Sunday, 18 March 2018
Logistics Facts of a Giant: China

Logistics in China has experienced a breathtaking growth since its opening and reform in 1978. In 2007, the nation’s total social logistics value reached RMB 74.8 trillion, up 25.5% over 2006.

Tagged: china logistics

china_logisticsToday, the total scale of China's logistics market has reached 240 billion Yuan, and it is expected to grow at an annual rate of 30% in the coming years. Thanks to its massive workforce and low labour costs, China has become the world’s factory and now the country is supplying world’s demand in electronics, food products, appliances, components for manufactured goods, all manner of apparel. The market is expected to get impetus amid growing Chinese economy coupled with increasing domestic consumption, resulting in increased demand for logistics. Facing this fact the true question to be asked should be “How is China’s logistics infrastructure coping with such rapid growth, with this huge production?"
Logistics costs twice the level of most developed countries
Factors driving the growth of logistics market in China include healthy economy, rising income and increasing domestic consumption, growing e-commerce business, manufacturers shift to the west, strong retail sales, opportunity from cold chain logistics and opportunity from pharmaceutical logistics offering significant growth prospects for the Chinese logistics market.
On the other hand, players operating in the market also face some challenges impeding their development and growth. Major challenges in the market include rise in logistics costs with low efficiency, lack of modern logistics facilities, inadequate warehouse space, regional protectionism, European debt crisis, human resource constraints and preference towards self management restricting the growth of the market.
According to the China Federation of Logistics and Purchasing, logistics costs accounted for 18 percent of the country’s GDP in 2010 and logistics costs have been around this level since 2001. This is twice the level of most developed countries where logistics costs are below 10 percent of GDP. Tax burdens, expensive tolls, and chaotic competition in the logistics market are the main reasons logistics costs are so high.
What does Government do?
The recent steps taken by the Chinese government also fueled Chinese logistics market. China’s logistics infrastructure has improved significantly during the implementation of the country’s eleventh Five-Year Plan (2006-2010). Acknowledging that economical labor wouldn’t be enough to ensure long-term growth, China has increased its investments in highways, railways, and other transportation facilities. However, logistical inadequacies still exist, including sub-par distribution facilities, roads, and railway networks—especially in the western (less developed) provinces. This is a clear reflection of China’s unbalanced economic growth and a major detriment to its ongoing competitiveness.
8 Key Issues in Chinese Logistics Market
On June 8, 2011, Premier Wen Jia Bao announced that “we must make a complete set of policies and measures, and promote the healthy development of the logistics industry.” The resulting logistics improvement initiatives, known as the Eight State Regulations, focus on:
• tax preference;
• land policy support;
• road traffic improvement;
• business environment improvement;
• resource integration;
• technology innovation and application;
• government investment and bank credit support; and
• logistics support for agriculture.

- Road Transportation
The largest portion of Chinese domestic freight—as is the case in North America and the EU—moves by highway. To accommodate these high volumes, China’s road-transport network is improving gradually, especially in the country’s second- and third-tier cities. By the end of 2015, road networks will connect 90 percent of all municipalities.
But still, the rail transport prices are 20 percent to 30 percent cheaper than road transport. Barge shipments are approximately 50 percent cheaper. For these reasons, it is believed that better-integrated transportation networks will become the dominant new trend in the Chinese freight market.
In 2007, the road transport volume stood at 16.4 billion tons and the turnover volume was 1.1 trillion ton/km, up 11.8% and 16.4% over 2006. The average transport distance was 69.3 km, 2.8 km longer than 2005. The container transport volume was 46.2 million TEUs and 531.8 million tons, up 31.2% and 44.7% over 2006. Fixed asset investment in the road sector reached RMB 649.0 billion, 4.2% higher than the previous year.
- Sea Transportation
China’s investment in ports has been unrivaled globally, with more than $357 billion Yuan invested during the last Five-Year Plan alone. These investments have enabled China to experience strong and sustained progress in spite of poor global economic conditions. The top Chinese mainland ports handled 13.5 million twenty-foot equivalent units (TEUs) in January 2011. This translates to 17 percent year-on-year growth, which is relatively consistent with increases at major coastal ports from 2001 to 2010. During this period, Shanghai became the largest port in the world, with 29.06 million TEUs exported in 2010. In 2007, the coastal and ocean transport volume had reached 924 million tons and 589 million tons, up 18.2% and 8.3% over 2006.
- Rail Transportation
China has invested heavily in its railway infrastructure for both freight and high-speed passenger services, and this is playing a critical role in the growth of the country’s logistics industry. 700 billion Yuan will be invested annually in rail projects, according to the country’s twelfth Five-Year Plan.  In the first half of 2011, total goods transported by rail in China increased to 1.94 billion tons—an 8 percent year-on-year increase.
In 2007, the nation’s total revenue from the rail sector had reached RMB 317.1 billion, up 10.7% over 2006. In 2007, 300 new freight loading depots and 450 unloading depots were established. The average daily loading capacity was raised by 7.9% to 139,362. In addition, the turnover time for a single wagon was reduced by 0.11 days to 4.76 days, equivalent to saving approximately 15,000 wagons. The transport density reached 39.8 million tons/km / km, up 7.3% over 2006.
The major types of goods transported by rail are coal, petroleum, grain, fertilizer and pesticides, and containers. Coal constitutes nearly half of the goods transported by rail.
-  Air Transportation  
While air cargo volume has risen steadily, approximately 6 percent annually, the increase is not dramatic when compared to China’s overall logistics market. In this sector, international logistics giants are facing fierce competition from local Chinese air companies. China Southern, the leading Chinese air-freight carrier, reported revenue of 42.4 billion Yuan for the first half of 2011—a year-on-year increase of 22.3 percent. UPS achieved 10 percent revenue growth in the China airfreight market.
-  Inland & Short Sea Shipping  
Short-haul waterborne transport is taking a more important position in the economic growth of mid-western China. A primary reason is that traditional manufacturing is moving west due to increasing costs in China’s eastern cities, and supply chain decision makers are striving to carve new channels into inland areas.
-   Forwarding
Forwarding and brokerage services are enjoying sustained growth. Chinese forwarders, for example, are providing more complete, more customized supply chain reaping the benefits. They’re also opening new branches in the U.S., Europe, and elsewhere. These moves should help foreign companies trade more closely and effectively with China. Kerry Logistics, headquartered in Hong Kong, is a good example of a China-based 3PL expanding within China, across APAC countries, and in the EU.

Before 2005, there were many restrictions on foreign enterprises entering China’s logistics market. UPS, TNT and DHL chose to cooperate with the domestic logistics companies in order to penetrate the sector. In 2005, to honor its promise of joining the WTO, China fully opened the domestic logistics market to foreign investors. In 2006, foreign companies began their exclusive process in China: TNT purchased Huayu Logistics Corp, FedEx bought the joint venture that was set up with Datian Corp for $400 mln and UPS abandoned its cooperation agreement with Sinotrans for $100 mln.

- Yangtze River Delta (YRD: Shanghai, Jiangsu, Zhejiang)
As China’s main international gateway, Shanghai is well ahead of the other Chinese cities, and will remain the favored entry point for international logistics operators and developers. Warehousing developers like Prologis, AMB and Mapletree are all active in Shanghai. Suzhou is the secondary logistics hub in YRD due the significant presence of foreign manufacturers. Also, Ningbo port’s freight throughput ranks second in China.
- Pearl River Delta (PRD: Guangdong)
The PRD is China’s richest area, with its industry focusing on processing and export. Shenzhen, due to its adjacent location to Hong Kong and its own Shenzhen port, has become the most important import and export entry point of South China.
- Bohai Bay Region (Beijing, Tianjin, Hebei, Shandong, Liaoning)
This region has high logistics demand and freight traffic, with Shandong Province’s freight traffic volume ranking first in China. Tianjin is the economic center of North China in the nation’s five-year plan due to its port and manufacturing industry. Additionally, the Beijing logistics market will continue to predominantly support the local consumer markets while Dalian is the gateway for goods from the Northeast entering the Bohai Sea.
- Inland area
While the coastal areas remain the overwhelming focus of logistics activity on a short term basis, new logistics hubs are emerging in inland China. Chengdu, Hangzhou and Shenyang have strong consumer markets while Chongqing, Wuhan, Nanjing, Harbin, Changchun, Xian and Zhengzhou represent the major industrial hubs for the rapidly expanding domestic markets. Unlike the coastal logistics hubs, where imports and exports are major factors for logistics development, the logistics markets in inland cities are mainly driven by the growth of the domestic economy. They also have the advantage of lower costs for land and labor.
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