The logistics industry in China is booming due to the fast pace of internal economic growth as well as booming imports and exports. But there are significant infrastructure and structural problems to be resolved in terms of dealing with the transition from a centrally planned past and the consequences of explosive growth.
Logistics firms large and small have been pouring money into investment in new locations and IT applications. The Chinese government has also undertaken vast projects to develop the country's infrastructure. But there are still severe "bottlenecks" in the supply chain, particularly ports and railways.
The slowdown is felt worst with bulk goods like coal and ore. In general, container cargo moves more efficiently, but the port of Shanghai, expected to receive 13 million TEUs (20 foot equivalent units) this year is operating at full capacity with ships waiting in some cases weeks to load or unload.
"The high rate of economic growth and investment flowing into China has led to a huge bottleneck in transportation," said Arthur Kroeber, managing director of research journal China Economic Quarterly. "It is a problem faced equally by domestic and international firms and it is an important problem to solve if China wants to have sustained economic growth."
China is responding to these concerns. The container cargo facilities in Shanghai, for instance, are undergoing massive expansion. By 2010, Shanghai and neighboring Zhejiang and Jiangsu provinces are expected to process 40 million TEU, according to projections by the Ministry of Communications, which regulates the country's transportation industry.
China has 17% of the world's railways yet it handles 23% of the rail freight volume. Plans call for new lines to ease pressure on the overburdened railway system, extending the nation's existing 78,000 km of railway to 100,000 km by 2020, dividing passenger and freight lines along busy trunk lines.
These improvements do not help the majority of freight shipments that are delivered by truck through small, regional carriers which typically lack sophisticated load consolidation and route planning. They also don't solve the problem of the "Last mile" that also must be done by trucking.
In answer to the difficulties of dealing with a fractured network of independent players, many manufacturers including Proctor & Gamble, Haier and Legend have developed their own logistics spin-offs which serve the parent company as well as other customers.
China has three large domestic logistics providers – SinoTrans, China Shipping, and COSCO Logistics Co.
"We understand that the future of the logistics industry needs to be global," said Xu Fei, a senior executive with COSCO in Beijing. "The current state of the logistics market is very disordered and the profession is short of qualified people."
Air freight is a huge business and growing faster than the logistics industry as a whole.
"Air is perhaps the most underserved sector," says Don Lee, vice president of industry solutions with Descartes Systems Group Asia Pacific, a logistics solutions and consulting firm based in Hong Kong. "Most of the volume is done by foreign carriers."
"It is clear that efficient technology and information resources are the key to efficiency and success in the logistics market in China," he added.