Executive Briefings

Chinese Logistics: It's Upgrade Time

Getting cheap goods out has never seemed too much of a problem for the Chinese. The country has cemented its position as one of the central pillars of global trade by exporting staggering quantities of cheap manufactured goods, and is arguably now second to none as the economic hub of Asia.

Logistics provider FedEx Express certainly thinks so, judging by its plans to establish a US$150 million Asia Pacific hub in Guangzhou.

China now accounts for 8% of global exports and recently overtook Japan as the world's third-largest country in terms of foreign trade volumes. Exports have more than doubled over the last five years and are expected to double again by 2010, accounting for 11% of the global total. Rampant growth in logistics revenue points to an industry in good health. According to the China Federation of Logistics and Purchasing (CFLP), logistics industry revenue grew 20% in 2002, 27% in 2003, 30% in 2004 and 33% in 2005. Viewed through a different lens, though, the picture changes. As volumes expand, cracks are being exposed.

The industry is still dogged by inefficiency, with CFLP figures showing that logistics costs accounted for 21.6% of GDP in 2004. Given that logistics costs come to 9% of US GDP and 11% of Japanese GDP, it could be argued that China wastes around one-tenth of its total GDP through logistical inefficiencies.

The sector is also stretched to the breaking point. The total handling capacity of China's coastal ports is already over one billion tons, and capacity is increasing quickly. But China cannot expand port facilities quickly enough to meet rising demand. In 2005, the turnover capacity of coastal ports was officially 2.52 billion tons, but 3.38 billion tons were actually handled. Internally, logistics networks are even more stretched, creating problems as retailers and manufacturers look beyond the largest Chinese cities to those in the tier two and tier three categories. Paradoxically, it is more difficult for manufacturers and retailers sourcing in China to reach inland markets than export to the rest of the world.
http://www.businessweek.com/

Getting cheap goods out has never seemed too much of a problem for the Chinese. The country has cemented its position as one of the central pillars of global trade by exporting staggering quantities of cheap manufactured goods, and is arguably now second to none as the economic hub of Asia.

Logistics provider FedEx Express certainly thinks so, judging by its plans to establish a US$150 million Asia Pacific hub in Guangzhou.

China now accounts for 8% of global exports and recently overtook Japan as the world's third-largest country in terms of foreign trade volumes. Exports have more than doubled over the last five years and are expected to double again by 2010, accounting for 11% of the global total. Rampant growth in logistics revenue points to an industry in good health. According to the China Federation of Logistics and Purchasing (CFLP), logistics industry revenue grew 20% in 2002, 27% in 2003, 30% in 2004 and 33% in 2005. Viewed through a different lens, though, the picture changes. As volumes expand, cracks are being exposed.

The industry is still dogged by inefficiency, with CFLP figures showing that logistics costs accounted for 21.6% of GDP in 2004. Given that logistics costs come to 9% of US GDP and 11% of Japanese GDP, it could be argued that China wastes around one-tenth of its total GDP through logistical inefficiencies.

The sector is also stretched to the breaking point. The total handling capacity of China's coastal ports is already over one billion tons, and capacity is increasing quickly. But China cannot expand port facilities quickly enough to meet rising demand. In 2005, the turnover capacity of coastal ports was officially 2.52 billion tons, but 3.38 billion tons were actually handled. Internally, logistics networks are even more stretched, creating problems as retailers and manufacturers look beyond the largest Chinese cities to those in the tier two and tier three categories. Paradoxically, it is more difficult for manufacturers and retailers sourcing in China to reach inland markets than export to the rest of the world.
http://www.businessweek.com/