The road ahead

With more than 12 years of experience in third-party logistics (3PL) in China, Richard Ang established his own logistics firm, ARJ Commercial Leasing, in March. Originally from Singapore, Ang has experience with China’s road, rail, inland air and sea distribution, and also worked as a marketing head for a global 3PL company. Ang’s new company specializes in commercial vehicle leasing services, allowing companies full control of their own truck fleet. He spoke with China Economic Review about the future of road transport in China, and the need to find logistics solutions that help cut costs without taking shortcuts.
 
Q: What inspired you to start ARJ?
 
A: The main idea behind ARJ’s commercial vehicle leasing business is that there is a more efficient way to distribute goods than having a high percentage of empty trucks on China’s roads, which also leads to drivers overloading their trucks. I’ve been working for global 3PLs in China over the last 12 years, and I thought the time was ripe for me to leverage my experience and start my own business. Coming out on my own, instead of working for a big company, gives me more flexibility to provide customers with innovative logistics solutions.
 
Q: How do your commercial vehicle leasing services help reduce distribution costs?
 
A: When 3PLs bid for road transportation projects in China, they’re usually bound by rules where the bid is organized either by regions or routes in which they can offer the most competitive rates. But this isn’t always ideal for customers, as a number of different 3PLs’ trucking sub-contractors may provide services for these volumes. ARJ tries to minimize downtime by working with manufacturers on both routes and volume analysis. Our truck service solutions are also more reliable, as all of our drivers go through compulsory training on safety and truck maintenance. They are assured of stable income and therefore do not have to overload trucks or drive at dangerously high speeds to make up for idle capacity.
 
Q: What are the other major challenges in China’s road transportation?
 
A: First, overloaded trucks are a common sight in China, meaning that drivers are taking safety risks on the road and with their cargo. Secondly, lawmakers have difficulties in standardizing truck sizes, due to illegal modifications made to trucks to best suit cargo volumes. This can be very dangerous. There are also problems with how local government officials want to boost their regional economy, and so they relax rules for businesses to register their trucks.
 
Q: What kinds of clients use your truck leasing service?
 
A: It’s mostly companies that deal with raw materials, manufacturers and even 3PL operators, especially foreign 3PLs that have a light asset strategy. Many foreign firms prefer to avoid buying too many assets in their overseas operation, and so they are already turning to commercial vehicle leasing as a solution.
 
Q: How do your services compare to commercial vehicle leasing in the rest of the world?
 
A: The commercial leasing model has been used in developed markets for many years. The US, for example, uses a driver-operator model where independent drivers provide distribution services to customers and 3PLs. But in China, the market is not ready for such a direct relationship between drivers and end users. A level of trust needs to be built up for this type of operation to work.
 
Q: Does China have a long way to go in truck leasing logistics?
 
A: I think over the next five years, you will see an influx of our type of model, simply because there is no room for prices to reduce further with the existing 3PLs’ sub-contracting system. This will force market players to reinvent themselves to stay relevant.
 
Q: What kind of major changes are happening in China’s road transport logistics?
 
A: One significant development is that China’s highways are getting better and better. This means trucks can move from point A to B quicker. The second thing that may have an impact on the market is that China’s railway system is being built very quickly. Faster rail transportation means that a lot of goods that were previously transported on a less-than-container-load basis by road, may now be channeled to rail. This can make delivery costs cheaper since you can carry more on trains.
 
Q: In that case, how can road transport stay competitive?
 
A: You have to keep finding solutions. Factories are moving inland as well, but the market demand for finished goods remains along the coastal areas. The increased distance may have an impact on costs. This may not have been a problem before because labor was cheaper. But costs are rising, and while businesses may not be able to reduce material costs, there will be more cost pressures on logistics over the next few years.