You Ain’t Seen Nothin’ Yet – Chinese Logistics

China is undoubtedly a trading superpower and importing goods to the UK is almost synonymous with importing goods from China.  Shanghai alone plays host to the world’s busiest container port and an airport that is third on the global list for handling of air cargo.  There are more than 100,000km of expressways and a comparable length of railways. Given the boast to this kind of infrastructure, logistics in China really should be better.

China’s exports have grown at an astonishing rate; as a result, the lion’s share of the investment has gone to facilitate these exports.  The flow of goods within the country has been neglected and is both expensive and woefully inefficient.

Logistics spending is roughly equivalent to 18% of GDP, 40% higher than in other developing countries and double the level seen in the developed world.  China’s Prime Minister recently echoed the industry’s complaints that sending goods from Shanghai to Beijing can cost more than shipping goods from Shanghai to the UK.

Pass the parcel

Goods are transferred from vehicle to vehicle up to a dozen times as they make their way across the country.  China has over 700,000 trucking companies, the vast majority just a man with a motor.  In contrast, America has about 7,000.

Companies compete so fiercely on price that most make very little profit.  This lack of profit prevents the largest from growing to achieve the economy of scale that’s required to drive efficiency up and prices down.  Even established foreign firms are burdened with high costs that make it hard to compete for frugal customers against the lean local rivals.

On your marks, get set….

The good news is that Chinese central government is mindful of the issue and they aim to facilitate the development of larger companies.  In the private sector money is being pumped into creating bigger firms and organising data-sharing platforms so that trucking firms can match up with customers to reduce the number of empty return journeys.

With warehouse space per person in China at less than a tenth the level in the UK, logistical improvements could be turbocharged.  If the government removes the red tape that forces goods to be transferred between vehicles China’s domestic logistics system could take off in a spectacular fashion.

 


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