DB Schenker in China is modifying to fit the “new normal”. According to CEO North/Central China Thomas Lindy Sørensen, China is experiencing negative growth in traditional industries (e.g. coal and steel) “whereas industries that are more consumer-based, like the automotive industries or the luxury goods industries are really growing”. How can DB Schenker, a logistics service provider, adapt to this change? Supply Chain Digital talks to Sørensen to find out.
Sørensen knows the Chinese business landscape well. “I joined Danish shipping company Maersk Line 25 years ago and worked in various finance functions for a few years. Then, I was expatriated overseas to China. I worked in Beijing and Shenzhen back in the mid-90s. I worked for Maersk Line until 2013, then I joined the DB Schenker organisation in Korea in 2013. About a year and a half later, I joined here in China as the CEO of DB Schenker North/Central region.”
Operating in China
Sørensen finds the pace of business development much faster in China than in Europe. He explains how DB Schenker operates in this ever-changing climate. “The organisation is split in two, I run the centre in North China and my counterpart runs South China. For North and Central China, we have 40 offices and for South China another 20”, he comments.
Sorensen’s remit covers Shanghai, plus west, north east and east China. In terms of services, DB Schenker in China conducts air freight, ocean freight, contract logistics, warehousing and land transportation.
“Land transportation covers domestic distribution, rail transport to Europe, domestic rail and domestic trucking down to Vietnam, Laos, Thailand, Malaysia and Singapore”, he adds.
DB Schenker’s operations in China also owes to many partnerships. The company has many strategic partners, including GLP, Goodman, Ningbo Port Southheat Logistics Group, Shanghai E&T Intl-Trans Co and AirBridge Cargo.
Investing in e-commerce
To keep up with the departure from traditional business, DB Schenker focuses on e-commerce. “We see this as a growing way of doing business”, Sorenson says. He explains that with traditional business, goods are imported into China, they are stored in a warehouse, then transported to a distributor or a store. The consumer then buys the product from the store. DB Schenker is involved in importing, warehousing and distributing to the stores.
The new e-commerce model differs. “It doesn’t go through the stores. Sometimes, the goods come straight from overseas, in which case we are not involved, but in many cases the goods are distributed within warehouses in China”, Sørensen explains.
“If you are a fast fashion retailer and you sell goods online, the consumer will go online on Tmall or the company’s own website and then buy something. The order triggers a message to our system in the warehouse. We will pick the items, package them and prepare them for delivery. When there are special online sales events in China it can happen that we need to handle more than 500,000 orders in 24 hours!”, he says
What about express delivery? “We don’t do the physical delivery to the end consumer, we outsource this to domestic express companies. But we do the warehousing part”, Sørensen clarifies.
Sørensen moves on to demonstrate the advantages of e-commerce. According to Sørensen, it is mainly the Eastern part that is developed in terms of retail set up (besides certain tier 2 and tier 3 cities in the West). DB Schenker’s involvement in e-commerce allows everyone with a working internet connection to order practically anything. “Essentially it gives the seller access to the full market of China, i.e. access to a greater market without the investment in physical stores”.
Additionally, e-commerce allows consumers outside of big cities to access a wide range of goods.
Involvement in the growing e-commerce industry requires a team of well-trained employees. DB Schenker has set up a Logistics Academy to ensure this. The academy uses both third party and internal expertise and is offered at various locations in China. Modules include logistics concept, continuous quality improvement, logistics controlling, project management and conflict resolution. The company aims to develop employees over the long term. DB Schenker also aims to keep them, which according to Sørensen, can be a challenge.
“In China there is generally a relatively high staff turnover. It is quite a hot labour market so there is a relatively high turnover”, he says.
However, DB Schenker gives its employees a reason to stay. “A lot of our people, especially our young people have a great chance to advance their careers relatively quickly”, Sørensen comments. Furthermore, DB Schenker gives staff members the opportunity to take on big roles at a young age.
“If we are looking at domestic distribution, we are way ahead”, Sørensen replies when asked about competition. “We have developed a number of what we call ‘e-solutions’ - ways by which we can interact with all of our customers and create visibility so a customer knows when the truck will show up at their door. They know in real time when the goods are coming.”
DB Schenker covers about 400 cities across China. Sørensen tells us that among their international competitors, they are the biggest domestic network in China today.
Caring for customers
Within this network, Sørensen identifies individual customers: “We do business with an American fast fashion retailer here in China. Every year there is a big sale on 11th November called Singles Day. It is a big e-commerce sales day. All the different websites (Tmall, Alibaba etc.), they have big sales. The revenue of that day now exceeds the revenue of black Friday in the US. What we do for this specific American fast fashion retailer, we assist them with a fulfilment for their customer”.
Sørenson tells us about how last year, the American customer got more than 500,000 orders of 1.5 million items in 24 hours. DB Schenker has to despatch orders within a very short period of time. To manage this amount of orders, the company hires a thousand extra people.
“This is quite exciting and it shows the scale that you now have in China. Our customer this year expects to double that number, so the expectation this year is that we will get three million pieces, or roughly one million orders.”
When the customer makes an order, it goes into DB Schenker’s warehousing system. The warehousing system interacts with the company’s transport management system. After the order is despatched, the customers can then track their order.
“Ultimately, the customer we have to serve is our customer’s customer”, Sørenson concludes. “Our direct customer sells its products to someone and they are the ones who won’t be happy if the goods don’t arrive on time”.
DB Schenker is working hard to adapt to China’s “new normal” – its focus on e-commerce and sustainable recruitment is testament to the company’s efforts.
As Sørensen aptly summarises: “It is about adapting to the winning industries. We make sure we understand where the future growth is going to come from so that we can not only meet the growth of the market but also exceed the growth of the market”.