Logistics in China
China has been attracting more and more of the world's attention ever since it opened itself to the West and began experiencing the positive economic development that resulted from this step. But, for a long time now, the country has been more than just a low-cost production location. The Chinese market is gaining significance for many international companies. The basis for this two-way flow of products is a well-developed logistics infrastructure.
Geographic challenges in China
With an area of 9.6 million km2, China is just about as large as the United States. The geographic, the climatic conditions and the country’s habitability vary considerably. The eastern part of China is characterized by four large, heavily populated flood plains where most of the country’s population lives. This is also the location of the country’s major metropolitan areas. In the west, towering mountain ranges, broken up by high plains, dominate the landscape. These areas generally are very sparsely populated.
China borders on 14 countries and is separated from its neighbors by a variety of natural barriers: in the east and southeast by seas; in the south, west and northwest by high mountain ranges; in the north by steppes and deserts; and in the northeast by rivers.
In response to rising wages and land prices in the coastal regions, companies are increasingly moving their manufacturing facilities into the country’s interior. This shift particularly benefits inland waterway shipping and road transports by truck. In recent years, China has had to devote more and more energy to fighting the environmental impact of its rapid economic growth, including desertification and air pollution.
Core countries for trade
China’s biggest export partner is the United States, followed by Hong Kong, Japan, Korea and Germany. In imports, Japan is the leading country, followed by Korea, Taiwan, the United States and Germany.
Chinese infrastructure
The road network in some parts of China now approaches Western standards. Modern freeways have been built in the Pearl River delta as well as in Shanghai and Beijing. Parts of the network extend far into the country’s interior. But in areas located away from the metropolitan areas, the quality of roads drops. As a result of the underdeveloped infrastructure outside the metropolitan areas, logistics costs are high in an international context.
In comparison to other means of transport, the rail network is almost irrelevant. The primary reason for this is the poorly built rail lines, which result in low speeds. A container Container takes five days to journey by train from Hong Kong to Shanghai. A transport by ship takes about the same amount of time, but is much cheaper. Rail transports play a major role only in the shipment of bulk cargo Bulk cargo like coal or iron ore. As a result, rail transports are not particularly attractive to international companies. The German railroad company Deutsche Bahn is daring to take the first step. It is planning to open a daily connection between Hamburg and Shanghai in 2008. With this connection, products could travel from Germany to the Far East in about two weeks - much faster than by ship [1, 2, 3].
Logistics requirements and service areas
The Chinese CEP market Courier, express and parcel services is booming and is expected to pass the biggest European market - Germany - in the next five years. The world’s four largest express companies - DHL, FedEx, TNT and UPS - have announced plans to expand their national services in an effort to gain market share in the Chinese CEP market. At the same time, Chinese companies are working to strengthen their financial basis and to improve their services.
The Chinese market is also growing in the area of contract logistics Contract logistics . As industry expands, logistics service providers are following their customers into China and are continuing to expand their contract logistics. Textile companies, for instance, expect their providers to perform extra services - as they typically do in Europe - like quality control, ironing and price labeling. Up to now, though, few international service providers have succeeded in acquiring local companies as customers.
Logistics centers in China
Hong Kong and Shanghai are the two most important logistics hubs in the country. Hong Kong is the site of the second-largest container sea port and the second-largest freight airport in the world. Two other important ports are located in neighboring Shenzhen and Guangzhou, making the region around the Pearl River delta China’s most important logistics center. Acting as another logistics center, Shanghai is trying to keep pace with Hong Kong. The projects being planned here include China’s largest logistics park with an array of storage options. To bring logistics services to the north, a third Chinese logistics center in Beijing/Tianjin has been set up. In terms of size, though, it hardly measures up to Hong Kong and Shanghai [1].
Important logistics service providers
The largest logistics service provider in China is the government-run Sinotrans Group, which has a dominating market share of about 60 percent. The rest of the market is split up among a number of small companies, most of which do not offer logistics services in the strictest sense. International service providers work almost exclusively in the upper market segment. Here, revenue has been boosted by around 30 percent each year.
Major logistics companies like DHL employ several hundred people in Shanghai and Hong Kong. Just like in their home markets, the major international logistics providers offer door-to-door services in particular. Transports within China are performed by Chinese cargo operators because this market is closed to international providers [1].
Recommended reading
Fundamentals of Logistics Management | Grant / Lambert / Stock / Ellram 2005
References
[1] China | Rohde 2006. In: Transport und Logistik | Bundesagentur für Außenwirtschaft (Hrsg.)
[2] Ein Zug wird kommen | Heintze 2007. In: Logistik inside 6(2007)2
[3] Global Perspectives. China | Council of Supply Chain Management Professionals (SCMP) 2006
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