By Francis Bassolino and Pilar M Dieter
The price of finished product and component parts in China attracts those in search of low costs. However, when logistics, storage, and handling costs are factored in, the country becomes much more expensive.
If China wants to maintain momentum, its logistics costs – currently up to three times the level of those in developed countries – must come down. Granted, massive public and private infrastructure projects are planned or already underway, and these foundational improvements will alleviate some pain over time. But companies looking to improve the logistics cost structure more immediately must develop innovative approaches and cultivate nimble channel partners.
Such companies, in fact, must devise a complete China logistics strategy. This strategy should include a clear and current understanding of the sometimes vast differences in regional offerings and impediments, service provider coverage or lack thereof, and channel partner support available within a region.
Rubber meets the road
Above all, the strategy should take into account three fundamental issues:
In spite of these key logistics issues, efforts to improve the systems and offer more services are quickly evolving.
First quarter 2007 reports reveal that Shanghai Port, moving 5.8 million 20-foot equivalent units (TEU), is now the world’s second largest container port behind Singapore with 6.6 million TEU.
Chinese ports occupied nine of the top 30 spots for container cargo volume worldwide in 2006. That same year, investments in China’s seaports totaled US$7.8 billion spread over more than 160 construction projects. Infrastructure developments around trading hubs such as the Yangtze River Delta region demonstrate China’s commitment to becoming the global gold standard for international trade and logistics.
In May 2007, Beijing permitted a US$1.6 billion foreign investment by CMA CGM (France), Deutsche Bahn AG (Germany), and Zim Logistics (Israel) in the newly established China United International Rail Containers Company. This is the first foreign investment of such size in the country’s historically protected rail network.
China continues to reduce the operating restrictions on foreign entities so domestic competitors can learn best practices. As a result, foreign third-party logistics providers (3PLs) are partnering with state-owned enterprises (SOEs) in an effort to merge modern logistics practices with local customs, processes and knowledge. Logistics related businesses in China are projected to grow at 25% per annum for the foreseeable future irrespective of the many supply chain challenges that exist.
The necessary network
In the absence of national service providers, free-flowing highways, and rail networks that support distribution hubs throughout the country, logistics managers are forced to think creatively to keep goods moving through China. Some areas where creativity is applied include the following:
Inefficiencies in China’s logistics networks abound. As regulations allow a broader operating platform, foreign companies gain greater control over the fate of shipments throughout China, raising the level of sophistication across the system. Moreover, consolidation has begun and intra-regional efficiencies are evident particularly within more developed areas of the Yangtze and Pearl River Deltas.
In the first quarter of 2007, the revenues generated in China’s logistics sector were up 24% year-on-year. Thus, despite pot holes, poor visibility and corruption, trade remains healthy.
Francis Bassolino is managing director and Pilar M Dieter is director at Alaris Consulting in Shanghai. For more information please contact email@example.com
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