Logistics in China are in early development, but changing quickly

By Sarah Bowling, Web Editor -- Logistics Management, 1/18/2006

BOSTON—Logistics costs are currently about 21.3 percent of China’s Gross Domestic Product (GDP) compared to 8.6 percent in the United States, according to a report entitled “State of Logistics in China,” by industry analyst ARC Advisory Group.

“A lack of infrastructure creates a lot of inefficiencies,” said report author Adrian Gonzalez. “Administration cost is the real culprit. Even though labor costs are low, processes are not streamlined, and information systems and automated process are lacking.”

The government is moving to improve the logistics infrastructure, spending 24 percent more than in 2003 on logistics assets and infrastructure. China invested over $87.8 billion last year—83 percent of this spend was allocated to transportation improvements.

Infrastructure trouble spots

Currently, improving rail infrastructure is the top priority. Demand for rail capacity is much greater than supply—roughly 160,000 carloads per day are needed, but the railroads can only support 90,000 carloads per day.

“Rail is relatively less expensive than building roads and is the most efficient method for moving people and bulk commodities to the mountainous Western region of the country,” said Gonzalez.” Over time, he added, road infrastructure can be put in place—much like the path taken by the United States took at the turn of the century.

And China is making significant investments to improve its highways, planning to build over 50,000km (31,000 miles) of expressways over the next 15 years.

Toll charges are also a hurdle and the biggest cost item for trucking companies—trucking a 40-ft container from Beijing to Shanghai can involve $400 in toll charges. The Chinese government does not have a unified management system in place for tolls.

“Each municipality imposes their own toll to go through their city as a revenue generator and to protect their local economy,” said Gonzalez.

Westward development

China resembles the United States from 130 years ago, said Gonzalez. Areas along the East coast of the country are relatively well developed, because China’s economy is heavily dependent on trade and ports are all located on the Eastern border.

But, development is moving westward, said Gonzalez.

“China’s rate of progress is much faster than the United States at the turn of the century,” he said. “What it took us decades to do, they are doing in years.”

Change in China

Quickly, China has become the world’s third largest trading country, behind only the United States and Germany. China’s GDP is forecasted to reach $1.8 trillion in 2005, according to ARC’s report.

China is in the early development stage, says Gonzalez, but the state of logistics in China is dynamic and rapidly changing.

“The Chinese government is beginning to place some priority on infrastructure because they are recognizing the overall health and growth of the economy is much more dependent on their logistics capabilities,” said Gonzalez.

For a copy of the ARC report click here: http://www.arcweb.com/aboutarc/contact/inquiry.htm