It’s a long way from Yinchuan to Tianjin. Getting goods from this dusty industrial outpost in the northerly Ningxia region to the eastern port city of Tianjin takes five days – if the truck doesn’t break down on one of the many stretches of Inner Mongolian desert in between.
It’s a journey that Joerg Roos, general manager of sales for North China at Schenker Logistics, has come to fear. He often worries that his trucks arrive at Tianjin port after the ship sails.
Getting goods from the interior to the coast is a challenge in China. But why not use the country’s extensive rail network? Not an option, said Roos. The Yinchuan-Tianjin route is five days by truck, but it takes nine to 13 days by rail.
“There’s no really direct route,” Roos said. “The railway network is so far underdeveloped. It’s a huge network but the efficiency is not good enough to be sure it will get to Tianjin on time. And if the railway container is lost in transit, China’s railway has a rule that you can only look for it after 15 days. If you have 10 containers booked on a ship in Tianjin, this doesn’t work.”
Hence Schenker clients’ wares are trucked a distance of 1,500 kilometers by road. Competitor DHL also uses trucks to move bulky goods around China. Even though drivers’ wages and fuel prices are relatively low in China, trucking can be an expensive business. That’s because the advantage of low labor costs is eaten up by an inefficient logistics network that leaves trucks empty half the time.
“In Europe or the US a half-empty truck can pull into a regional distribution center for another load, but China doesn’t have this network and trucks often go on half empty when they drop a load,” Roos said. “The situation in north China is improving, but east to west you won’t get that dense network you find in Europe or America.”
Into the skies
Besides road and rail, the other transport option is by air. “For odd or big-sized cargo, we will use trucks,” said Steve Huang, China country manager at DHL Global Forwarding.“Small- sized cargo will normally be transported using our domestic air service.”
Moving goods by air only makes sense for the most valuable and time-sensitive goods, like computer chips and electronics components, because of the limited space available on planes.
“Air capacity here is mostly confined to the belly of passenger planes, which have a limited cargo capacity,” Huang said.
Huang should know, since DHL Global Forwarding was the first foreign- owned logistics firm to get a domestic air freight license from the China Air Transport Association.
The ocean option
While trucking is the cheapest transport mode domestically, ocean freight is more cost-effective for international transport. Yet shipping rates out of China are comparatively high, Roos said, largely because demand for containers is so great. “European shipping lines are switching empty containers from Europe to meet demand in China,” he said.
Most foreign owned companies in China outsource logistics operations. “You outsource if logistics is not your core competence and if you’ve not got enough volume to reach critical mass,” said Huang. Many are deterred by the licensing requirements. DHL had to secure separate licenses from Chinese authorities for international and domestic air freight, and another set of separate permits for ocean shipping and trucking. A license is also required to conduct customs brokerage when importing and exporting goods through Chinese air and sea ports.
The high barriers to entry in the forwarding business means it is best left to the experts. Even the global forwarders may find that keeping trucks on the road remains an inefficient business, but for now, there is no better way of moving cargo within China.