Photo: Returning for a two-day event in November 2014.
Returning for a two-day event in November 2014.

The Asian Logistics and Maritime Conference took place at the Hong Kong Convention and Exhibition Centre on 7 November 2013. The event attracted 1,600 delegates from 27 different countries and territories.

Anna Healy Fenton, Special Correspondent, Hong Kong

Content provided by Picture: HKTDC Research
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