Optimizing costs help auto logistics industry out of crisis

China now is believed the true land of opportunity for the automotive industry and its suppliers during the global recession. According to speakers at this year's Automotive Logistics China conference, though the market is buoyant compared to Europe or the US, the automotive logistics industry has still been severely impacted in China by the financial crisis. Firstly, car sales growth is modest by Chinese standards. Secondly, the growth in the logistics sector declined by 30% this year, with 60% of logistics companies experiencing a contraction. Port throughput is significantly down, following the drop in exports. Gasgoo.com invited Dr. Stephen W. Dyer, Principal of A.T. Kearney (Shanghai) Management Consulting to elaborate the impact of financial crisis on China's automotive logistics industry.

Reporter: Is automotive logistics industry affected by the global financial crisis? In what aspects?

Stephen W.Dyer: As global consumers re-evaluate their spending habits due to the economic crisis, the decrease in consumption has led to a significant decline in global trade, severely affecting the logistics industry. At the same time, the expected automotive market slowdown in China caused auto-related logistics expenditures to drop toward the end of 2008. As the Chinese auto market rebounded starting in February 2009, however, the lack of stock resulted in increasing expenditures for expedited logistics within the industry.

Overall, the China automotive and non-automotive logistics industry is affected by three major trends related to the economic crisis:

-Continued downward pressure on demand (mainly for international shipping lanes) and a shifting mix of services required;

-Cost restructuring necessary as profits decline and become more volatile;

-Renewed investment interest and further consolidation expected.

Downward demand and shifting mix: The Q4 2008 year-on-year growth rate for total logistics expenses, including spending on transportation, inventory and other logistics services, dropped to 1% from a 19% Q3 2008 year-on-year growth rate, highlighting the negative impact of the economic crisis on the logistics industry. Declining international and domestic trade in the second half of 2008 created a drop in demand for logistics services. Especially in international sea and air trade, which volume decreased by7% and 14% in November 2008 respectively. As auto and non-auto companies try to improve efficiency and reduce costs both global and local brand companies are restructuring their supply chains. These users of logistics look for flexibility and scalability in addition to cost and are eager to outsource logistics assets and operations.

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