A moving experience

The organisation of project-related cargo in China is a complex business involving getting the most out of China's underdeveloped transport infrastructure. Companies also have to work in a restrictive legal environment and piece together transport services from an array of different companies both foreign and Chinese-owned. With the growth of investment in the interior provinces being encouraged by Beijing, the challenge that this presents seems unlikely to diminish.

China is often described as a logistical nightmare for foreign companies. The problems of goods being held up at customs, or damaged, delayed, re-routed and even lost can take years of experience to iron out. International experts believe that up to 15 per cent of all goods moved in China are damaged in transit with two per cent lost completely.

Complex logistics

The difficulties can be all the greater in project cargo. This is the shipment of machines, building materials, equipment, assembly lines or even entire factories which takes place over a specified project duration.

Project cargo is also a term used to describe the transport of oversize goods which do not fit into standard containers. These pieces require specialised ships, barges, trains and lorries as well as specially-sourced lifting equipment. In many cases the logistics are complex with the need for goods to arrive at the destination at a specific time in a tight project schedule in coordination with the arrival of other related project cargo components.

Because of the one-off nature of project cargo there is little room for organisers of the shipments to gradually overcome teething problems. It is a task that has to be got right first time, particularly because the value of the freight is often so much higher than in standard trade cargoes.

The specialised equipment involved means that individual transportation firms are often unable to provide a door-to-door service in project cargo, incorporating a combination of different transport modes in the way that shipping, rail and lorry transport is coordinated in container freight. Freight forwarders or project managers are often involved in piecing together the special project cargo transportation packages required, by subcontracting to a variety of transport companies.

In any case, restrictions on foreign investment in transportation services within China usually necessitates extensive coordination between international and Chinese domestic carriers.

Brewery on the move

Consider, for example, the planning and logistics required in moving an eight hectare brewery complex from the UK to China. This was the challenge faced by Gleeds, a UK-based quantity surveyor and project management firm, when it was asked in 1994 to handle the relocation of an Allied Domecq brewery from Romford in England to a US$100m San Miguel joint venture 100km south of Beijing. Gleeds, which was responsible for dismantling the brewery in the UK, transporting to China and then reassembly in China, awarded the project transportation contract to a Swiss-based forwarding firm Frank Ltd.

The dismantled brewery was packed into 100 containers and 76 oversized loads totalling 30,000 freight tons. The containerised element of the project was shipped by Cosco, the Chinese state-owned shipping company, from Tilbury port in the UK to the destination port of Xingang near Tianjin. For the oversized pieces, the project cargo management team of P & 0 Global Logistics was asked to assist with the loading at Tilbury. Frank chartered three specialist breakbulk ships from the Dutch-owned Mammoet Shipping. This enabled some oversize loads such as the 22 metre-long brewing vats to be stored below deck for the sea passage to China.

Cargo was stored at Xingang for four to five months until the spring of 1995 while the preparations were made for road cargo convoy to the final destination of Baoding in Hebei province. Meanwhile the containerised part of the project cargo was moved on by United Concord Express, a Cosco subsidiary.

For the breakbulk portion, three Chinese domestic road haulage contractors as well as a mobile crane firm were hired for the four-day, 500km inland portion of the journey. "We had to get permission from about 20 different areas and villages for our convoy to pass including permission to clear overhanging cables and signage such as traffic lights," says Mr Wald Rueber of Frank. He adds that mobile cranes were required to lift some of the oversized loads over the top of low bridges along the route. The cost of these permits and clearances alone came to about US$3m. Permission to move the 5km-long convoy of oversize loads through the city of Beijing, for example, was limited to a single four-hour slot.

Of course, project cargoes in China are also exported. Specialist project cargo firm Crown Worldwide recently handled the movement of oversized pieces of oil separation equipment to South Korea from manufacturing sites in the Shanghai area. The work undertaken for Phillips Petroleum International Asia involved survey work, discussions with Shanghai firms and authorities and the chartering of a Korea-bound vessel, says Mr Jim Klasing of Crown Worldwide (China). "Our extensive survey located a total of 69 major obstacles such as utility lines, fixed signage, telecommunication lines and other similar obstacles," he says. "This required coordination and communication with a large number of government departments, utility companies and private businesses to arrange temporary removal of the obstacles."

Customs clearance focus

Cargoes also have to be steered through the sometimes tortuous Chinese customs procedures with the minimum of delay. While the clearance of standard trade shipments through Chinese customs can be difficult enough, the clearance of project cargo, which often involves a wide array of goods with different customs duty rates, can present an even more daunting challenge.

Mr Johnson Lee of German-owned transportation company Schenker International's Hong Kong office believes that it is probably the single most difficult aspect of project cargo work. "Officially you have to hand over the job to Chinese customs agents, but there have been cases where Schenker people have become directly involved in the discussions," he comments. "Sometimes you have to give a deposit for importing the cargo and certain items may be difficult to classify." Other headaches include missing documents and clerical errors which can result in discrepancies between the various parties' calculations.

Typically, customs clearance planning needs to begin at least two months before the date of the actual shipment. Klasing says that in some cases they have worked with Chinese customs up to a year in advance of the shipment date.

Mr Steve Compton, UK sea freight manager for freight forwarder ASG, stresses that attention to customs formalities can make a positive impact: "We have our own people handling the customs clearance. If you are not there to shout and holler, things could take very much longer." For example a two or three week customs hiatus can be reduced to as little as four five days, he believes.

The location of customs clearance can also be an issue. "Some clients prefer to clear customs at a certain place because of their connections," says Lee. "For really large projects, inspection can take place at the job site rather than at the port of entry and a liaison group may need to be set up between the two customs offices," While bonded transhipments are now in theory permitted, there can be conflicts of interest between different customs offices which in practice operate as independent profit centres.

While customs procedures are becoming simpler, the underlying customs regime for projects seems destined to become harsher. Building materials for priority projects such as hospitals and power stations have often been exempt from customs duty, "but now there is talk of withdrawing that", says Compton.

Pushing to the interior

The central government policy of stimulating economic activity in inland regions is starting to influence project cargo requirements. "A lot of the infrastructure projects used to be along the coast, but because of the withdrawal of some incentives in the coastal regions they are being pushed inland to places such as Chengdu, Chongqing and Kunming," says Crown's Klasing.

The Three Gorges hydropower project is also having an impact. "Communication is definitely improving," says Mr Frank Dixie of logistics company Trans Ocean Distribution (TOC). "While in the short-term dredging will create some delays, the long-term gain will be tremendous."

But upgrading of support services such as lifting equipment will also required if project cargo to the interior is to be eased. TOC recently arranged the relocation of a pipeline from Italy to the Chongqing area. One piece of the pipe-line weighing 55 tonnes required a crane to be brought in from 290km away. "The cranes available in inland regions are not of the same standard as those available in the ports," says John Christensen of ASG's Beijing office.

Freight forwarders in China have to keep abreast of a rapidly changing transport infrastructure and the variable quality of the services provided by local transportation companies. Their difficulties are exacerbated by government restriction on their own activities ? in particular the need to obtain operating licences. In many cases the only option is to form joint ventures with local firms. Forwarders which choose to operate out of representative offices or wholly foreign-owned branches may only be granted limited operating licences or be forced to use local agents and forfeit the right to handle their own paperwork.

Licensed to bill?

There are three grades of freight forwarding licences issued by the Chinese authorities. An A-grade licence allows the forwarder to write and issue its own bills of lading (a list giving details of a ship's cargo which is also a deed of title) and airway bills.

Grade B licencees can issue such bills but have to get them approved on a case-by-case basis. Holders of C-grade licences are not allowed to issue their own bills of lading at all. To add to the complexity, licences granted may be restricted to one particular mode of transport or a particular location.

So far, foreign freight forwarders have usually had to rely on Chinese joint venture partners to provide A-grade licences. There are signs of change here. Sea-Land and American President Line's logistics subsidiary American Consolidation Services were granted operating licences for their wholly foreign-owned China subsidiaries earlier this year.

ASG (China), which operates without a joint venture partner, has recently been involved in the relocation of South Korean concrete factories and the shipment of a Danish ice cream factory to Baotou, Inner Mongolia. It currently has a B-grade licence for sea freight which it hopes will be upgraded to an A-grade in the next few weeks. ASG already has an A-grade air freight licence for Beijing but is not permitted to handle its own paperwork at Shanghai airport.

Just how valuable are joint venture partners? TOD has been using a partnership with the Shanghai Railway Board to assist in carrying goods to the interior and has recently completed a deal with the Shanghai Container Terminal. "A year ago I would have said that having our own office and staff was our major strength in China. Now I would stress our strong Sino relation-ships," says TOD's Dixie.

But Schenker's Lee believes that most foreign freight forwarding firms would prefer to operate without a Chinese partner: "International forwarding depends on teamwork and there are certain quality standards that have to be adhered to. It is not easy to change the philosophy of the Chinese partner." Schenker has recently been involved in several project cargoes supplying construction materials for hydro-electric plants in central provinces such as Henan and Sichuan.

Keeping the cost down

Not all project cargo is necessarily oversize. "I would define it a little more broadly," says Klasing. "We define it as cargo having a definite term with a beginning and an end, for example the transportation of a certain group of fabricating materials for a construction project."

Where project cargo includes a containerised element, there are opportunities for reducing costs through consolidation of less-than-a-container load shipments. Consolidating these shipments can be difficult to achieve especially where there is a guaranteed delivery date.

"It is no problem to charter a full truck, says ASG's Christensen. "The problem comes when you only want to part load. There are only a few companies which have regular once-weekly departures."

Klasing stresses the need to have the right knowledge of, and connections with, state firms. "Sinotrans is more than just one company," he says. "There are something like 28 divisions in Beijing alone and they do not always work together. You could be charged a brokerage fee if you don't go to the right one in the first place."

But as Mr Barrie Goodfellow of UK multi-modal shipping agency Jamar Group points out, for cargo projects awarded on a competitive tendering basis, reliability is key: "You cannot afford to have hundreds of workers sitting around on a building site because of a hold up in the shipping." Jamar handled the delivery of a complete Leyland truck plant to a Chinese state firm in Anhui province and it is currently preparing feasibility studies for moving construction materials to interior provinces.