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1、A 2023 Fitch China Research Initiative PublicationCHINA LOGISTICS SECTORBLUE BOOK Copyright 2023 Fitch RatingsSeptember 2023A Fitch China Research Initiative PublicationAll rights reserved.No part of this publication may be reproduced,transmitted in any form or by any means,electronic,mechanical,pho
2、tocopying,recording or otherwise,without the prior permission of Fitch Ratings Limited.Fitch Ratings ChinaUnit 02-2&03,10/F,Fortune Financial Center5 Dongsanhuan RoadChaoyang DistrictBeijing,China100020Fitch Ratings China3401,34/F,Shanghai TowerNo.479,Lujiazuihuan RoadPudongShanghai,CA 2023 Fitch Ch
3、ina Research Initiative PublicationFitch Ratings opened its mainland office in Beijing in 2005,making it the first international ratings agency to operate in China.Today the agency has offices in Beijing and Shanghai,and continues to rapidly expand its mainland analytical presence.In mid-2014,Fitch
4、created a separate research team of Mandarin-speaking analysts,based in its offices in China,with a remit to produce world-class objective and insightful research on corporate sectors in China.This research focuses on helping to educate and familiarise investors with the key credit aspects of corpor
5、ate sectors that are unrated,or that consist of just a few rated entities.The potential that a fully liberalised financial landscape in China represents for global investors is beyond compare.Fitch feels that full liberalisation is unlikely to be completed in the immediate future,as China continues
6、to open up and play an ever-more important role in the global economy,while its corporate sectors will produce an increasing number of entities issuing international bonds.In this respect,we have already seen serious global investors starting to devote considerable effort in understanding and famili
7、arising themselves with aspects of the Chinese corporate landscape.Through the Fitch China Research Initiative,we aim to support the efforts of investors by providing objective and insightful research both into corporate sectors within China that are yet to issue,or are in the early stages of issuin
8、g,as well as into the potential issuers of the future.Our Blue Book series represents almanac-style volumes with a tiered approach dependent on investor interest and areas of focus.The first tier looks into market structures and the operation of individual sectors,the second tier looks at key indust
9、ry players and relative rankings,and the third tier dives deep into the credit aspects of an individual entity or groups of unrated entities.As always,the authors are at your disposal for discussion,feedback or comments via email or their direct line numbers which are provided in the report.We hope
10、that you enjoy reading this Blue Book as we continue with our efforts to tailor and produce research that meets the needs of the global investor community.AnalystsSHIRLEY LIU+86 21 6898 JENNY HUANG+86 21 6898 YING WANG+86 21 6898 BUDDHIKA PIYASENAHead of Asia-PacificCorporate Ratings GroupABOUT FITC
11、HCHINA LOGISTICS SECTOR BLUE BOOK A 2023 Fitch China Research Initiative PublicationCONTENTS7EXPANSION AND EFFICIENCY IMPROVEMENTS DRIVE FUNDING NEEDS39MAJOR PUBLICLY LISTED ROAD LOGISTICS COMPANIES9EXPANSION OF CHINAS LOGISTICS SECTOR45SCALE EXPANSION LEADS TO HIGH FUNDING NEEDS17SECTOR POLICY AND
12、INVESTMENT FOCUS61APPENDIX 127COMPETITIVE LANDSCAPE OF CHINAS LOGISTICS SECTOR62APPENDIX 235TWO MAJOR BUSINESS MODELS FOR ROAD LOGISTICS COMPANIES63APPENDIX 3CHINA LOGISTICS SECTOR BLUE BOOK A 2023 Fitch China Research Initiative PublicationEXPANSION AND EFFICIENCY IMPROVEMENTS DRIVE FUNDING NEEDSRi
13、sing Demand for Quality Services Chinas logistics sector grew over the past five years(2017-2022)at a CAGR of 6.6%in real terms by total value of social logistics goods,fuelled by strong industrial production and expansion of the consumer market.Social logistics goods refer to goods being transporte
14、d to buyers from suppliers for the first time,including agricultural and industrial products,imported goods,recycled resources,and goods produced by organisations and residents.The logistics sectors growth exceeded the 5.2%rise in real GDP in the same period,despite Covid-related lockdowns in 2020-2
15、022 that dampened demand,disrupted operations and delayed expansion.Fitch Ratings expects the sectors growth to normalise in 2023 as China ended its“zero-Covid”policy in December 2022,and hover in the mid-single-digit percentages in the medium term as Chinas slowing economic outlook will be partly o
16、ffset by customers rising demand for fast and quality logistics services.Policy Focus on Multimodal Logistics Network Chinas policies for the logistics sector in its 14th Five-Year Plan till 2025 focus on developing an efficient and integrated logistics network,which is viewed as important to the na
17、tions industrial competitiveness and economic development.Policymakers target to boost freight volume via more cost-effective rail and water transportation by 10%and 12%,respectively,from 2020 to 2025.This will be achieved by improving the connectivity between different transport modes.Roads are the
18、 major mode of transportation,while railways and waterways are less developed.State-owned capital leads the investment in the countrys logistics infrastructure,underpinned by the governments control of the infrastructure and strong funding access.State-owned capital accounted for 78%of Chinas total
19、fixed asset investment(FAI)of CNY6.8 trillion in the transportation,warehouse and postal sectors in 2021.Nevertheless,leading privately owned entities(POEs)also partner with local governments to build logistics infrastructure,such as SFs collaboration with the Hubei government to build Ezhou Huahu A
20、irport,the first freight airport hub in China.The government encourages the establishment of infrastructure REITs to fund logistics projects,which could provide an alternative funding source to the logistics companies.There have been three warehouse logistics infrastructure REITs set up since 2021.P
21、OEs Dominate Road Transportation MarketPOEs dominate road logistics,the largest sub-segment in Chinas transportation logistics market,in terms of freight volume.The road market is highly fragmented,except for the express-delivery segment.The less-than-truckload(LTL)segment has strong growth potentia
22、l due to rising demand for large-parcel transportation in the business-to-consumer(B2C)area.This is driven by a rising number of small-batch shipments from manufacturers and the democratisation of distribution arising from omni-channel development in B2C e-commerce.SOEs Provide Integrated Logistics
23、ServicesState-owned enterprises(SOEs)provide integrated logistics services,including transportation,warehousing and other value-added services.They have strong access to multimodal logistics infrastructure,such as ports,railways and airports.Some of the logistics SOEs are subsidiaries of large group
24、s that also operate railways,airlines and shipping infrastructure.Fitch expects the Chinese government to consolidate the state-owned logistics infrastructure and assets to improve efficiency and reduce costs.Two Business Models in Road LogisticsMajor road logistics companies operate under two busin
25、ess models:direct and platform.Companies under the direct model control the full value chain of freight services and focus on the middle-to high-end and less price-sensitive corporate clients.Platform-model operators rely on franchise partners for pick-up and dispatch services and focus on the mass
26、market,where price competition is stiffer.Operators under these two models use different accounting approaches for revenue and cost recognition;therefore,their financial metrics are not directly comparable.CHINA LOGISTICS SECTOR BLUE BOOKCHINA LOGISTICS SECTOR BLUE BOOK 7Expansion and Efficiency Imp
27、rovements Lead to High Funding Needs Scale is important for road logistics companies to gain share in the highly fragmented market and achieve economies of scale.The leading road logistics companies enjoyed strong revenue growth in the past few years from M&A and network expansion.However,it has bec
28、ome more difficult for the leading companies to reduce unit costs and improve profitability through scale expansion after reaching a certain level of freight volume as logistics services are largely customised rather than standardised.Therefore,more companies are trying to maintain profitability by
29、going asset-light,achieving higher price through differentiated and quality service,and improving efficiency through technology upgrade.Expansion and efficiency improvements led to road logistics companies high capex needs in recent years.As a result,most of the companies free cash flows were negati
30、ve in 2020-2021.Nevertheless,free cash flows improved in 2022 due to their focus on cost management and delays in investment plans to offset the impact from pandemic control measures and slower economic growth.While the leaders have access to diverse funding channels,including onshore and offshore b
31、ond markets,most road logistics companies rely on the equity market to fund their increasing investment A 2023 Fitch China Research Initiative PublicationChinas Logistics Value ChainThe logistics sector in China includes transportation,warehousing and supply chain management for raw materials,and in
32、dustrial and consumer products.Transportation is the largest segment of Chinas logistics sector with a market size of CNY7.8 trillion in 2020,which makes up more than half of the sectors total market size(CNY14.9 trillion in 2020),according to road logistics company ANE Inc.s IPO prospectus.The segm
33、ent includes road,rail,water,air and pipeline transportation logistics.Logistics services are linked closely with Chinas economic activities from industrial production to retail consumption.For example,in the manufacturing sector,the logistics value chain starts with suppliers sending raw materials
34、to factories,and ends with manufacturers distributing finished goods to consumers,either through retail outlets or directly from warehouses.Factories or distributors may also send goods directly to the consumer.EXPANSION OF CHINAS LOGISTICS SECTORILLUSTRATION OF CHINAS LOGISTICS VALUE CHAINSource:Fi
35、tch Ratings,iResearch ConsumersDistribution CentersRetail Shops/SupermarketsFactoriesRaw Material SuppliersFront WarehousesDistributorsInstantDeliveryDirect-to-Consumer SolutionIntegrated Warehouse and DistributionFTL Line-Haul TransportationFTL Line-Haul TransportationFTL Line-Haul TransportationLT
36、L Line-Haul TransportationWarehouse ManagementCHINA LOGISTICS SECTOR BLUE BOOK 9About 72%of Chinas total freight volume was transported by road in 2022 as the country has an established and well-connected expressway network of about 177,300 kilometers in 2022,according to the Ministry of Transport(M
37、oT).Chinas road transportation market was worth CNY4.7 trillion in 2020,according to iResearch.Full-truckload(FTL),less-than-truckload(LTL)and express delivery make up the three major segments of the road transportation market.The industry is highly fragmented except for the express delivery segment
38、,where the top five companies accounted for 76%of market volume in 1H21.LTL and express delivery experienced faster revenue growth than FTL during the past five years due to their higher exposure to the expansion of e-commerce and low barriers to entry.ROAD TRANSPORTATION DOMINATES CHINAS LOGISTICS
39、INDUSTRY BY FREIGHT VOLUME010,00020,00030,00040,00050,00060,0002000212022(m tonnes)RoadWaterRailwayPipelineAirSource:Fitch Ratings,Ministry of TransportROAD TRANSPORTATION MARKET BY SEGMENT0.01.02.03.04.05.06.07.0200021E2022E2023E2024E2025E(CNY trn)FTLLTLE
40、xpress deliverySource:Fitch Ratings,iResearch,NBS,State Post BA 2023 Fitch China Research Initiative PublicationLarge Market Size and Stable GrowthChinas logistics sector grew by a CAGR of 6.6%between 2017 and 2022 in terms of total value of social logistics goods,despite the adverse impact from Cov
41、id-19 pandemic-related lockdowns in 2020 to 2022.The total value of social logistics goods reached CNY347.6 trillion in 2022.The country is also the worlds largest logistics market by spending,which reached CNY17.8 trillion in 2022,compared with CNY11.7 trillion for the US(in 2021),CNY10.5 trillion
42、for Europe(in 2020)and CNY2.7 trillion for Japan(in 2020),according to Wind and China Federation of Logistics and Purchasing(CFLP).We expect sector revenue growth to moderate to the mid-single digits in the medium term due to a larger base and slowing economic growth.Future growth will be supported
43、by strong demand for quality logistics services from industrial production;and the expansion of Chinas consumer market,especially e-tailing.The express delivery and LTL segments,which have large exposure to the e-tailing market,are likely to be the main growth drivers.Meanwhile,Chinas improvements o
44、f its transportation infrastructure will continue to support the expansion of the logistics network and addressable market.FAI in transportation expanded by a CAGR of 4.8%from 2016 to 2021,supported by strong FAI in road transportation(CAGR of 7.7%),according to the MoT.Third-party logistics(3PL)ser
45、vice providers will be the key beneficiaries of the sectors future growth amid enterprises increasing outsourcing of logistics needs to specialist companies to reduce costs.Chinese industrial,wholesale and retail enterprises outsourced logistics costs increased to 65.3%of their total logistics costs
46、 in 2016 from 58.5%in 2011,according to CFLP.Chinas 3PL market is forecast to grow by USD73.78 billion with a CAGR of about 7%from 2021 to 2025,according to ResearchAndM in a press release posted on Business Wire in August 2021.CHINESE LOGISTICS MARKET GROWTHTOTAL VALUE OF SOCIAL LOGISTICS GOODS(YEA
47、RLY)0.02.04.06.08.010.0005002000212022(%)(CNYtrn)Total value of social logistics goods(LHS)Yoy,%(RHS)Source:Fitch Ratings,CFLPCHINA SOCIAL LOGISTICS SPENDING COMPARED WITH DEVELOPED COUNTRIES 024681012141618China(2022)US(2021)Europe(2020)Japan(2020)(CNYtrn)Source:Fit
48、ch Ratings,CFLP,WindCHINA LOGISTICS SECTOR BLUE BOOK 11INDUSTRIAL GOODS FORM MAJORITY OF SOCIAL LOGISTICS DEMANDIndustrial goods make up the majority of Chinas logistics demand,driven by the countrys position as the worlds factory,and its uneven geographical distribution of raw materials and natural
49、 resources.Industrial goods formed 88.9%of the total value of social logistics goods in 2022,followed by imported goods(5.2%),organisations and residents goods(consumer goods,3.5%),and agricultural goods(1.5%).Fitch expects Chinas policy support for high-tech manufacturing to underpin logistics dema
50、nd from industrial output.Total value added by industrial production grew by 9.6%in 2021,while the total value of industrial logistics goods rose by a faster 11.0%,benefitting from the strong demand from the equipment manufacturing and high-tech industries.INDUSTRIAL PRODUCTS DOMINATE CHINAS LOGISTI
51、CS MARKETLOGISTICS SECTOR BY END-MARKET002000212022(CNYtrn)Industrial productsLogistics goods by organisations and residentsAgricultural productsRecycled resourcesImported goodsSource:Fitch Ratings,CFLPCHINA E-TAILING MARKET GROWTH052,0004,0006,0008,00010,
52、00012,00014,0002000212022(%)(CNYbn)Online retail sales(LHS)E-tailing penetration rate(RHS)Source:Fitch Ratings,NBSE-TAILING DRIVES GROWTH OF CONSUMER LOGISTICS DEMAND Consumer logistics demand has been expanding rapidly,although it remains a small portion of total social logist
53、ics goods.Consumer goods accounted for 3.5%of the total value of social logistics goods in 2022,up from 0.2%in 2015.The growth is led by the expansion of e-tailing,which creates strong demand for road logistics services,especially express delivery and LTL services.E-tailing sales value rose by a CAG
54、R of 20.5%over the seven years to 2022 to CNY12.0 trillion,according to the National Bureau of Statistics(NBS),as the e-tailing penetration rate(the ratio of NBS reported online retail sales/total retail sales)increased to 27%in 2022 from 11%in 2015.Pandemic-induced demand also boosted e-tailing ord
55、ers in 2020-2022.Demand for cold-chain logistics for perishable food and pharmaceutical products increased amid the sporadic lockdowns imposed by the government.The State Information Center(SIC)expects Chinas cold-chain logistics market to reach CNY897 billion by 2025 from CNY380 billion in A 2023 F
56、itch China Research Initiative Publication IMPACT OF COVID-19 PANDEMICGrowth in the total value of social logistics goods decelerated to 3.5%in 2020 from 5.9%in 2019 due to the Covid-19 pandemic.Nevertheless,the market recovered strongly in 2021 with growth of 9.2%in the total value of social logist
57、ics goods and the Logistics Prosperity Index1,which provides an early indicator of logistics activities in China,recovered to 52.1 by June 2022 from the trough of 26.2 in February 2020.The public logistics parks throughput and FTL freight volume in 2022 were below the levels in 2021 as they were aff
58、ected by strict pandemic control measures,including the lockdown of Shanghai during March to April 2022.Nevertheless,Fitch expects the demand for logistics services to recover with increased industrial and consumption activities after China shifted away from its“zero-Covid”strategy in December 2022.
59、LOGISTICS PROSPERITY INDEX:TOTAL BUSINESS VOLUME0070Jan-19May-19Sep-19Jan-20May-20Sep-20Jan-21May-21Sep-21Jan-22May-22Sep-22Jan-23(Index)Source:Fitch Ratings,CFLPLOGISTICS PARKS THROUGHPUT AND FREIGHT VOLUME INDEXES507090110130150Mar-21May-21Jul-21Sep-21Nov-21Jan-22Mar-22May-22Jul-22Sep-2
60、2Nov-22Jan-23(Index)Public logistic parks throughput indexFTL freight volume indexNote:Public logistics parks throughput index=monthly public logistics parks throughput/2019 average monthly public logistics parks throughput;FTL freight volume index=monthly FTL freight volume/2019 average monthly FTL
61、 freight volumeSource:Fitch Ratings,G71 The index is compiled based on data from logistics enterprises on their activities.It includes five sub-indicators:Business Volume,New Orders,People Employed,Inventory Turnover and Capacity Utilisation.A reading above 50 indicates an overall positive change;be
62、low 50,an overall negative change.CHINA LOGISTICS SECTOR BLUE BOOK 13Industry ConsolidationChinas logistics sector is under-developed in terms of efficiency and market concentration despite its large market size.The sector is consolidating after years of expansion,with a focus on operation optimisat
63、ion to improve efficiency and cost management.M&A activities have increased,which have reduced market fragmentation,especially in LTL and FTL.The efficiency and quality of logistics services in China has lagged that of developed markets.Chinas logistics performance index ranked 26th globally,accordi
64、ng to the World Bank in 2018.The index measures a countrys efficiency of customs clearance;quality of logistics-related infrastructure;ease of international shipments;quality of logistics services;ability to track and trace consignments;and timeliness of shipments.The industry still relies heavily o
65、n labour and forklifts in warehouses,sortation centres and transportation hubs.However,logistics companies are investing heavily in areas such as internet of things(IoT),radio frequency identification(RFID)and warehouse management system(WMS)to optimise their operations.Chinas automated three-dimens
66、ional warehouses increased to 5,390 by 2018 from 2,500 in 2014,according to the China Logistics Technology Association.However,this is still below the number in developed markets,such as the US with 20,000,Japan(38,000)and Germany(10,000).Automated three-dimensional warehouses use high-rise shelves
67、and automatic storage/retrieval systems.Companies are also seeking more efficiency and better shipment timeliness by developing their warehouse networks.Chinas warehouse per capita ratio is still below that of developed markets.Chinas warehouse area ranked second globally with total area of 960 mill
68、ion sqm in 2018,behind the US(1.25 billion sqm in 2019).Nevertheless,Chinas average warehouse area per capita of 0.7 sqm/person is well below the USs 3.8 sqm/person and Japans 4 sqm/person in 2018,according to GLP Pte.Ltd.s REIT prospectus.The Chinese government is also seeking to improve national-l
69、evel logistics efficiency through enhancing the connectivity between different regions and developing a multimodal(road,rail,water and air)logistics network.Fitch expects market concentration to increase as the sector is highly fragmented currently,except for the express delivery segment.For example
70、.Chinas top 10 LTL players accounted for only 5.7%of the market in 2020,compared with 74%in the US,measured by total spending by end-market customers.Fitch expects leading logistics companies to seek opportunistic acquisitions to expand their networks and complete their value chains in China.Size wi
71、ll help them to achieve economies of scale,stronger bargaining power with suppliers or customers,and better funding access.WORLD BANKS LOGISTICS PERFORMANCE INDEX(2018)ChinaUSGermanyJapanRanking261415Overall score 3.613.894.24.03Score of ComponentsEfficiency of customs and border management clearanc
72、e3.293.784.093.99Quality of trade-and transport-related infrastructure3.754.054.374.25Ease of arranging competitively priced international shipments3.543.513.863.59Competence and quality of logistics services3.593.874.314.09Ability to track and trace consignments3.654.094.244.05Frequency with which
73、shipments reach consignees within the scheduled or expected delivery time3.844.084.394.25Source:Fitch Ratings,World BA 2023 Fitch China Research Initiative PublicationCost Reduction Through Technology Upgrade and Network OptimisationChinas continued investments in infrastructure and technology have
74、reduced the unit logistics cost.Total logistics costs fell by CNY450 billion during the 13th Five-Year Plan(FYP)covering 2016-2020 through cancelling highway toll stations,increasing use of more cost-effective railways and waterways to transport freight,and improving connectivity between different t
75、ransport modes(road,railway,water and air),according to the MoT.In addition,the automation and digitalisation of the logistics network also supported the cost reduction.As a result,total social logistics spending in China fell to 14.6%of GDP in 2021 from 15.7%in 2015,achieving the 13th FYPs target o
76、f below 16%.Chinas social logistics spending/GDP ratio is higher than the USs 8%,due to the economys heavier reliance on the secondary industry2(39%)versus the US economy(18%).Goods in the secondary industry tend to incur higher costs as a percentage of total logistics value due to their heavy weigh
77、t and lower product value.UNIT LOGISTICS COST COMPARISON WITH US Country2021 GDP(CNY trn)Social Logistics Spending(CNY trn)Freight Volume(billion tonnes)Freight Turnover(trillion tonnes x km)Unit Freight Volume/GDP(tonnes/CNY10,000)Average Freight Distance(km)Unit Logistics Cost(CNY/(in tonnes x km)
78、China11416.752.221.84.6418.30.8US146.511.715.15.71377.52.1Source:Fitch Ratings,TUC Consulting,NBS,Council of Supply Chain Management Professionals TOTAL SOCIAL LOGISTICS SPENDING/GDP BREAKDOWNSource:Fitch Ratings,TUC Consulting Total Social Logistics Spending/GDPFreight Volume/GDPFreight Turnover/Fr
79、eight VolumeTotal Social Logistics Spending/Freight TurnoverUnit Freight Volume/GDPAverage Freight DistanceUnit Logistics Cost=x=xxx2 Secondary industry includes mining,manufacturing and utilities,and construction sectors.CHINA LOGISTICS SECTOR BLUE BOOK 15SOCIAL LOGISTICS SPENDING14.014.515.015.516
80、.00500022(%)(CNYtrn)Total social logistics spending(LHS)Total social logistics spending/GDP(RHS)Source:Fitch Ratings,CFLPSOCIAL LOGISTICS SPENDING BY TYPE0500022(CNYtrn)Transport costWarehouse costManagement costSource:Fitch Ratings,C
81、FLPHowever,Chinas unit logistics cost is lower than that of the US.Social logistics spending/GDP has three components:freight volume/GDP,average freight distance and average logistics cost per unit tonne and kilometre(unit logistics cost).Chinas freight volume/GDP is more than four times that of the
82、 US,while it has lower unit logistics cost at CNY0.8/(tonne x km)versus the USs CNY2.1 largely due to Chinas control over fuel pricing during periods of rising fuel costs,lower labour cost and lower vehicle maintenance cost compared with developed markets.Social logistics spending comprises transpor
83、t costs,management costs and warehouse costs.Transport costs formed the largest component at 53.7%of the total in 2022.Transport costs increased in 2021 and 2022 with the surge in fuel and labour costs amid pandemic control measures.Major logistics enterprises operating costs increased by 33%in 11M2
84、1,according to CFLP.In addition,logistics enterprises faced labour shortages,with 65.6%of them indicating in a CFLP survey in 2021 that they could not find enough staff for basic operations,such as delivery staff,truck drivers and ship crew.Fitch expects logistics companies to focus on technological
85、 upgrade and network optimisation to improve efficiency and cost positions.Some companies have invested heavily in transportation and warehouse systems to develop smart logistics ecosystems.Major companies such as S.F.Holding Co.,Ltd.(SF)and JD Logistics(JDL)lead in investments in technology,such as
86、 unmanned aerial vehicles(UAVs)and warehouse automated guided vehicle(AGV)systems.The smart logistics market is likely to reach over CNY1 trillion by 2025,Deloitte Touche Tohmatsu Limited A 2023 Fitch China Research Initiative PublicationChinas logistics policies focus on developing an efficient and
87、 integrated network that it sees as important for economic development.The policy focus has shifted from network expansion in the 13th FYP to efficiency improvement in the 14th FYP.(See appendix 2 and 3 for more details).SECTOR POLICY AND INVESTMENT FOCUSKEY POLICIES IN THE LOGISTICS SECTORSource:Fi
88、tch Ratings,government websites 20222021814th Five-Year Plan for Comprehensive Transportation Service DevelopmentPlan Outline for National Comprehensive Three-Dimensional Transportation NetworkPlan for National Logistics Hubs Layout and ConstructionAction Plan on Constructing Logistics Ch
89、annels(2016-2020)Logistics Mid-to Long-Term Development Plan(2014-2020)14th Five-Year Plan for Modern Logistics Development14th Five-Year Plan for Modern Circulation System ConstructionWork Plan for Promoting the Development of Multimodal Transportation and Optimising and Adjusting the Transport Str
90、ucture(2021-2025)Key PoliciesCHINA LOGISTICS SECTOR BLUE BOOK 17Building a Modern Circulation System During 14th FYP PeriodChinas investment focus in the logistics sector has shifted to optimising operational efficiency through improving the connectivity between different regions.On 13 January 2022,
91、the NDRC issued the 14th Five-Year Plan for Modern Circulation System Construction,which lays out the development plan the for transportation,business circulation and logistics sectors.The plan targets to build a modern circulation system to ensure smoother and more efficient flow of business and go
92、ods.For the logistics sector,the plan is to build a modern infrastructure network with national logistics hubs being the backbone of the network.The network will be built with an integrated structure of“channel+hub+network”.The plan also calls for accelerating construction of logistics parks,logisti
93、cs centres and distributions centres surrounding the production and consumption centres in China.Efforts will be made to improve the cold-chain logistics infrastructure,especially the shortfalls in the“first-mile-pickup”and“last-mile-delivery”.China planned to build 50 national logistics hubs during
94、 the 14th FYP,in addition to the 70 built by 2021.LOGISTIC SECTORS 14TH FYP MODERN LOGISTICS SYSTEM UPGRADE PROJECTAreasTargetNational logistics hubs 120 national logistics hubs20 national logistics economic demonstration zones Railway Accelerate the construction of express-freight railway(incl.high
95、-speed train)logistics hubsImplement the railway logistics upgrade projectAir cargo Put Ezhou cargo hub airport into operationCreate a number of advanced national airport logistics hubs Logistics enterprisesCultivate a group of modern logistics enterprises with international competitivenessEquipment
96、 upgrade Build smart and efficient postal networksPromote smart mail boxes and smart express delivery boxes.Expand delivery coverage to villages,factories and overseas.Source:Fitch Ratings,government A 2023 Fitch China Research Initiative PublicationMULTIMODAL LOGISTICS NETWORK TO INCREASE CONNECTIV
97、ITYOn 15 December 2022,the State Council issued the 14th Five-Year Plan for Modern Logistics Development,which focuses on improving the quality and efficiency of logistics services through building an integrated multimodal and green logistics system.The countrys rail and water freight transportation
98、 infrastructure are less developed than that for road freight and the connectivity between different transport modes is also lacking.The logistics sector is still heavily reliant on roads(74%of total freight volume in 2021),although railways and waterways are more cost-effective and efficient for lo
99、ng-distance transportation of lower value and bulky goods,such as commodity and manufacturing products.In addition,railways and waterways consume less energy and emit less pollution per unit freight turnover.On 7 January 2022,the State Council issued the Work Plan for Promoting the Development of Mu
100、ltimodal Transportation and Optimizing and Adjusting the Transport Structure(2021-2025)(the Multimodal Transportation Work Plan).The country seeks to develop rail and water transportation infrastructure for medium-and long-distance transportation of bulk cargo and containers.The work plan aims for 9
101、0%of the long-distance(more than 500km)transportation of coal from the key producing areas of Shanxi,Shaanxi and Inner-Mongolia to be by rail by 2025.China targets to increase rail and water freight volumes by around 10%and 12%,respectively,by 2025 from 2020,to boost efficiency and reduce energy int
102、ensity for the general transportation sector.Rail and water freight volumes together accounted for 24.9%of total freight volume in China in 2021,increasing by 3.9pp from 2012.The 14th FYP aims to increase rail-water multimodal container freight volume by 15%annually,slower than the 18%annual growth
103、rate in 2018-2021.Rail-water multimodal container freight volume reached 7.54 million twenty-feet equivalent units(TEU)in 2021.NETWORK EXPANSION IN INLAND REGIONS China is looking to develop logistics hubs in central and western China,with 60%of the national logistics hubs in the Plan for National L
104、ogistics Hubs Layout and Construction in those areas to close the gap with eastern China.The south-western city of Chongqing,for example,benefited from the setting up of the Chongqing-Xinjiang-Europe international container train line,and has seen rapid expansion of its logistics sector.China also p
105、lans to build a national comprehensive three-dimensional transport network to support integrated and balanced logistics development nationally.The transport network includes“6 Axes,7 Corridors and 8 Channels”.The Work Plan for Promoting the Development of Multimodal Transport and Optimizing and Adju
106、sting the Transport Structure(2021-2025)aims to enhance the important transport channels between Beijing-Shanghai,Luqiao,Shanghai-Kunming,and Guangzhou-Kunming.The logistics and transportation network in the major coal production regions(Beijing-Tianjin-Hebei and Shanxi-Shaanxi-Inner-Mongolia region
107、s)will focus on the connectivity between railways,enclosed pipelines and big ports for coal transportation.Regions along inland rivers,such as the Yangtze River Delta and Pearl River Delta Areas will focus on waterway logistics through improving the connectivity between railways and waterways as wel
108、l as the connectivity between the inland river and sea transportation.CHINA LOGISTICS SECTOR BLUE BOOK 193 New-energy vehicles here refer to freight vehicles with zero or low emission,including battery electric vehicles,plug-in hybrid vehicles and fuel-cell vehicles.INCREASING INVESTMENT IN COLD-CHA
109、IN LOGISTICSCold-chain logistics is another key investment area in the 14th FYP amid surging demand.The State Council released the 14th Five-Year Plan for Cold-Chain Logistics Development on 26 November 2021,which aims to build about 100 cold-chain logistics hubs by 2025 and focus on resolving the s
110、hortfalls in the“first-mile pick-up”and“last-mile delivery”of cold-chain products.The plan focuses on“6+1”product types,which refers to six types of perishable foods and pharmaceutical products.An efficient cold-chain logistics network will help the country to reduce wastage of agricultural products
111、 and other foods during transportation and storage.In addition,the network is crucial to ensure stable supply of pharmaceutical products,including vaccines.Chinas cold-chain logistics market reached CNY380 billion by 2020(2.4x that of 2015),including 180 million sqm of cold storage capacity and 287,
112、000 cold-chain fleets.The market is likely to reach CNY897 billion by 2025,the SIC says.Chinas cold-chain transportation for perishable foods lags that of developed countries.Chinas cold-chain transportation ratios of fruits and vegetables,meat products and water products were only 15%,57%,and 69%in
113、 2021,respectively,according to the SIC.This is significantly below the 80%-90%of developed countries.Cold-chain storage capacity is also not evenly distributed across the country,with eastern China accounting for 41%of total capacity,versus 5%in north-western China.There were 33 investing and finan
114、cing activities in the cold-chain sector in 2021,according to CFLP.Eleven fundraising activities exceeded CNY1 billion each,including USD700 million raised by Dingdong Grocery Shopping,and USD3 billion by Prosperity Preferred Store Group.GREEN LOGISTICS PRIORITISED The development of green logistics
115、 is a priority in the 14th FYP,which aims to increase the use of green energy in the logistics sector,including the use of electricity and LNG in road(including intra-city delivery),rail and water transportation.Electricity and LNG accounted for 17.3%of total energy used in the transport,warehousing
116、 and postal sectors in 2021,up by 7.6pp from 2012.In addition,China aims to increase the proportion of new-energy vehicles3 used for urban logistics delivery to 20%by 2025 from 8%in 2020 and 80%of newly-added urban logistics delivery vehicles should be new-energy vehicles.Chinas new-energy urban log
117、istics delivery vehicles reached 430,000 units in 2020.In addition the country owned around 290 LNG-powered ships and around 2,000 LNG-powered container trucks as of 2021.For railway transportation,the number of electric railway locomotives reached 140,000 units with electrification rate of 64.0%,in
118、creasing by 15.1pp from 2012.The country is also investing in infrastructure for green logistics,such as port shore power facilities,which covered about 7,500 berths in 2021 and charging stations at expressway service areas,which reached over 10,000 units in 2021.GEOGRAPHIC DISTRIBUTION OF COLD-CHAI
119、N STORAGE CAPACITY IN CHINAIN 2019Eastern41%Northern 15%Central 13%Southern 10%South-western8%North-eastern 8%North-western 5%Source:Fitch Ratings,SIC,China Cold-Chain Logistics AA 2023 Fitch China Research Initiative PublicationLOGISTICS SECTOR TARGETS FOR 14TH FYPKey ObjectivesDocuments2020(actual
120、)2021(actual)Targets for 2025National logistics hubs The 14th Five-Year Plan for Modern Logistics Development;The 14th Five-Year Plan for Modern Circulation System Construction4570120Total social logistics spending/GDPThe 14th Five-Year Plan for Modern Logistics Development;The Plan for National Log
121、istics Hubs Layout and Construction14.70%14.60%12%Cold-chain logistics hubsThe 14th Five-Year Plan for Modern Logistics Development;The 14th Five-Year Plan for Cold-Chain Logistics Developmentn.a.n.a.100Railway freight volume/total freight volumeThe 14th Five-Year Plan for Modern Logistics Developme
122、nt9.60%9.00%10.1%(+0.5%vs 2020)The growth rate of railway freight volume versus 2020 level The Multimodal Transportation Work PlanVolume:47,259 million tonnesVolume:52,985 million tonnes10%The growth rate of waterway freight volume versus 2020 level The Multimodal Transportation Work PlanVolume:7,61
123、6 million tonsVolume:8,240 million tons12%Container rail-water multimodal transport volume annual growth rate on averageThe 14th Five-Year Plan for Modern Logistics Development;The Multimodal Transportation Work PlanVolume:6.8 million TEUVolume:7.54 million TEU15%The proportion of new-energy vehicle
124、s for urban logistics delivery The 14th Five-Year Plan for Comprehensive Transportation Service Developmentn.a.n.a.20%Use of rail for long-distance coal transportation in Shanxi-Shaanxi and Inner-Mongolia The Multimodal Transportation Work Plann.a.n.a.90%Source:Fitch Ratings,government websitesSHARE
125、 OF COLD-CHAIN TRANPORTED PRODUCTS IN CHINA VERSUS DEVELOPED COUNTRIESIN 20200Fruits and vegetablesMeat productsWater products(%)ChinaAverage of developed countriesSource:Fitch Ratings,SIC,CFLPCHINA LOGISTICS SECTOR BLUE BOOK 21CHINAS INVESTMENTS IN TRANSPORTATION NETWORK01,0002,0003,0004
126、,0005,0002000022(CNYbn)FAI in rail transportationFAI in road transportationFAI in water transportationFAI in air transportationSource:Fitch Ratings,MoTEXPANSION OF TRANSPORTATION NETWORK IN CHINA0050060005003 2004 2005 2006 2007 2008 2009 2010 2
127、011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022(10,000km)Railway mileage(LHS)Express-way mileage(LHS)Inland river mileage(LHS)Road mileage(RHS)(10,000km)Source:Fitch Ratings,MoTFTL ROAD TRANSPORTATION PRICE BY PRODUCT TYPE0.00.20.40.60.81.0May-22Jun-22Jul-22Aug-22Sep-22Oct-22Nov-22Dec-22J
128、an-23Feb-23 Mar-23Apr-23May-23Jun-23(CNY/tonne km)Commodity productsIndustrial and equipment productsConsumer productsNote:Price for industrial and equipment products exceeded that for consumer products during Jan 2023 due to Chinese New Years disruption.Source:Fitch Ratings,GA 2023 Fitch China Rese
129、arch Initiative PublicationMarket Expansion and Cost Reduction in 13th FYPThe State Council issued the Logistics Mid-to Long-Term Development Plan(2014-2020)in 2014 to promote a multimodal logistics network and build an efficient and comprehensive transportation network.The plan aimed to expand the
130、logistics industrys total value added to 7.5%of GDP by 2020 with an annual growth rate of about 8%and reduce the total social logistics spending/GDP to 16%by 2020 from 18%in 2013.China met the social logistics spending reduction target in 2020.However,the country has stopped disclosing the total val
131、ue added by the logistics sector since 2014.Nevertheless,total revenue generated by Chinas logistics sector grew at a CAGR of 6.7%to CNY10.5 trillion from 2014 to 2020.INVESTMENT IN TRANSPORTATION INFRASTRUCTURE Chinas investments in transportation infrastructure will support the growth of its logis
132、tics sector.FAI in transportation amounted to CNY3.9 trillion in 2021 including CNY710.9 billion in railways(18%of total transportation FAI),CNY2.9 trillion in roads(74%),CNY167.9 billion in waterways(4%)and CNY123.1 billion in air transportation(3%).The country invested more than CNY30 trillion in
133、its transportation network from 2013 to 2022.Chinas transportation network expanded during the past nine years with roads being the dominant transportation mode.Total road mileage reached 5.35 million km,including 177,300 km of expressways,as of end-2022.At the same time,total railway operating mile
134、age reached 155,000 km,including 42,000 km of high-speed railways.The railway network density in China reached 161.1 km/10,000 sqm.The country had inland waterway mileage of 128,000 km and 21,323 port berths(including 5,441 costal port berths and 15,882 inland river port berths).Airports with above
135、10,000 tonnes of annual cargo and mail throughput were 51 in 2022.On 24 February 2021,the State Council issued the Plan Outline for National Comprehensive Three-dimensional Transportation Network,which aims to establish a network of 700,000 km by 2035,comprising 200,000km of railways,460,000km of ro
136、adways,25,000km of waterways,as well as 27 major coastal ports,36 major inland river ports,400 civilian airports,and 80 postal express hubs.The plan aims to build an ambitious“Global 1-2-3 Logistics Circle”by 2035 that will enable one-day delivery times within China,two-day delivery to neighbouring
137、countries and three-day delivery to major cities globally.Fitch expects China to continue to invest in its transportation network to facilitate the flow of goods and business activities.The building of a national comprehensive three-dimensional transportation network will support the growth of integ
138、rated logistics by improving connectivity between different transportation modes and reducing logistics costs.INCREASING USE OF RAIL AND WATER TRANSPORTATION FOR BULK CARGO Freight transportation by rail,water and air is under-developed in China,compared with transportation by road,which dominates C
139、hinas logistics transportation.However,China now is encouraging rail and water transportation for bulk cargo,especially commodity and industrial products,as it is more efficient and cost-effective than road transportation.This will reduce demand for road transportation,but lift the average freight p
140、rice for road transportation as the volume shift is mainly for commodity and industrial products.The unit road transportation price for commodity and industrial products is significantly lower than that for consumer products,which require more protection during shipment and are normally of much smal
141、ler volumes.The FTL road transportation price for consumer products was CNY0.55/tonne km,versus CNY0.24 for commodity products and CNY0.45 for industrial and equipment products for 1H23.CHINA LOGISTICS SECTOR BLUE BOOK 23State-Backed Capital Leads Logistics Infrastructure InvestmentCentral and local
142、 governments,as well as SOEs(such as China Railway Construction Corporation Limited)lead logistics infrastructure investment due to their ownership or control of the infrastructure and strong funding access.Chinas total FAI in the transport,warehouse and postal sectors amounted to CNY6.8 trillion in
143、 2021,with state-owned capital accounting for 78%.About 23%of the proceeds from newly issued local government special bonds was used in the transport-related,energy and cold-chain logistics areas in 2021,according to the MoF.Furthermore,the government also encourages the establishment of infrastruct
144、ure REITs to fund logistics projects.Logistics warehouses are quality underlying assets for infrastructure REITs,underpinned by stable and predictable rental cash flows.Warehouse REITs provide diversified funding and exit channels for logistics companies and enable quick capital recycling for new pr
145、ojects.There have been three warehouse logistics infrastructure REITs set up since 2021 Hotland Innovation-Yantian Port Warehouse Logistics REIT,China International Capital Corporation Limited(CICC)-GLP Warehouse Logistics REIT and Harvest-JD Warehouse Logistics REIT.Hotland Innovation-Yantian Port
146、Warehouse Logistics REIT is managed by Hotland Innovation Asset Management,which is 100%controlled by Shenzhen Capital Group Co.,Ltd.,an SOE of the municipality,while the originator,Shenzhen Yantian Port Group Co.,Ltd.is another local SOE involved in port investment and operation,logistics and prope
147、rty development and owned 2.33%of Shenzhen Capital Group in 2021.CICC-GLP Warehouse Logistics REIT is managed by a fund subsidiary of CICC,which is a financial institution controlled by state-owned Central Huijin Investment Ltd.The underlying assets are logistics warehouses operated by a subsidiary
148、of GLP,a leading global provider of modern logistics facilities that has its largest market in CA 2023 Fitch China Research Initiative PublicationHarvest-JD Warehouse Logistics REIT,the first warehouse logistics REIT with a privately owned originator,is managed by Harvest Fund Management Co.,Ltd.The
149、 originator of the REIT is Beijing JD Century Trading Co.,Ltd,a subsidiary of JD.com,Inc.Nevertheless,leading privately owned entities(POEs)also partner with local governments to build logistics infrastructure.For example,SF partnered with the Hubei government to build Ezhou Huahu Airport in the pro
150、vince as the first freight airport hub in China.The airport is part of the 14th Five-Year Plan for Modern Circulation System Construction.It is the first airport in China financed in part by private capital,and SF holds a 46%stake.Hubei Province Transportation Investment Group and Shenzhen City Agri
151、cultural Bank Airport Investment Company hold 49%and 5%of the airport,respectively.The airport started operations on 17 July 2022.The cargo and mail throughputs are expected to reach 2.45 million tonnes in 2025,according to a filing by SF.The total investment amount was CNY30.84 billion.FAI IN TRANS
152、PORT,WAREHOUSE AND POSTAL SECTORS BY FUNDING SOURCESFROM 2010 TO 202120%30%40%50%60%70%80%90%100%200001920202021State-owned capitalDomestic private capitalForeign capitalOthersSource:Fitch Ratings,NBSWAREHOUSE LOGISTICS INFRASTRUCTURE REITSNameAsset TypePricing DateI
153、ssuance Size(CNYbn)ManagerOriginatorHotland Innovation-YantianPort Warehouse Logistics REIT Warehouse Logistics24-May-211.84Hotland Innovation Asset ManagementShenzhen Yantian Port Group Co.,Ltd.CICC-GLP WarehouseLogistics REITWarehouse Logistics24-May-215.835CICC FundGLP China Holdings Ltd.Harvest-
154、JD Warehouse Logistics REITWarehouse Logistics30-Dec-221.757Harvest Fund Management Co.,Ltd.Beijing JD Century Trading Co.,Ltd.Source:Fitch Ratings,WindCHINA LOGISTICS SECTOR BLUE BOOK A 2023 Fitch China Research Initiative PublicationPOEs Dominate Road Transportation Road transportation(except the
155、express delivery segment)is highly fragmented and dominated by POEs.FTL MARKET:LARGE SIZE;MUTED GROWTH FTL refers to point-to-point transportation with a full truckload that has freight weight of over 3 tonnes.The FTL market is valued at CNY2.5 trillion,and accounts for over 50%of Chinas road transp
156、ortation market size.However,it is highly fragmented.The FTL market is likely to grow by 0.2%annually from 2020 to 2025,according to iResearch.The muted growth rate compared with the LTL market is due to its lower exposure to time-sensitive,small-batch shipment demand from the expansion of e-commerc
157、e.Key FTL customers are distributors,manufacturers and trading companies from the primary(raw materials)and secondary(manufacturing)industries.LTL companies and other 3PL companies may also use FTL services after aggregating small shipments to full truckloads.The major companies in the FTL market ar
158、e mainly POEs,such as Full Truck Alliance Co.,Ltd.(FTA),ForU Worldwide Inc.(FOYO),and Zeyi Supply Chain Management Co.,Ltd.(Zeyi).FTA and FOYO are digital freight platforms that connect truckers and shippers in the FTL market.Zeyi provides nationwide FTL transportation services.COMPETITIVE LANDSCAPE
159、 OF CHINAS LOGISTICS SECTORMARKET SHARES OF ROAD LOGISTICS COMPANIES BY REVENUEAS OF 2020FTL(3 tonne-50 tonne)52%Express-delivery(500 kg)22%Small-ticket LTL 9%LTL(30 kg-3 tonne)31%Source:Fitch Ratings,iResearch,NBS,State Post BureauCHINA LOGISTICS SECTOR BLUE BOOK 27CHINA VERSUS US LTL MARKET CONSOL
160、IDATION IN 2020Top 10 LTL companies market shareThe restChinaUSSource:Fitch Ratings,iResearchGROWTH OF LEADING US LTL COMPANIESFROM 2002-20200.02.04.06.08.010.002,0004,0006,0008,00010,00020022020(USD millions)ODFLSAIAODFL market share(RHS)SAIA market share(RHS)(%)Source:Fitch Ratings,company reports
161、LTL MARKET:STRONG DEMAND;ROOM FOR CONSOLIDATIONLTL companies provide transportation for shipments that do not require the entire truck space(freight weight between 30kg and 3 tonnes)and can normally be put together with other shipments to form a full truckload.The LTL market has grown at a faster pa
162、ce than the FTL segment due to the rapid growth of e-commerce and fragmentation of road transportation as small and medium-sized enterprises constitute a large proportion of the LTL shippers in China.The LTL market can be further divided into small-ticket(30kg to 500kg)and large-ticket(500kg to 3 to
163、nnes)based on the freight weight.The LTL market is likely to grow to CNY2.0 billion in 2025 from CNY1.5 billion in 2020,representing a CAGR of 5.9%,according to iResearch.The major operators in the LTL market are POEs,including ANE,Yimidida Supply Chain Management Group Co.,Ltd.(YMDD),SF Express,Kua
164、yue Express(acquired by JDL),Deppon Logistics Co.,Ltd.(Deppon)and BEST Inc.The key growth drivers of the LTL market include rising demand for B2C transportation for large parcels,such as home appliances and furniture,due to consumption upgrades and rural area development.There has also been a rise i
165、n small-batch shipments from manufacturers due to the rise in popularity of the consumer-to-manufacturer(C2M)model,which takes advantage of more flexible manufacturing processes to accelerate inventory turnover and reduce the production cycle.At the same time,distribution channels have flattened,fro
166、m traditional multi-layered ones,driven by the omni-channel development in the B2C e-commerce industry to quickly meet consumers needs.LTL companies are better positioned to meet the demand from these types of time-sensitive,more frequent and smaller batch A 2023 Fitch China Research Initiative Publ
167、icationMARKET SHARE OF NATIONWIDE EXPRESS-FREIGHT NETWORKS IN CHINA LTL MARKETBY SHIPPER SPENDING 0554020025E2030E(%)20025E2030ESource:Fitch Ratings,iResearchThe LTL market in China is highly fragmented with plenty of room for consolidation.The top 10 LTL players acc
168、ount for only 5.7%of the market as of 2020,compared with 74%in the US,measured by total spending by end-market customers,according to iResearch.Fitch expects leading Chinese LTL companies to gain market share through acquisitions,efficiency improvement and technology upgrade,similar to their US peer
169、s.The USs top two LTL companies,Old Dominion Freight Line,Inc.(ODFL)and SAIA,Inc.,benefitted from market growth in the US in the past two decades.The US LTL market grew to USD42.1 billion in 2020 from USD26.7 billion in 2002.During the same time,ODFLs market share increased to 9.4%from 2.1%and SAIAs
170、 increased to 4.3%from 2.9%.Both companies achieved strong growth through acquisition of competitors,investing in transit hubs,logistics network and technology equipment;and quality services and products.NATIONWIDE EXPRESS-FREIGHT NETWORK OPERATORS TO GAIN MARKET SHARE There are two types of compani
171、es operating in the LTL market 1)nationwide express-freight network operators 2)small and medium regional and direct-line operators that focus on specific regions or line-haul routes.Nationwide express-freight network operators,such as ANE and BEST,provide comprehensive logistics services with diver
172、se product offerings.They can meet customers growing need for timeliness and security by tapping their logistics infrastructure networks.These companies benefit from economies of scale and higher operational efficiency.We expect them to take market share from the small and medium regional and direct
173、-line LTL operators.iResearch forecasts the market share of nationwide network operators to reach 15.7%in 2025 from 6.1%in 2020.The Chinese express delivery markets concentration level is high with the top five operators market share reaching 76%by volume in 1H21.The market leaders launched services
174、 during the e-tailing boom in 2004-2014.Subsequently,the barriers to entry increased as the sector became more capital-intensive and technology driven,while intense competition put pressure on average selling prices.As a result,small competitors were squeezed out.The leading express-delivery operato
175、rs further consolidated their market shares and achieved economies of scale with their cost advantages and stronger capital access.CHINA LOGISTICS SECTOR BLUE BOOK 29SOEs Provide Integrated and Multimodal Logistics ServicesSOEs focus more on integrated and multimodal logistics services,underpinned b
176、y their larger scale and stronger funding access.SOEs in the logistics sector mostly cover the full spectrum of services,including transportation,warehousing,and other value-added services,as they control or enjoy good access to infrastructures like ports,railways and airports.Multimodal logistics r
177、efer to services that combine all the modes of transport into one contract with better connectivity between road,rail,sea and air transportation.Some of the logistics SOEs are subsidiaries of large railway,airline or shipping operators,such as Cosco Shipping Logistics Co.,Ltd.(CSL),which is owned by
178、 China Cosco Shipping Group Co.,Ltd.(CCSG),and Eastern Airlines Logistics Co.,Ltd.(EAL),which is owned by China Eastern Airlines Group Co.,Ltd.Logistics SOEs markets are a mix of industrial products(such as commodity and agricultural products)and consumer products,while POEs tend to focus on consume
179、r products.The top two logistics companies in China are CCSG,a central SOE,and Xiamen Xiangyu Group Corporation(Xiangyu),a local SOE.CCSG is the largest logistics company in China by revenue,according to CFLP.The companys other business segments include shipping,terminals,ship repair and shipbuildin
180、g.CCSG is 90.97%controlled by the State-owned Assets Supervision and Administration Commission of the State Council(Central SASAC).Its total fleet capacity ranked No.1 globally,underpinned by its 1,413 vessels with a capacity of 113 million dead-weight tonnage(DWT)as of 30 June 2022.The companys log
181、istics business is mainly carried out by its subsidiary,CSL,which provides sea transportation services that have synergies with its shipping and ports businesses.CSL has more than 50 logistics hubs across China and over 24 million sqm of warehouse area in 2021.Xiangyu is controlled by the Xiamen mun
182、icipal SASAC.Its logistics business is carried out by its subsidiary,Xiamen Xiangyu Co.,Ltd.The company provides logistics and supply chain management services for commodity products,such as metal and mining,energy,chemical and agricultural products.Xiangyu provides end-to-end multimodal logistics s
183、ervices,supported by its strong infrastructure across different modes of transport.The company operates 37 designated rail lines,water freight capacity of 20 million tons,over 100,000 vehicles(including 500 self-owned),and seven logistics industry parks with total area of 652,200 sqm as of 2021.SOEs
184、 are also better positioned than POEs to expand in the cross-border e-commerce business with their stronger access to airports and airlines.For example,Sinotrans Limited(Sinotrans),which provides end-to-end integrated logistics solutions,saw its cross-border e-commerce logistics revenue increase by
185、108%in 2021,benefiting from its strong air channels.Sinotrans controlling shareholder is central SOE China Merchants Group,a conglomerate focusing on transportation,finance,and urban development.Sinotrans cross-border e-commerce logistics is well-integrated with its other business segments,including
186、 sea,air and rail freight services as well as storage and terminal services.COMPARISON OF LOGISTICS SOES AND LOGISTICS POES BUSINESS MODELSCompany TypeTransport ModesLogistics SubjectsShippersFunding accessSOEDiversified modes of transport(rail,water,air,road)Industrial products(including commodity
187、products);consumer productsManufacturers and other industrial companies,merchantsStrong access to bank loans,onshore bond markets and equity markets.POEFocus on road transportation Focus on consumer products Largely merchants and manufacturersReliance on the equity market except for the market leade
188、rs who have access to onshore/offshore bond markets.Source:Fitch Ratings,company A 2023 Fitch China Research Initiative PublicationMAJOR LOGISTICS SOESNameLocal/Central SOELogistics SegmentListed/UnlistedBusiness ProfileChina Cosco Shipping Group Co.,Ltd Central SOEIntegrated Logistics(Sea Transport
189、ation Focused)UnlistedThe company provides integrated logistics services,especially sea transportation services,which are in synergy with its shipping and port businesses.Xiamen Xiangyu Group CorporationLocal SOEIntegrated Logistics UnlistedThe company provides end-to-end integrated logistics servic
190、es with different modes of transport.The company specialises in providing logistics services for commodity products.China Post Group Co.,LtdChina SOEExpress DeliveryUnlistedThe companys subsidiary EMS provides express delivery services in China.EMS also provides international express mail,e-commerce
191、 and contract logistics services.Sinotrans LimitedSubsidiary of central SOECross-Border Logistics ListedThe companys business segments include logistics,forwarding and related businesses,and e-commerce.CMST Development Co.,Ltd Central SOEWarehouse LogisticsListedThe company focuses on warehouse serv
192、ices and its related transportation and logistics financing services.China Logistics GroupCentral SOEIntegrated Logistics UnlistedThe group controls three state-owned logistics companies(see below for more details).China Nanshan Development(Group)IncorporationLocal SOEIntegrated LogisticsUnlistedThe
193、 companys businesses include integrated logistics services,property development and manufacturing.The company owns and operates 75 logistics parks across 40 cities.Wuhan Trade State-owned Group Co.,Ltd Local SOE Integrated Logistics UnlistedThe companys core business is integrated logistics services
194、.Source:Fitch Ratings,company reportsSource:Fitch Ratings,CFLP0500300CCSGXiangyuSFSinotransJDLCMSTCRMGYTO ExpressYundaBEST(CNY billions)TOP-10 CHINESE LOGISTICS COMPANIESTOTAL LOGISITICS REVENUE IN 2021POESOECHINA LOGISTICS SECTOR BLUE BOOK 31SOE LOGISTICS PLATFORM CHINA LOGISTICS GROUPTh
195、e Chinese central government established China Logistics Group on 6 December 2021 as a platform to consolidate state-owned logistics assets.China Logistics Group is controlled by Central SASAC.The groups strategic investors are China Eastern Airlines Group Co.,Ltd,CCSG and China Merchant Group Co.,L
196、td.Fitch expects the Chinese government to continue to consolidate state-owned logistics infrastructure and assets to improve logistics efficiency and reduce logistics cost in the country.China Logistics Group controls three listed state-owned logistics companies:China Railway Materials Co.,Ltd.,CMS
197、T Development Co.,Ltd.,and CTS International Logistics Corporation Limited(CTS International).The group owns 24.26 million sqm of land,4.95 million sqm of warehouses,120 dedicated railroad lines and 3 million road transportation vehicles.COMPANY STRUCTURE OF CHINA LOGISTICS GROUPSource:Fitch Ratings
198、,company reportsChina Cosco Shipping Group Co.,Ltd.China Eastern Airlines Group Co.,Ltd.China Merchant Group Co.,Ltd.China Chengtong Holdings Group Ltd.Central SASAC38.91%10.00%7.20%4.90%100%68.42%90.97%90%38.91%China Logistics Group40.09%45.74%45.79%China Railway Materials Co.,Ltd.(Railways Logisti
199、cs Co.)(000927.SZ)CMST Development Co.,Ltd.(Warehouse Logistics Co.)(600787.SH)CTS International Logistics Corporation Limited(International Logistics Co.)(603128.SH)A 2023 Fitch China Research Initiative PublicationChina Logistics Groups air and rail logistics subsidiaries give it an edge in develo
200、ping multimodal logistics services in China.In October 2022,CTS International established an air cargo logistics joint venture with Guangzhou Jiacheng International Logistics Co.,Ltd.(Guangzhou Jiacheng)called Guangdong Jiacheng International Aviation Co.,Ltd.(Jiacheng International Aviation).The jo
201、int venture will be 55%controlled by CTS International and will provide international air cargo transportation,air cargo packaging and domestic/international cargo forwarding.Jiacheng International Aviation plans to build a 500,000 sqm modern air logistics hub in Guangzhou that will be equipped with
202、 advanced technology.The air logistics hub will also be connected to the overseas warehouses of Guangzhou Jiacheng,CTS International and Cainiao.Jiacheng International Aviation aims to expand into a mid-sized air cargo carrier by 2032,with 50 aircraft and 10 air bases.SPECIALISED SERVICES There are
203、also logistics companies providing specialised services,such as cold-chain and cross-border logistics.The cold-chain logistics market has been growing rapidly in recent years fueled by demand for transportation of pharmaceutical products and perishable food.The cold-chain logistics market size grew
204、to CNY380 billion in 2020,2.4 times that in 2015,according to the State Council.The country has 180 million sqm of cold storage capacity and 287,000 cold-chain vehicles as of 2020.The major companies specialising in cold-chain logistics include VX Logistics and ZM Logistics.VX Logistics,China Vanke
205、Co.,Ltd.s logistics subsidiary,had 38 cold-chain parks and 1.38 million sqm of leasable cold-chain storage area in 2021,the largest in the industry.Some of its cold-chain parks are designated by the government for storage of imported food and Covid-19 vaccines.The cross-border logistics markets grow
206、th has been fueled by the boom in e-commerce demand in China.Cross-border e-commerce volume grew to CNY15.7 trillion in 2022 from CNY10.5 trillion in 2019,according to reports from data provider 100 EC.cn.However,border closures and restrictions in place from 2020 to 2022 due to Covid-19 significant
207、ly disrupted cross-border logistics services in China and the growth of cross-border e-commerce slowed to 13.6%in 2021 from 19.04%in 2020.SOEs,such as Sinotrans and CCSG,have an advantage in this area over POEs due to their better access to the air and sea freight infrastructure.Nevertheless,e-taili
208、ng market leader Alibaba has expanded its cross-border logistics business through its Cainiao network.Other POEs,such as SF and JDL,have also invested to develop their cross-border logistics businesses.Road logistics companies provide intra-city freight services to meet customers needs.Intra-city tr
209、ansportation refers to line-haul routes by road for less than 100km.The demand for intra-city transportation rose with the growing demand for bulk transportation between warehouses,train stations,and ports.The intra-city transportation market is expected to grow to CNY300 billion in 2025 from CNY200
210、 billion in 2020,with a CAGR of 9.1%,according to a report by China Insights Consultancy that was cited in FTAs prospectus.The major companies that provide intra-city freight services are Kuaigou and Huolala.CHINA LOGISTICS SECTOR BLUE BOOK A 2023 Fitch China Research Initiative PublicationMajor roa
211、d logistics companies operate under two types of business models:direct and platform,where the platform model is similar to express-delivery companies partner model.SFs SF Freight,JDL and Deppon operate under the direct model,where the companies control the full value chain of freight services,inclu
212、ding first-mile pick-up,sortation,line-haul transportation and last-mile dispatch.The direct model allows the companies to better control their service quality and customer satisfaction.In comparison,ANE,BEST,SFs SX Freight and YMDD operate under the platform model,under which they rely on franchise
213、 partners for pick-up and dispatch.In addition,some companies also outsource certain transportation and sorting functions to partners.For example,BEST outsources the majority of line-haul transportation to third parties and leases most of its sortation centres.TWO MAJOR BUSINESS MODELS FOR ROAD LOGI
214、STICS COMPANIESDIRECT-MODEL VALUE CHAIN VERSUS PLATFORM-MODEL VALUE CHAINSource:Fitch Ratings Direct-Model OperatorsPick-UpDispatchLine-Haul TransportationService StationsSorting CentresSorting CentresService StationsRecipientsPartner Platform-Model OperatorsFranchise PartnersFranchise PartnersSende
215、rsCHINA LOGISTICS SECTOR BLUE BOOK 35COMPARISON OF TWO BUSINESS MODELSCompanyBusiness ModelReported Revenue InclusionsPick-Up FeesLine-Haul and Sortation FeesDispatch FeesSFs SF FreightDirectYesYesYesJDLDirectYesYesYesDepponDirectYesYesYesANEPlatformNoYesNo before July 2020,but yes for July 2020 and
216、 afterBESTPlatformNoYesNo before 2017,but yes for 2017 and afterSFs SX FreightPlatformNoYesn.a.YMDDPlatformNoYesn.a.Source:Fitch Ratings,company reportsThe platform model is asset-light and the franchise partners share capex and expenses for pick-up and dispatch services.As a result,platform-model o
217、perators can expand more rapidly at a lower cost.The top three platform-model companies(ANE,BEST,YMDD)made up 48%of the nationwide express-freight market by freight volume in 2020.In contrast,companies under the direct model incur additional expenses for operating pick-up and dispatch services thems
218、elves,but they tend to have higher revenue per order as they recognise all revenue in the entire value chain.In addition,these companies unit prices per order normally are higher than those of platform-model operators.This is due to direct-model operators focus on middle-to high-end and less price-s
219、ensitive corporate clients as they have better control over their entire logistics chain to ensure better service quality.In contrast,operators under the platform model fight for the mass market,where there is fiercer price competition.Different Accounting ApproachesOperators under these two models
220、use different accounting approaches for revenue and cost recognition,and so their financial metrics are not directly comparable.Direct-model operators recognise revenue and associated costs in the full value chain,while platform-model operators exclude the front-end pick-up segment from their revenu
221、e and cost recognition as this is undertaken by franchise partners.For platform-model operators,their revenue and cost recognition for dispatch may also be different.ANE excluded dispatch fees from its revenue and cost recognition before July 2020 and started to include this segment A 2023 Fitch Chi
222、na Research Initiative PublicationPLATFORM-MODEL COMPANIES VERSUS DIRECT-MODEL COMPANIES MARKET SHARESBY FREIGHT VOLUME,IN 2020SF ExpressDeppon(direct-model)ANE(platform-model)BEST(platform-model)YMDD(platform-model)Other companiesNote:SF Express includes SF Freight(direct-model)and SX Freight(platf
223、orm-model).SF Express didnt disclose the freight volume breakdown by the two units.Source:Fitch Ratings,iResearch,TUC Consulting,company reportsCHINA LOGISTICS SECTOR BLUE BOOK A 2023 Fitch China Research Initiative PublicationPlatform-Model Operators ANE INC.ANE is a leading LTL company in China an
224、d ranked second in terms of freight volume according to TUC Consulting.ANE controls the critical sortation and line-haul transportation functions and outsources the pick-up and dispatch services to its partners.ANE focuses on the express-freight network segment of the LTL market,which offers more ti
225、mely and secure transportation for a wide range of products on a nationwide basis,compared with direct line and regional LTL operators.ANE had a market share of 17%in the express-freight network market in China based on freight volume in 2020,according to iResearch.ANE started its FTL business in Ma
226、y 2022,with its FTL freight volume still small at 336,000 tonnes in 2022 versus its LTL freight volume of more than 12 million tonnes.Of the revenue from ANEs freight business,transportation accounts for 57%,followed dispatch with 25%and value-added services with 18%.ANE provides value-added service
227、s to its partners and truck drivers,including operational and technology solutions to its partners(such as electronic waybills,insurance and management services)and truck insurance and financial services to its truck drivers.ANEs asset-light platform model supports its quick expansion in the fragmen
228、ted LTL market.BEST INC.BEST has focused on its freight business(mainly FTL and LTL road transportation)after the disposal of its express-delivery business to J&T Express Co.,Ltd.(J&T Express)in 2021 and the wind-down of its UCargo business line(a real-time bidding platform to source truckload capac
229、ity)in 2022.The freight business made up 63%of BESTs total revenue in 2022(48%in 2021)after the disposal.Alibaba is BESTs controlling shareholder with a 19.1%shareholding and 46.7%of voting rights.Similar to ANE,BEST has an asset-light platform model in which it outsources the pick-up and dispatch s
230、ervices to its partners.In addition,BEST also outsources certain parts of its line-haul transportation business and leases its sortation centres.BEST provides supply chain management services to its online/offline customers,including warehouse management,order fulfilment and transportation services.
231、Furthermore,BEST provides cross-border logistics services.Supply chain management and global business made up 24%and 12%of BESTs total revenue in 2022,respectively.The“Others”business segment mainly refers to its financing solutions to its shippers and truckers.MAJOR PUBLICLY LISTED ROAD LOGISTICS C
232、OMPANIESANE REVENUE BREAKDOWN58%18%24%Transportation57%Value-added services 18%Dispatch 25%Note:Inner circle-2021;outer circle-2022Source:Fitch Ratings,company reportsBEST REVENUE BREAKDOWN48%25%16%10%1%Freight63%Legacy Ucargo0%Supply chain management24%Global12%Others1%Note:Inner circle-2021;outer
233、circle-2022.BEST wound-down its Ucargo business unit in 2022.Source:Fitch Ratings,company reportsCHINA LOGISTICS SECTOR BLUE BOOK 39Direct-Model OperatorsS.F.HOLDING CO.,LTD.(SF)SF is an integrated logistics services provider and its business segments include express-delivery,freight,cold-chain and
234、pharmaceuticals,intra-city on-demand delivery,supply chain and international business segments.SFs business operation is more diversified than that of other road transportation logistics companies.SFs express-delivery and freight business have great synergies as its strong logistics infrastructure n
235、etwork built for its express-delivery business supports the quick expansion of its freight businesses.Meanwhile,its cold-chain and intra-city on-demand businesses meet evolving customer needs.Demand for cold-chain logistics for pharmaceuticals and perishable food grew rapidly during pandemic lockdow
236、ns and expansion of e-commerce in China.In addition,SFs intra-city on-demand services serve the growing omni-channel strategies of restaurants and merchants.SF provides diversified road transportation products.The freight business accounted for 11%of SFs total revenue in 2022(13%in 2021).SFs supply-
237、chain and international businesses expanded to 33%of total revenue in 2022,from 19%in 2021,after its acquisition of Kerry Logistics Network Limited(KLN),an integrated logistics provider specialising in international freight transport.SFS DIVERSE ROAD TRANSPORTATION LOGISTICS PRODUCTS Product TypeFre
238、ight WeightShipment DescriptionHeavy Parcels20-100kgLarge parcels to customers;transfers between warehouses for businessesStandard LTL100-500kgPallet-load and bulk shipmentsLarge Ticket LTL500-3,000kgMedium/large-sized businesses that move items from factory to warehouse,from warehouse to warehouse,
239、and from warehouse to storeHeavy Cargo Special ServicesMore than 3 tonnes(full truck-load)Large-volume plant shipments to warehouse,and from warehouse to warehouse Source:Fitch Ratings,company reportsJD LOGISTICS JDL was spun-off from JD.com and listed on Hong Kong Stock Exchange(2618.HK)in May 2021
240、.JD.com continues to control JDL after the IPO with a 64%stake.JDLs logistics service business benefits from its parents e-commerce platform and large warehouse capacity.JDL provides integrated logistics services for shippers on JD.com(including self-operated and Platform Open Plan(POP)shops,or thir
241、d-party shops).JDLs warehouses are largely owned by JD.com and JDL leases them.JDL has one of the largest warehouse networks in China and operated more than 1,500 warehouses at end-2022.Its warehouses are highly automated to improve efficiency.JDL discloses revenue by customer types,which is differe
242、nt from other road logistics companies.Integrated supply-chain customers accounted for 56%of total revenue in 2022.Revenue from other customers has grown rapidly via acquisitions,increasing to 44%of total revenue in 2022 from 16%in 2019.JDL acquired Kuayue Express and Deppon in 2020 and 2022,respect
243、ively,to expand its LTL business.JDL provides both express delivery and freight services,but it does not disclose the financial breakdown of the two segments.JDL focuses on integrated supply chain solutions(including warehousing services,labelling and packaging),and so does not provide the revenue o
244、r profitability of each segment.JDLs pricing is also on a holistic basis and customised to each customers A 2023 Fitch China Research Initiative PublicationSF REVENUE BREAKDOWN60%13%4%2%19%2%Express delivery49%Freight11%Cold chain and pharmaceuticals3%Inter-city on-demand delivery2%Supply chain and
245、international business 33%Other 2%Note:Inner circle-2021;outer circle-2022Source:Fitch Ratings,company reportsJDL REVENUE BREAKDOWN68%32%Integrated Supply Chain Customers56%Other Customers44%Note:Inner circle-2021;outer circle-2022.JDL consolidated Deppons revenue in the“other customers”segment from
246、 July 2022.Source:Fitch Ratings,company reportsDEPPON REVENUE BREAKDOWNExpress-delivery66%Freight31%Others3%Note:Inner circle-2021;outer circle-2022Source:Fitch Ratings,company reportsDEPPON LOGISTICS CO.,LTD.Deppon is a leading large-parcel delivery and express freight company in China.Its express
247、freight(above 60kg)and large-parcel delivery(3-60kg)business account for 97%of Deppons total revenue in 2021.On 26 July 2022,JDL completed the acquisition of 66.5%in Deppon,which became a consolidated subsidiary of JDL.Deppon remains listed on Shanghai Stock Exchange.Deppon operates under the direct
248、 model and controls the entire logistics value chain.The company owns and operates 132 sorting centres and operates 2,270 line-haul routes.It also owns 5,901 service stations and covers 94.0%of Chinas counties and townships.CHINA LOGISTICS SECTOR BLUE BOOK 41COMPARISON OF ROAD LOGISTICS COMPANIES IN
249、FRASTRUCTURE NETWORKS(AS OF 31 DEC 2022)Company NameSorting CentresSorting AreaLine-Haul NetworkWarehouse NetworkPartners and Agents(For Platform-Model Companies)Network CoverageANE136(self-operated)sorting centres2,080,000 sqm4,000 self-operated trucks;6,200 trailers;2,900 line-haul routesNo exposu
250、reOver 30,000 freight partners and agents96%of counties and townshipsBEST99 hubs and sorting centres(self-operated)n.a.2,044 line-haul routes 404 warehouses(area:2.8 million sqm,65 self-operated,339 by franchise partners)18,452 franchise partners98.3%of districts and counties Deppon132 sorting centr
251、es2,320,000 sqm2,270 line-haul routes;22,160 self-operated trucks 146 warehouses(area:970,300 sqm)Direct Model5,901 self-operated service stations;2,900 partner service stations;94.0%of counties and townships JDL400(self-operated)sorting centresn.a.40,000 self-operated line-haul trucks1,500(self-ope
252、rated);2,000(third-party operated);warehouse areas:30 million sqmDirect Modeln.a.SF379 express transit depots and 157 freight transit depots n.a.Over 120,000 domestic transport routes;95,000 dry and feeder trucks under management2,071 operational warehouses and 93 franchised warehousesDirect Modeln.
253、a.Source:Fitch Ratings,iRA 2023 Fitch China Research Initiative PublicationComparison with Express Delivery CompaniesExpress delivery companies mainly serve e-commerce merchants and focus on freight weighing less than 30kg.The express-delivery logistics network is highly standardised and efficient.F
254、or example,the companies sortation centres are largely automated.In addition,the high level of market consolidation gives market leaders stronger bargaining power with their customers and suppliers.Nevertheless,express-delivery companies average selling prices have come under pressure due to intense
255、 competition in the past decade.Fitch thinks pricing in the industry is approaching a floor as marginal cost savings from economies of scale are diminishing and the regulators have warned or fined those that disrupt market pricing.In contrast,LTL and FTL road logistics companies serve a more diverse
256、 customer base,including merchants,manufacturers and distributors.The goods transported include not only consumer products but also industrial products.LTL and FTL road logistics companies normally provide customised services due to their diverse customers.Their bargaining power with customers and s
257、uppliers is weaker than that of express delivery companies due to a fragmented industry structure.The sortation centres of LTL and FTL companies are labour intensive and use forklifts due to the heavy weight and customised services for a wide variety of products.As a result,LTL and FTL companies ten
258、d to have lower gross margins than express delivery companies.The lower margin can also be attributed to the lower value of some industrial products transported compared with e-commerce consumer products.Nevertheless,the standardisation of the logistics network for LTL and FTL companies has been enh
259、anced in recent years by technology upgrades.COMPARISON OF BUSINESS PROFILESCompany TypesDefinitionShippersMarket ConcentrationOperational DifferencesSorting EquipmentBargaining PowerExpress deliveryFreight weight below 30kgB2C,C2C,mainly e-commerce merchants.ConcentratedStandardised services.Time-s
260、ensitiveLargely automatedStrongLTLFreight weight between 30kg and 3 tonnesB2B,B2C merchants,manufacturers,and distributors.Highly fragmentedCustomised services and less time-sensitiveLabour intensive;use of forklifts.Relatively weakFTLFreight weight above 3 tonnes.B2B,mainly manufacturers,LTL shippe
261、rs and distributorsHighly fragmentedCustomised services and less time-sensitiveUse of forkliftsWeakB2C-business to consumer;C2C-consumer to consumer;B2B-business to business Source:Fitch Ratings,iResearchCHINA LOGISTICS SECTOR BLUE BOOK A 2023 Fitch China Research Initiative PublicationSCALE EXPANSI
262、ON LEADS TO HIGH FUNDING NEEDS Our financial profile analysis below focuses on road logistics companies,which are mostly privately owned,due to their higher business concentration in the logistics sector,rather than state-owned logistics companies,which have more diversified operations that may invo
263、lve non-logistics businesses.SF and JDL do not publish financials for their road freight business segments,therefore we use their reported consolidated financials for comparison with other road logistics companies.However,the two companies finances may not be directly comparable with those of pure r
264、oad freight companies,particularly in terms of profitability and investment cycle.SFs road freight business,in particular,is only a small portion of its overall business(11%of 2021 revenue),although it is growing rapidly.Companies in road logistics(excluding express delivery)have been pursuing scale
265、 and market share in a fragmented market,resulting in negative free cash flow and high external funding needs for most during 2020-2021.Leading companies will benefit from strong revenue growth,economies of scale and stronger bargaining power with customers and suppliers through organic expansion an
266、d M&A.Nevertheless,these leading companies face the possibility of diminishing cost savings from scale as they grow bigger.Frequent M&As and Asset Disposals M&A is a fast and cost-efficient way for leading companies to expand.JDL added to its network by acquiring a controlling stake in Deppon in 202
267、2 and Kuayue Express in August 2020.Similarly,SF acquired Guangdong Xinbang Logistics Co.,Ltd in 2018 to serve price-sensitive e-commerce customers,while its original LTL subsidiary SF Freight focuses on high-end customers in the manufacturing and commercial distribution sectors.In September 2021,SF
268、 acquired 51.5%of KLN to increase its geographical diversification.Meanwhile some road logistics companies have disposed of underperforming businesses to free up resources and capital for the core business.BEST,for example,sold its express delivery business to J&T Express Co.,Ltd.for CNY6.8 billion
269、and the assets of its B2C truck leasing business to Sinolink Yongfu Asset Management for CNY517 million in 2021,following the disposal of D and Wowo convenience stores in 2020 to focus on the core road transportation business.ANE also disposed of its unprofitable express-delivery business in 2019,wh
270、ich supported its return to profitability in 2019-2020.KEY M&A ACTIVITIES BY ROAD TRANSPORTATION LOGISTICS COMPANIES AcquirerDate of AnnouncementTargetDescriptionTransaction Value(CNYm)JDLAug-20Kuayue ExpressIn August 2020,JDL announced the acquisition of a controlling 55.10%stake in express-freight
271、 company Kuayue Express.3,000Mar-22Deppon Logistics Co.,Ltd.Deppon is listed on the Shanghai Stock Exchange.On 13 March 2022,JDL announced the plan to acquire 66.50%of Deppon.The acquisition was completed on 26 July 2022 and Deppon will be consolidated in JDL.8,976SFMar-18Guangdong Xinbang Logistics
272、 Co.,Ltd.SF acquired 58.72%of Guangdong Xinbang Logistics in March 2018 and established a new express-freight business brand,SX Freight.239Sep-21KLN SF acquired 51.5%of KLN in September 2021.KLN is an integrated logistics provider that specializes in international freight transport.14,551J&T Express
273、Oct-21Express delivery business of BESTBEST announced in October 2021 that it planned to sell its express delivery business in China to J&T Express.6,800ANEJul-21Zhongka Logistics Industrial Park Investment Co.,Ltd ANE acquired 90%of Zhongka in July 2021.Zhongka mainly provides services for logistic
274、s industrial parks and the acquisition is aimed at improving the efficiency of ANEs truck fleet management and after-market services.65.7Source:Fitch Ratings,company reportsCHINA LOGISTICS SECTOR BLUE BOOK 45REVENUE GROWTH TREND SELECTED ROAD LOGISTICS COMPANIES-40-2002040602002020212022(
275、Yoy,%)ANEBESTDepponJDLSFNote:ANE was listed on Hong Kong Stock Exchange in 2021 and its financials are available from 2018.JDL was listed on Hong Kong Stock Exchange in 2021 and its financials are available from 2018.BEST disposed its express-delivery business in 2021 and its comparable financials a
276、re available from 2019.Source:Fitch Ratings,company reportsROAD TRANSPORTATION VOLUMESELECTED ROAD LOGISTICS COMPANIES0246810121416ANEBEST FreightDepponSF ExpressYMDDZTO FreightJD Freight(in million t)200202021Note:SF Express includes SF Freight and SX Freight.TUC Consulting publishes fre
277、ight volumes for only the top 10 companies each year;missing bars indicate the company was not among the top 10 that year.Source:Fitch Ratings,TUC ConsultingANE,SF and JDL enjoyed strong revenue growth during 2020-2021,driven by M&As and organic network expansion and despite some setbacks under pand
278、emic-related mobility restrictions.The revenue of JDL and SF rose by 42.7%and 34.5%,respectively,in 2021,while ANE reported revenue growth of 36.2%,though ANEs revenue in 2021 reflected a change in revenue recognition for dispatch services(from net basis to gross basis).In contrast,BESTs 2021 revenu
279、e growth was 8.5%,the lowest among peers,mainly due to the disposal of its express delivery business during the year,while the pandemic also had some A 2023 Fitch China Research Initiative Publication2022 Pandemic-Induced Lockdowns Hampered Revenue Growth City-wide lockdowns to contain the spread of
280、 Covid-19 hampered road logistics companies revenue growth in 2022.Companies reported slower revenue growth or revenue declines in this period.ANEs revenue fell by 3.2%in 2022,while BESTs total revenue plunged by 32.2%due to the lockdowns as well as winding-down of its UCargo business line.Deppons t
281、otal revenue growth slowed to 0.1%in 2022 from 14.0%in 2021.Nevertheless,JDL managed to maintain healthy growth during the difficult period as it was among the few logistics companies allowed to operate during lockdowns.JDLs revenue rose by 31.2%in 2022 partly due to the consolidation of Deppon sinc
282、e July 2022.Its revenue grew by 17.5%if excluding Deppons revenue,underpinned by its strong customer acquisition,which was partly offset by lower average revenue per customer(ARPC)during the pandemic.SFs revenue grew by 29.1%in 2022 largely due to the acquisition of KLN(consolidated as part of the s
283、upply chain and international business segment since 4Q21).Revenue from SFs freight business increased by 2.3%in 2022,affected by the dampened freight volume from slower economic activity and rising fuel prices.ROAD TRANSPORTATION VOLUME GROWTH SELECTED ROAD LOGISTICS COMPANIES-200204060802018201920
284、202021(%)ANEBest FreightDepponSF ExpressYMDDZTO FreightNote:SF Express includes SF Freight and SX FreightSource:Fitch Ratings,TUC ConsultingCHINA LOGISTICS SECTOR BLUE BOOK 47High Pressure on Margins HIGH TRANSPORTATION AND LABOUR COSTSRoad logistics companies margins are under pressure due to risin
285、g transportation and labour costs,and the need to invest to improve geographical coverage.Transportation and labour costs are the two largest cost components for road logistics companies.Transportation costs include toll fees,fuel costs and driver compensation.For example,line-haul transportation co
286、st makes up almost half of ANEs total cost structure.The labour costs of operators under the direct model form a larger share of revenue than those of platform-model operators.For example,Deppons labour cost to revenue ratio was 44.7%in 2021 versus 19.7%for ANE and 13.7%for BEST.Companies have tried
287、 to reduce transportation costs by streamlining their transportation networks and improving truck loading rates.For example,ANE reduced its transit ratio,which measures the number of transits during the transportation process,and increased loading rates by investing in high-capacity trucks.ANEs aver
288、age transit ratio improved to 1.38 in 2020 from 1.52 in 2018 as a result of enhanced connectivity,according to TUC Consulting.The companys unit line-haul transportation cost improved to CNY316/tonne in 2021 from CNY387/tonne in 2018.JDLs gross margin narrowed to 5.5%in 2021 from 8.6%in 2020 and net
289、loss widened to CNY15.8 trillion from CNY4.1 trillion in 2020,due to reduced pandemic-related subsidies for toll charges,rising costs on network expansion and higher labour costs.The network expansion meant that the company had to spend more to add workers,warehouse area and vehicles,but Fitch expec
290、ts the wider network to improve economies of scale and JDLs bargaining power in the long term.JDLs gross margin improved to 7.4%in 2022 from 5.5%in 2021 due to cost control measures,customer portfolio restructuring,efficiency gains through economies of scale,and positive effect from the consolidatio
291、n of Deppon,which were partly offset by costs incurred during a resurgence of Covid-19 cases.Similarly,SFs gross margin also improved slightly to 12.5%in 2022 from 12.4%in 2021,through cost optimisation and greater economies of scale at its non-express delivery businesses,which offset the impact of
292、the pandemic and the consolidation of KLN,which had a lower gross margin.SFs margin had narrowed in 2021 from 16.3%in 2020.In contrast,ANEs gross margin deteriorated to 7.8%in 2022 from 11.1%in 2021,due to decreased unit revenue and increased unit cost following a fall in freight volume.ANEs gross m
293、argin reduced to 11.1%in 2021 from 14.8%in 2020.DIMINISHING COST SAVINGS FROM LARGER SCALE Road logistics companies reap fewer benefits from economies of scale than express delivery companies,because road logistics services tend to be customised rather than standardised.As a result,leading road logi
294、stics companies marginal cost savings from economies of scale diminish after reaching a certain scale.Nevertheless,road logistics companies can maintain profitability while expanding the business in different ways.Some can save cost as they expand through the asset-light platform model.For example,A
295、NE uses the asset-light platform model to control its average cost per tonne by outsourcing the pick-up and dispatch services to partners.On the other hand,companies using the direct model can maintain profitability by achieving higher unit price through A 2023 Fitch China Research Initiative Public
296、ationGROSS PROFIT MARGINSSELECTED ROAD LOGISTICS COMPANIES-15-10-50510152025ANEBESTDepponJDLSF(%)2002020212022Note:Deppon was consolidated by JDL since July 2022.Source:Fitch Ratings,company reportsEBITDA MARGINSSELECTED ROAD LOGISTICS COMPANIES-20-15-10-505101520ANEBESTDepponJDLSF(%)2017
297、200212022Note:Deppon was consolidated by JDL since July 2022.Source:Fitch Ratings,company reportsANES UNIT COSTS 0300400500Unit line-haul transportation costUnit sorting center costUnit cost of value-added servicesUnit dispatch cost(CNY/tonne)200212022Note:ANE ch
298、anged revenue recognition measure for dispatch revenue from net to gross basis since July 2020Source:Fitch Ratings,company reportsCHINA LOGISTICS SECTOR BLUE BOOK 49ANES UNIT COST STRUCTURE IN 2022(CNY/TONNE)Unit line-haul transportation cost46%Unit sorting centre cost 26%Unit cost of value-added se
299、rvices 4%Unit dispatch cost 24%Source:Fitch Ratings,company reportsR&D EXPENSES/TOTAL REVENUESELECTED ROAD LOGISTICS COMPANIES-2.0-1.00.01.02.03.04.05.02002020212022(%)ANEBESTDepponJDLSFSource:Fitch Ratings,company reportsNET PROFIT MARGINSSELECTED ROAD LOGISTICS COMPANIES-50-40-30-20-100
300、10ANEBESTDepponJDLSF(%)2002020212022Source:Fitch Ratings,company A 2023 Fitch China Research Initiative Publicationproduct differentiation and quality service.For example,SF managed to achieve higher price premium through providing comprehensive logistics services to offset rising costs.I
301、n addition,road logistics companies can invest in technology to improve operational efficiency and profitability.For example,JDL has equipped its warehouses and sortation centres with RFID automation systems,used big data analysis and implemented IoT technologies in its transportation and dispatchin
302、g operations.JDLs R&D expenses stayed above 2%of total revenue from 2018 to 2022,leading peers.As of 31 December 2022,JDLs granted patents and software permits reached 3,500,including 2,000 automation and unmanned technology related patents.CASE STUDY:VALUE-ADDED SERVICES BOOST PLATFORM-MODEL COMPAN
303、IES MARGINSRoad logistics companies under the platform model focus on the mid-to low-end market and face intense price competition.They have to maintain a low unit price to attract shippers and partners,which results in weak margins for their freight transportation business.Therefore,platform-model
304、companies use their technological capabilities and established logistics eco-system to provide supply chain management and other value-added services to improve their margins.For example,ANEs value-added services provide financial and software services for trucks and truck drivers.BEST provides supp
305、ly chain services,including warehouse and inventory planning,fulfilment and transportation solutions and a Software as a Service(SaaS)platform for its online and offline customers.BEST is looking to expand the services to more high-quality customers and high-margin industries(i.e.pharmaceuticals and
306、 auto parts).ANEs value-added services generated strong gross profit in 2022,which partly offset the net loss from the transportation segment due to low unit price(including line-haul and sortation centre costs).Similarly,BESTs supply chain management services also helped to cushion its profitabilit
307、y amid a challenging operating environment for its freight business in 2022.ANES UNIT GROSS PROFIT IN 2022 ServiceUnit Cost(CNY/tonne)Unit Price(CNY/tonne)Unit Gross Profit(CNY/tonne)Dispatch16518318Transportation498432-66Value-added services28134106Source:Fitch Ratings,company reportsCHINA LOGISTIC
308、S SECTOR BLUE BOOK 51Substantial Investments,Improving FCF Road transportation is an asset-heavy and capital-intensive sector,requiring high investments in logistics infrastructure,technology upgrade and overseas expansion.As a result,most of the listed road logistics companies free cash flows are v
309、olatile and were negative in 2020-2021 amid the pandemic and intense competition.JDL bucks the trend with positive FCF since 2019,robust operating cash flow generation and lower capex intensity.Nevertheless,leading companies FCF margins(FCF/revenue)turned positive in 2022,as they retained some contr
310、ol in annual capex-to-revenue ratios and focused on efficiency improvement and cost management.We expect the capital intensity ratio of SF to be at around 6%in 2022-2024,versus 8%-9%in 2020-2021.ANEs and Deppons capex intensity ratios were among the highest in 2021 at 14.7%and 10.3%,respectively,and
311、 have been rising due to aggressive market share gains.ANEs capital intensity ratio rose by 10.6pp and Deppons increased by 6.6pp from 2018 to 2021.Nevertheless,both companies capital intensity ratios improved to mid-single digits in 2022 as they focused on cost management and delayed investments fo
312、r expansion to offset the effects from strict pandemic control measures and slower economic growth.Investment in owned truck fleets and sorting centres instead of leasing them helps logistics companies to improve their service quality and customer satisfaction.ANE invested CNY1.1 billion(80%of its f
313、ull-year capex)in its fleet in 2021 and operated 4,000 high-capacity line-haul trucks at end-2021,up from 1,500 a year earlier.ANE purchased 1,600 trailers in 2022 to increase its BESTS GROSS MARGIN BY SEGMENTS2021-2022-20.0-15.0-10.0-5.00.05.010.0FreightSupply Chain ManagementGlobal(%)20212022Note:
314、Excluded Others business segment(1.5%of total revenue)Source:Fitch Ratings,company reportsANES GROSS MARGIN BY SEGMENTS2021-2022-20.00.020.040.060.080.0100.0TransportationDispatchValue-added services(%)20212022Source:Fitch Ratings,company A 2023 Fitch China Research Initiative PublicationFCF MARGINS
315、SELECTED ROAD LOGISTICS COMPANIES-30-20-1001020ANEBESTDepponJDLSF(%)2002020212022Note:FCF margin is defined as FCF/total revenue.BESTs deeply negative FCF margin in 2021 was due to large cash outflow from its discontinued business.Source:Fitch Ratings,company reportsCAPEX INTENSITYSELECTE
316、D ROAD LOGISTICS COMPANIES0246810121416ANEBESTDepponJDLSF(%)2002020212022Note:Capex intensity is defined as capex/total revenue.Source:Fitch Ratings,company reportstransportation capacity and used them as temporary storage when sortation centres faced parcel backlogs due to pandemic lockd
317、owns.Technological upgrades,including automation and digitalisation,also require substantial capex.ANE developed its Compass System to monitor and manage the operation of its logistics network ecosystem,which helps its decision-making process and provides comprehensive operational data coverage from
318、 different management systems.Similarly,Deppon upgraded and expanded its sorting centres and truck fleet.In 2021,Deppons sorting capacity at transit stations increased by 22.5%through automation and its operated truck fleet increased by 52.7%yoy to 20,602.Deppon reduced its investments in 2022 but i
319、ts sorting capacity continued to expand by 4.1%and its operated truck fleet increased by 7.6%to 22,160 vehicles.Expansion to overseas markets helps logistics companies to widen their customer base and achieve higher revenue growth.JDL owns close to 90 overseas warehouses with total area of more than
320、 900,000 sqm as of 31 December 2022.JDL built and operated overseas warehouses in several countries including UK,US,Australia and the Netherlands since 2020 and operated line-haul routes in markets,including US,Canada,UK and major countries in Europe and south-east Asia.BEST has expanded rapidly in
321、south-east Asia,where it operates 31 distribution centres and over 1,380 sites.Its cross-border and local business in south-east Asia grew by 104.4%yoy in 2021 in terms of freight volume,before falling by 19.1%in 2022.CHINA LOGISTICS SECTOR BLUE BOOK 53EQUITY CAPITAL RAISED BY ROAD LOGISTICS COMPANI
322、ES Company DateExchange/CodeCompany TypeTransaction DescriptionAmount RaisedSF24 Feb 2017(IPO date)Shenzhen Stock Exchange/2352Integrated Logistics CompanyThe proceeds from the backdoor listing were mainly used for air cargo,cold-chain,logistics information system and sortation centre construction.C
323、NY8 billion04-Aug-20SF converted its convertible bonds listed on Shenzhen Stock Exchange.CNY5.8 billion19-Nov-21The proceeds from the private placement will be used to construct the Hubei Ezhou cargo airport,transportation capacity automation and upgrade,air cargo material purchase,and implementatio
324、n of a smart supply chain system.CNY20 billionSF REIT17 May 2021(IPO date)Hong Kong Stock Exchange/2191 Integrated Logistics CompanySF set up a real estate investment trust(SF REIT).After the listing,SF indirectly holds 35%of SF REIT.SF transferred three property assets with total investment income
325、of HKD1,083 billion to SF REIT.HKD2.6 billion(CNY2.2 billion equivalent)Hangzhou SF Intra-city Industrial Co.,Ltd.(SF Intra-city)14 December 2021(IPO date)Hong Kong Stock Exchange/9699 Integrated Logistics CompanySF spun off SF Intra-city and listed it on the Hong Kong Stock Exchange.SF Intra-city p
326、rovides intra-city on-demand delivery business.SF Intra-city continues to be controlled by SF.HKD2.0 billion(CNY1.6 billion equivalent)BEST20 Sep 2017(IPO date)New York Stock Exchange/BESTRoad Logistics CompanyThe company planned to use the proceeds for technology investment;expansion of its logisti
327、cs and supply chain networks;and other general corporate purposes.USD450 millionDeppon16 Jan 2018(IPO date)Shanghai Stock Exchange/603056Road Logistics CompanyThe use of proceeds includes building service stations;purchasing vehicles;and constructing an integrated information system.CNY484 million25
328、-Mar-21The amount raised via a private placement was for sorting centres smart system upgrade and building an IT information system.CNY614 millionJDL28 May 2021(IPO date)Hong Kong Stock Exchange/2618Integrated Logistics Company The companys controlling shareholder remained as JD.com,Inc after the IP
329、O.The use of proceeds included logistics network expansion and upgrade;supply chain and logistics services development and other general corporate purposes.HKD24.1 billion(CNY22.9 billion equivalent)Full Truck Alliance(FTA)22 June 2021(IPO date)New York Stock Exchange/YMMDigital Freight PlatformThe
330、proceeds were to be used for investment in infrastructure and technology innovation;and service offering expansion.USD1.6billion(CNY10.3 billion equivalent)ANE11 November 2021(IPO date)Hong Kong Stock Exchange/9956Road Logistics Company The proceeds were to be used for acquiring sortation centres;in
331、vesting in the line-haul transportation fleet;and technology innovation.HKD1.1 billion(CNY0.9 billion equivalent)Source:Fitch Ratings,company A 2023 Fitch China Research Initiative PublicationFunding Sources of Road Logistics CompaniesEQUITY MARKET AS KEY FUNDING SOURCEChinese road logistics compani
332、es are growing rapidly and rely on equity markets for funding.We estimate that companies planned to use 38%of the sectors IPO and private placement proceeds in 2021 for technological upgrades and automation in transportation lines and sortation centres;37%for network expansion(including overseas exp
333、ansion),and the rest for acquiring new vehicles,customer acquisition and other general corporate purposes.BOND MARKET AS SECONDARY FUNDING SOURCEBond markets are a supplemental funding source for publicly listed road logistics companies.SF is the most active in the onshore bond market,with issuance of CNY4 billion in 1H22 and CNY5.48 billion in 2021.SF also has strong access to the offshore bond m