UPS expects to keep growing in China
United Parcel Service (UPS) expects to maintain its robust growth momentum despite the ongoing dispute on express mail with the State Post Bureau.
"You can't be pessimistic about China," said K M Liu, senior vice-president of Greater China for UPS in an interview.
Industry analysts predict that China will be the fastest growing airfreight market in the world.
UPS, the world's leading express carrier and package delivery company, first entered China in 1988 with a service agreement with Sinotrans, a mainland transportation group which provides a express delivery service to 174 cities.
For the first quarter of 2002, revenues for the Atlanta-based firm grew 30 percent on the mainland. That followed an impressive 35 percent rise in revenue for 2001, despite the world economic slowdown.
Currently the company has three offices on the mainland, in Beijing, Shanghai and Guangzhou
The company plans to open five more representative offices in Qingtao, Xiamen, Shenzhen, Hangzhou and Dongguan. Currently UPS provides 12 weekly flights to and from Beijing, and 24 weekly flights to and from Shanghai.
Growth in east & south
In April 2001, UPS obtained the much-coveted air rights to fly directly from the US to China.
"The results have been very, very good, have exceeded our expectations for these flight in terms of volume and revenue," said Liu.
But he admitted that there was an imbalance. "From Shanghai to the US the aircraft have been full all the time, but from the US to China they are not flying at capacity," he noted.
Industry analysts put air cargo volumes between China and the US at a 4-to-1 imbalance. But the reduction of tariffs mandated by the WTO is expected to increase imports to China and may help the imbalance, Liu said.
"UPS' business is growing the fastest in eastern and southern parts of China," he said.
Contrary to popular perception, small-and-medium size enterprises constitute more than half of UPS' clients.
High-tech shipments are the largest and fastest growing sector of UPS' business on the mainland. Products like electronics, telecommunications products and computer-related equipment need to be shipped quickly because of their short product lifecycle.
In April of this year, UPS added 10 direct flights to Shanghai from their new intra-Asia hub the Philippines at the former Clark Air Force Base.
"The new hub will allow for a better overnight service from Shanghai to other key cities within the region," said Liu.
In southern China, UPS' growth has come from shipping electronics and traditional exports, including: apparel, footwear, toys and watches. A World Bank report has stated that by the year 2005, China's share of the export market for apparel will increase from 20 percent to 47 percent, noted Liu.
UPS uses Hong Kong to service its clients in Southern China, while UPS' rival, FedEx, operates five flights a week to Shenzhen.
"Hong Kong will remain an important gateway for southern China," said Liu. And at the end of last month, UPS has added two additional flights between Hong Kong and the US because of robust growth.
WTO benefits
With China's entry to the WTO, Liu is optimistic about the momentum of change and growth in international trade.
"The present state of China's logistics sector is far from ideal because it has not been keeping pace with its growth in foreign trade," said Liu.
He also noted that local logistics operators only work on a municipal or provincial level, or at best a regional level.
The most recent study from Morgan Stanley estimated that third party logistics currently has a penetration rate of just 2 percent in China.
"The local distribution sector in particular is set to undergo substantial consolidation through numerous mergers and acquisitions over the next few years. Eventually, a handful of major players will be left standing," predicted Liu.
When three-year restrictions on trading and distribution rights will be lifted according to China's commitment to WTO, foreign companies will be authorized to own and manage their distribution and transportation networks.
UPS is now offering total logistics supply chain solutions to their customers in China. Liu's customers in China now want sales service, warehouse management and consulting.
But one impediment to UPS' growth in China could be China Post's plan to monopolize express mail weighing up to 500 grams.
UPS, FedEx, DHL Worldwide and TNT have all joined together to oppose the regulation. "We are optimistic the issue will be solved," said Liu. "Express courier companies play an important role in China's import and export trade and facilitate commerce."
