From China to the world

Whether it’s partnering with local businesses to go global, or improving the supply chain of foreign multinational companies in China, Maersk’s activities in the country have impacted its economy and competitiveness.

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The China Impact Assessment shows that Maersk Line alone contributes to a 0.8% increase in Chinese imports and a 1.1% increase in Chinese exports.

Every week, up to 60 forty-foot Maersk Line containers (FFEs) make their way out of the Qingdao and Nansha ports in China. Their destination: Nigeria, West Africa. The cargo comprises sets of electronic parts manufactured by the Chinese electronics giant Haier. Once in West Africa, the parts are transported to a Nigerian factory, jointly owned by Haier and a UK-based company.

Here the parts are assembled into a final product, and retailed on the local market. This is how someone living in Nigeria might end up with a Haier-made freezer or air conditioner.

Many partnerships
This is a result of a partnership between Maersk Line and Haier, and it is just one of many partnerships that demonstrate how high maritime transport connectivity and advanced logistics in China have enabled Chinese firms to split up their supply chains and locate activities where they are most competitive.

“With rising wages in China, shipping spare parts to a destination to be assembled enables Haier to lower their labour costs. At the same time, transportation costs are optimised since more spare parts can be shipped in the same container space, compared to finished products. Lastly, it also provides a strong joint venture partner in Nigeria to help develop the market,” says Maersk Line General Manager Andy Chu.

Going forward, Haier has set its sights on growth in the emerging markets such as Latin America and Africa. Maersk Line currently handles over 70% of shipments to these destinations, and is well poised to facilitate Haier’s business.

Growth through connectivity

The Haier case captures the thrust of a new study, ‘Maersk Group in China’, produced by Group Sustainability in an effort to understand how the Maersk Group can accelerate its contributions to economic development in the countries where the Group operates.

The China Impact Assessment shows that Maersk Line alone contributes to a 0.8% increase in Chinese imports and a 1.1% increase in Chinese exports, by increasing its services and capacity by 10%.

Since 2000, Chinese imports and exports have grown by around 600%, with container volumes going through Chinese ports growing by around 500%. According to the study, this is fundamentally the result of a focused strategy deployed by the Chinese Government to invest in imports and terminals, and by opening the market for foreign shipping lines.

The best maritime transport connectivity
The study was conducted by means of external consultation with senior economist Thomas Westergaard-Kabelmann.

“We conclude that China has managed to achieve the best maritime transport connectivity in the world, defined as the access to regular and frequent liner services and the level of competition among shipping lines,” he says.

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Since 2000, Chinese imports and exports have grown by around 600%, with container volumes going through Chinese ports growing by around 500%.

China is better connected by container shipping than any other country, which highlights the vast potential that global transport still holds for coastal countries to realise national ambitions for economic growth.

UNCTAD STATISTICS AND A.P. MOLLER-MAERSK 2013 CHINA IMPACT STUDY

 

This effort has made China more competitive and boosted its imports and exports by up to 30% and 40% respectively since 2004, corresponding to trade worth USD 686 billion.

According to Westergaard-Kabelmann, with the market for maritime container transport well established, the next challenge for China is to lower its logistics costs to remain competitive, especially in the face of other Asian nations with cost advantages.

He adds: “Logistics costs in China are not only higher than many developed countries but also higher than average for China’s Asia-Pacific competitors and South American countries”.

Sourcing in China

One way of explaining China’s high logistics costs is to look at its highly fragmented logistics market and low market penetration of third-party logistics, according to the Study. This is Damco’s domain.

Later this year in Yantian, China, Damco will be handling British homeware from furniture to lifestyle products as the bulk of its inventory. These high-quality household items, sourced in China or Asia, will not be shipped straight away to their market destination in the UK. Instead, up to 85% can be consolidated in a Damco cross-dock facility. The other 15% is trucked direct to the port and shipped to the UK market.

This cross-dock arrangement enables the maximisation of container space, and stocks can be stored for seasonal demand, protecting against over-supply in the market.

One of three core areas
According to William Lee, Head of Supply Chain Development, North Asia, this is just one of three core focus areas that Damco has explored with a British global homeware retailer, a partnership that was secured late last year after an 18-month tender process. Together with other identified initiatives, a potential annual cost saving of USD 16.6 million is projected.

Damco Head of Strategic Sales in North Asia, James Savagar, adds: “In today’s economic environment, the pressure on cost and reluctance to change are high, but through extensive supply-chain development workshops both in Hong Kong and in the UK, we convinced the client to partner with us.”

The Chinese potential

  • More than a third of all containers exported worldwide are from China.
  • Six out of ten of the world’s largest container terminals are in China.
  • Read more in the Maersk Group’s recently released China Impact Assessment and Sustainability Report 2013.