Lack of emergency response mechanism exposes Shanghai’s supply chains
In an Interview with Third Bridge Forum, the specialist said Shanghai’s food supply system was previously “dominated” by the local municipal government. However, over time, the government’s role has diminished and been replaced by private businesses. This “fragmented” system was difficult to bring together under a central supply system when the lockdown hit, according to the specialist.
We were told the lack of a smooth supply chain system was the “essential reason” for some criticism of Shanghai’s intra-city distribution system. These “deficiencies” saw prices “surge” for staple food commodities such as meat, rice, vegetables and noodles, rising by 5-10 times in price, the specialist added.
China’s largest logistic platforms JD Logistic, Alibaba and Meituan have all been affected by the lockdown, according to the specialist. However, JD has been better insulated from the disruption because it relies on its own delivery systems. By contrast, Alibaba adopts third-party logistics systems, while Meituan depends on restaurants which have been suspended during the lockdown. As a result, both have been affected more, we were told.
The specialist discussed the effect of the lockdown on JD Logistic’s cold chain warehousing business – which they said has performance issues. They also told us its fresh food cold chain business has been experiencing low transaction volumes, with orders from Shanghai’s Qingpu district at 20,000-30,000 per day.
JD’s B2C fresh food warehousing system also continues to incur “huge losses”, although we were told they are difficult to calculate because of subsidies the company receives from its own online shopping mall. Of the less-than-truckload (LTL) logistics market, the specialist said players are “blindly optimistic” about its value. The specialist explained that China’s fresh food market is “regional” because fresh food or frozen food processing companies can only serve consumers within a 300-500km radius – inhibiting its ability to make longer journeys.
Fresh food is also transported along “east to west and from south to north” routes and requires round-trip freight volumes to be “balanced”. If consumption volumes decrease progressively, the specialist said this can make marginal costs difficult to control and impact vehicle efficiency.
Despite this, the specialist believes there are opportunities in China’s cold chain LTL logistics market. They said China invests “hundreds of billions of RMB” in agricultural infrastructure annually, and that the number of listed agricultural companies are increasing. Such is the national investment in this area, the specialist expects the market to peak in the next few years.
To solve Shanghai’s logistics challenges, the specialist suggested the municipal government should “strengthen” the digital construction of its urban supply chain system. Once completed, they said the local government could fund agricultural wholesale markets and other entities in Shanghai, as well as strengthen wholesale markets supplied by SOEs. These measures, they concluded, could ensure “normal operations” for future natural disasters or pandemics.
To access all the human insights in Third Bridge Forum’s Shanghai’s logistics & warehousing status quo & models amid the 2022 pandemic outbreak Interview, click here to view the full transcript.
The information used in compiling this document has been obtained by Third Bridge from experts participating in Forum Interviews. Third Bridge does not warrant the accuracy of the information and has not independently verified it. It should not be regarded as a trade recommendation or form the basis of any investment decision.
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