As domestic consumer markets take off and investment extends
to new inland regions, China’s transport and logistics infrastructure
faces fresh challenges and fresh scrutiny from businesses and
government planners.
The contraction in demand for Chinese exports in 2009, in the wake of the global
financial crisis, highlighted the risks of reliance on export markets and the need to
further stimulate domestic demand; something articulated in the government’s
latest Five-Year Plan.
Yet in the context of transport and logistics, the global economic downturn of
2008-09 only hastened a number of trends that were already underway. The most
pressing challenge is no longer moving goods out of the country as quickly as
possible. After all, China has invested and put in place infrastructure around many
of the ports and conurbations along its eastern coast. Rather, the challenge is for
logistics to keep pace with industrial relocation within China and also with the
growth of domestic demand.
Anyone doing business in China will admit that managing logistics continues to
be not only a complex, but also a relatively costly, part of their operations. Moving
goods within China remains particularly challenging. For example, road tolls, almost
all of them imposed by provincial or city governments striving to recover the funds
they invested in their highway networks, can account for between 30-40 percent
of transport costs for trucking companies. 1High fees can encourage transport
companies to overload their trucks and breach safety measures.
Performance can also be hampered by the availability of experienced staff, especially
at a managerial level. With China’s economy continuing to expand strongly, wages
and land are becoming more expensive, particularly in the leading cities.
The government has also acknowledged that efficient transport and logistics are
key for long-term development and it is committing huge funds to build airports, roll
out a national expressway network and, expand and upgrade the country’s railway
system.
Geographically, the heavy investment in transport infrastructure has left almost
every part of the country accessible by highway and most of it by rail. Airports dot
every province, and transport capacity on the country’s most important rivers has
rise from 4 million 20-foot equivalent units (TEUs) in 2007 to 9 million in 2010. In
total, it carried more than 1.5 billion tons of cargo last year, twice the weight of that
shipped on all US waterways.
The outcome of this investment is that the less-developed central and western
regions are finally starting to become linked by reliable transport routes to the east
coast.
Cities such as Chengdu and Xi’an have already made huge leaps in using airfreight
links to develop high-technology industries producing high-value goods, which
are then flown to their final destinations. More generally, companies — especially
domestic ones — are now finding it possible to move beyond the regional or
provincial limits that have held many of them back, penetrating third- and fourth-tier
cities across the country.
Aside from the sheer scale of investment, the widely touted solution for many of
the industry’s ills is consolidation leading to the creation of a smaller number of
larger and more efficient companies. Mergers and acquisitions are taking place, but
they show no sign of accelerating. There are several reasons for this. China’s many
hundreds of lower tier cities remain best served by smaller local operators, which
both know their immediate locality well and can offer low-price services. Financing
for acquisitions is often hard to come by at a reasonable price, as are managers
with the right skills and experience to handle the integration of acquisitions.
Consequently, organic growth is preferred by many companies. Given the
fragmentation in the sector, many domestic companies — and some multinationals
— prefer to keep their transport and logistics services in-house. DHL’s decision to
divest from its domestic express joint venture seems to be an indication that the
domestic delivery market will remain largely the preserve of local companies.
China’s shift towards domestic private consumption is underway, but it will take
time. The logistics and transport sector will play a key role in making it happen.
Indeed, the possibilities that a modern logistics sector can offer have been
demonstrated over the past two years with the sudden emergence of online
shopping as a major new business. From almost nothing in 2008, e-commerce
involving private citizens has grown to a point where China’s biggest online
business provider, the Hangzhou-based Alibaba Group, is planning to invest USD 4.5
billion to set up its own dedicated logistics firm.
The government is now actively supporting such measures. In February 2009, in
the aftermath of the global financial crisis, the government launched its Plan to
Adjust and Rejuvenate the Logistics Industry.
Its objective was to rationalise the industry by encouraging such practical measures as establishing technological and other standards, accelerating the rate of mergers and acquisitions, supporting training schemes, and increasing the utilisation of information technology through investment in research and development and the application of new technologies relevant to the industry.
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