Logicality is fundamental to logistics industry's success
By Li Wenfang (China Daily)
Updated: 2004-03-03 14:42

The opening-up of China's logistics market as part of its World Trade Organization membership will not be a disaster for domestic players but help speed up its growth, said the boss of a privately owned logistics firm, which serves more than 40 of the world's top 500 firms.

Local firms, however, should not follow the trend in the sector blindly.

Liu Wu, chairman of P.G.Logistics Group Co.

"Don't forget your purpose for the sake of your so-called goals," warned Liu Wu, chairman of P.G.Logistics Group Co, said.

At this stage, the purpose or the goal of P.G.Logistics, a Guangzhou-based tripartite logistics firm, is to become a total supply chain solution provider, Liu said.

Founded in 1994, the company is serving foreign giants such as Procter & Gamble, Philips, Unilever, McDonald's, LG, Shell, Kraft, Amway and Budweiser in their Chinese operations.

"We are one of the top (domestic logistics firms), although different statistical methods are used in this sector," Liu said.

Starting his fortune by contracting a State-owned transshipment station at the Guangzhou Railway Station in 1992, Liu won the trust of Procter & Gamble two years later with timely delivery, flexible working hours and clean warehouses.

Being its first year of operation in China, Procter & Gamble awarded numerous contracts to the firm and introduced it to the good manufacturing practices management system, assisting its growth.

The second crucial decision Liu made was to bring an information technology (IT) expert on board in 1997, who persuaded him to invest hundreds of thousands of yuan in IT infrastructure.

At some points, IT investment accounted for as much as 80 per cent of the firm's capital spending.

And the group did not invest in trucks to run its operations but outsourced its transport arm, Liu said.

The amount being spent on IT was inconceivable for most other domestic logistics firms.

With the help of technologies such as the Internet, Intranet and Electronic Data Interchange, P.G.Logistics sharpened its competitiveness.

The company's turnover reached 300 million yuan (US$36.14 million) in 2002 and surged by 40 per cent year-on-year last year. Liu expects the turnover to grow by up to 50 per cent this year. The company moved more than 50 billion yuan (US$6.02 billion) worth of goods last year.

Justifying his forecast, Liu said the future growth of the sector in China will be driven by increasing competition among domestic enterprises. It means groups will have to further cut their costs, especially in terms of logistics, and respond faster to customer's needs.

With 48 offices nationwide, P.G.Logistics plans to build 10 logistics bases in China by 2008 and add five more by 2010. The area of the bases will range from 150,000 square metres to 700,000 square metres.

The first phase of the 330,210 square metre base in Jiangsu Province's Suzhou is already in operation and the 700,000 square metre base in Guangdong Province's Guangzhou is under construction.

Liu plans to implement his total supply chain solution strategy by adding services, such as money settlement and customs clearance at the bases.

Investment in the Suzhou and Guangzhou operations is estimated at 430 million yuan (US$51.8 million) and more than 800 million yuan (US$96.39 million), respectively.

Liu declined to reveal the total investment for all 15 bases or how they will be funded.

He said the company is considering a stock listing but does not have a timetable yet, adding a number of domestic and foreign investors have shown interest in co-operation.

The company is also talking with domestic and foreign logistics firms about operational agreements.

Liu admitted that compared with major international logistics firms, his company still lags far behind in terms of size, human resources and technology.

However, domestic firms also have unparalleled advantages in their understanding of the local market, their business networks and commitment to the market. That is why very few foreign, third party logistics firms have been successful in China, Liu said.

Through co-operation with foreign firms, Liu is also aiming to expand his overseas network, which consists of offices in Hong Kong, Thailand and Australia.

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