McKinsey&CompanyTravel, Logistics & Infrastructure PracticeFive things to knowabout the Chinese logisticsmarket heading into 2022Insights to guide decision making for private-equity players, logisticscompanies, and shippers worldwide.by Fox Chu, Steve Saxon, Richard Wang, and George ZhaoFebruary 2022 The COVID-19 pandemic has only accelerated2020, the world recovered its app etite for moredevelopment of China's logistics industry, which wasphysical goods shortly thereafter. Increa.sed savingsalready m oving at breakneck speed. For decades,from staying home more and government financialthe country has been a crucial node in the supplyaid boasted people's purchasing power for tangiblechain of companies around the globe. And whileproducts such as furniturepartly because theymany custom ers in other countries only awakenedcouldn't spend this money on services like eatingto the convenience of online shopping and deliveryout, traveling, or getting their nails done, So as moreduring the pandemic, millions of drivers have longpeople bought more products (many of them madebeen zipping through Chinese cities to deliverin China) to upgrade their homes and convert theirparcels of all sizes.living spaces to offices, shipping volumes soaredacross all modes last year, including road freight,How has the Chinese logistics market fared duringcontainer, and air freight [Exhibit 1] In China, freightthe pancemic, and what's the outilook for 2022?volumes have risen by between 1and 14 percentsince 2C19 and were higher in sorne key trade lanesIn this article, we present five insights globalsuch as between the country arnid North America.investors, logistics companies, and shipgers shouldEven though dem and soared through most of 2021logistics services coupled with supply chokeholdsthe supply of effective freight capacity struggledresulting trom pand emic lockdowns and travelrestrictions have translated into a profitable yearon the Us West Coast, became congested duefor many logistics players. The COVID-19 pandemicto elevated import volumes. This, coupled withalso sped up the incdustry's sophistication. Whilepandemic-imposed portlockdowns and the Suezwe see greater consolidation and integration inCanal blockage, took capacity out of the market andsome subsectors such as third-party logistics andsent shipping costs skyrocketing to unprecedentedexpress-dlelivery carriers, we're also expectinglevels. Furthermore, fewer passenger flights cominggrcwth in other areas such as warehousein and out of China meant a re duction ot belly cargo-automation and alr cargo.carrying ca.pacity, Between November 202O and2021, air freight rates between Hong Kong andWhichever stakeholder you are, an understandingEurope rose by 47 percent, from $5.40 to $7.90 perof these trends can help with your decision makingkilogram. All this translated to better profit marginsfor 2022.for freight forwarders and increased returns fortheir shareholders (Exhibit 2), The average earnings(before taxes and interest) rose by 36 percent1. Most logistics players arefor forwarders, and even m ore so for carriers thatlooking forward to another bumperowned ships and aircraft,.year in 2022If you're a logis tics provider, chances are 2021pandemic depressed freightvolume growth in early2 Exhibit 1COVID-19 had an immediate dampening effect on freight volumes in China,but all delivery modes rebounded and surpassed prepandemic levels by 2021China freight volume metricsRosd freight volume,'Contsiner throughput,2billicns of tonsmillions of TEUsAir freight volume,thousands of tons40800L+1%+14%250+8%30200201501001020152017201920212015201720192021201520172015202Fog me betore2n9 alsedaor toasscelse, olmed tepot y teChire Mly f Tsot.Sourte: CEIC; Chim Hinistry of Trarspot.Exhibit 2Worldwide, freight forwarders saw increased profits from the surge in demandand tightening of supply during the COVID-19 pandemic.Average EBIT margin in freight forwarding, 2015-21,1 %ChinaGlobal8+1.9percentagepoints+1.6Peestagepoints201520220152021EBIT nagin for tre entixe conpeny is considered: avexge Bagi1 is calcubled besedlon the 9 coingaries: Clhire-lased(Sirctars.CTS, Bondex, Jkyou, Fells)Source:/mrtal reports:S6P (Globsl The same dynam ics will probably continue intoOther examples of the broader trend of logistics2022, as supply chain challenges are unlkely to beplayers expanding their capacity inclucle Cainiaoresolved immediately. The em ergence of Omicranbuying a 15 percent stake in Air China Cargo lastand other potential coronavirus variants, alongyear and entering into long-term partnerships withwith China's continuing zero-case policy, meansLATAM Airlines Group and Atlas Air, Likewise, thethat Chinese borders will remain largely closed.express firm SF Holding bought a majarity stake inContainer supply chain congestion and linitedKerry Logistics, a $2.3 billion deal that would allowcargo-belly capacity should probably allow logisticsSF Holding to use Kerry Logistics as a platform forsuppliers to keep th