Demand Slump Stumps Transporters

The winter of 2008 may have been the coldest for Song Zhengbing, deputy-marketing director of the Shanghai Pudong Trucking Corporation. In December, nearly 35 percent of the company's 1,500 trucks remained idle, waiting to move goods.

Song may not have much to cheer about in the year of the Ox either. With the global economic crisis worsening, Song anticipates his company's sales to fall nearly 25 percent this year.

"The old Chinese saying that 'the teeth are cold when the lips are gone' can well describe the situation of the logistics industry," Song said.

Transportation companies in China have often seen their earnings dented by soaring fuel prices and rising labor costs. However, the economic crisis seems to be pushing them further into the red as cargo transportation demand has slumped due to the slowdown in exports.

"The global financial crisis has spilled into the foreign trade business. The negative impact is now moving upward in the industry chain and will be fully felt in the logistics industry in 2009," said He Liming, managing vice-president of China Federation of Logistics and Purchasing (CFLP).

Industry analysts said the "unprecedented" crisis could force the logistics industry into a massive restructuring. While many smaller and weaker companies will either disappear or get absorbed by bigger players, the stronger ones would be forced to look for new profit avenues.

China's trade volume dropped for the first time in seven years in November 2008. Total trade volume in November decreased 9 percent year-on-year to $189.9 billion, with export value dropping 2.2 percent year-on-year and imports plummeting 17.9 percent.

The country's foreign trade continued to decline in December, with exports dropping 2.8 percent and imports falling 21.3 percent year-on-year.

The outlook for this year would be even more challenging. China's annual foreign trade growth rate could drop below 5 percent this year, according a recent report issued by the General Administration of Customs. That is a significant decline compared to the 23.5 percent annual growth in 2007 and the 17.8 percent increase in 2008. The report said China's export growth would be capped by weakening demand in China's major export destinations as the global financial crisis spreads to non-financial sectors.

Ports and international freight forwarders were among the first to experience the chill from falling exports and the domino effect has spread to the transportation companies carrying goods for them.

"Many small freight forwarders in Shanghai have ceased to exist. The large- and medium-sized firms that managed to weather the crisis are all expecting a 10-25 percent drop in sales this year," Song said. Over 60 percent of the clients of Song's trucking company are international freight forwarders.

CFLP's He said China's logistics industry already showed signs of a slowdown in 2008. The country's freight volume dropped 8.5 percent year-on-year in the first three quarters of 2008, according to CFLP statistics.

Transportation companies in central and northeast China have seen cargo shipments for the Yangtze and Pearl river delta regions falling nearly 40 percent since July 2008, He said. The two delta regions are China's major manufacturing and export bases.

Transportation prices are also falling. "Usually road transportation prices would see a 20-30 percent increase in September, but last year prices fell slightly," He said. China's road transport price index declined 4.6 percentage points in November compared with October.

"We are preparing to freeze 25 percent of our truck fleet," Song said. His company is also slashing costs through various means, such as laying off drivers and cutting travel expenditure.