YRC Logistics Extends its Asian Supply Chain Network

Shanghai and Suzhou, China

October 2008

By

Evan Armstrong

Key Personnel:

Sean Burke, Vice President of Business and Services Development, YRC Logistics Asia

Michael Kleimeyer, Assistant General Manager, YRC Logistics/Shanghai Jiayu Logistics

Nancy Qian, Vice President, YRC Logistics/JHJ International Transportation Co.

Johnny Lau, Director of Key Accounts, YRC Logistics Asia

Lucy Liu, Senior Marketing Manager, YRC Logistics Asia

Tony Xu, Vice General Manager-Eastern China Company, YRC Logistics/JHJ International Transportation Co.

YRC Logistics is a rapidly growing third-party logistics provider. In 2007, it reached gross revenues of $998 million and net revenues of $623 million and had a global staff of over 4,100 employees. Key customers include: Clorox, Home Depot, Microsoft, Otis Elevator, Procter & Gamble, Timken, and Wal-Mart.

One of its major growth strategies has been to expand internationally into Asia. In 2005, YRC Logistics formed a (50%/50% ownership) joint venture with JHJ International Transportation Co., Ltd., a major China based international freight forwarder, and has since acquired Shanghai based less than truckload (LTL) transportation provider Shanghai Jiayu Logistics Co. Ltd. In a recent visit to Shanghai China, we had the opportunity to review YRC Logistics' expanding Chinese operations.

YRC Logistics China Operations Overview

YRC Logistics/JHJ International Transportation (YRCL) is headquartered in Shanghai, China and has 68 locations in 30 cities. With annual gross revenues of approximately $440 million and a staff of over 1,400 employees, its key third-party logistics (3PL) services include international air and ocean freight forwarding, customs brokerage, and domestic warehousing and transportation management. YRCL is a Class-A forwarder and ISO 9000 certified. Its service portfolio is detailed in the figure below.

Figure 1 - YRCL China 3PL Service Offering

YRCL's forwarding operations are managing over 200,000 ocean TEUs (20' containers) and over 60,000 airfreight tonnes per year. It has received a TAPA (Technology Assets Protection Association) "A" classification for security practices and holds all of the other requisite licenses as a NVOCC (non vessel operating common carrier) and freight forwarder. International freight forwarding services from China include: airfreight, ocean LCL (less than container load) and FCL (full container load) transportation, shipment consolidation and deconsolidation, multimodal air/ocean freight options, charter services, project logistics, live animal transportation, customs brokerage, and value-added services. YRCL's trade lanes cover Europe, the Americas, Asia, Africa, and Australia and it provides regular ocean consolidation services for export shipments to Europe and North America.

YRCL has a network of 58 facilities totaling approximately 170,000 square meters of bonded and non-bonded warehouse space in China. Of that, approximately 38,000 square meters of warehousing space is located at the main Chinese ocean ports. It also manages five bonded and two non-bonded warehouses at Shanghai's Pudong International Airport totaling 17,000 square meters. The warehousing network is detailed in the figure below.

Figure 2 - YRCL China Bonded and Non-Bonded Warehousing Footprint

Suzhou, China Customs Bonded Logistics Center and the "U-Turn" Strategy

YRCL runs multiple warehousing operations in the customs bonded logistics center located in the China-Singapore Suzhou Industrial Park (SIP) located approximately 50 kilometers from Shanghai.

The SIP logistics center is an integrated free trade zone (FTZ) with an onsite Chinese customs operation. Once product clears Chinese customs and is transported into the SIP, it has been legally exported out of China. This provides customers of YRCL and other companies with warehouses within the SIP to take advantage of "U-Turn" export/import logistics strategies.

Import value-added taxes (VAT) and duties do not have to be paid on raw materials imported into China for manufacturing as long as customs-supervised finished goods are in-turn exported from China. As a result, many of the products produced in China are exported to other countries and are then imported back into China for domestic consumption. This is very inefficient and increases order-to-delivery cycle times and total landed costs to domestic Chinese companies and consumers. The U-Turn strategy using the SIP, allows customs-supervised products to be exported out of China and imported back in for cost-effective distribution to domestic Chinese customers without having to inefficiently extend supply chains to other countries.

Vehicle Entrance to SIP Bonded Logistics Park

SIP - Onsite China Customs Operations

YRCL General Cargo Warehouse

820 SQM Public DG Warehouse

1,897 SQM DG Warehouse

Suzhou, China Bonded Warehouse Operations Review

YRCL has three warehouses within the SIP. The first one we toured was a modern 3,000 square meter non-bonded general cargo warehouse. As part of the operation, YRCL is running an inbound vendor managed inventory (VMI) operation for Rubbermaid. RedPrairie's warehouse management system (WMS) is integrated with RF (radio frequency) scanners and is being used for inventory management and warehouse operations. The WMS also interfaces with Chinese customs for import/export visibility and customs clearance.

The next warehouse we visited was a small bonded 820 square meter public dangerous goods (DG) warehouse. It is used to store gas airfreight and has two main shipping and receiving doors and video camera monitoring.

Next door is another bonded DG warehouse with 1,897 square meters of storage space. It has seven doors/bays and two separate storage compartments. One is approximately 100 square meters for cold storage at 5 degrees Celsius and the other compartment is 227 square meters and is for temperature controlled liquid storage at 25 degrees Celsius.

Both of the DG warehouses are managed by staff located in a separate building which controls sprinklers and other containment and monitoring equipment.

In November 2008, a new 5,000 square meter temperature controlled warehouse will be operational bringing the total FTZ square meter storage to 10,717 square meters.

To support its 3PL operations, YRCL has invested approximately $10 million in information technology in China. The warehouse management and air and ocean freight forwarding systems are interfaced and online visibility to inventory and shipments is made available through YRCL's "PowerView" web application. Purchase order management functionality is also very good and the system has multiple standard reports and ad hoc reporting capabilities.

Operations Review Summary

Through its joint venture with JHJ and subsequent acquisitions, YRC Logistics has taken a significant step in becoming a major 3PL in the overall Asian and Chinese markets. The China enterprise is one of the largest players in contract logistics on the mainland. By leveraging local expertise and relationships developed by JHJ and YRC Logistics through its multinational customers, YRCL has a significant customer base. Through its new information systems, engineering, and contract logistics skill set, YRC Logistics has gained a solid footing for future growth in China.

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