Choosing the right 3PL in China (page 2)

-- Logistics Management, 5/1/2005

Page 2 of 3

Clifford: The inland element in China is the greatest uncertainty. Once you get beyond the main ports and their immediate hinterland, the risks and complexity of logistics in China are far greater than in Taiwan or Singapore.

China requires different operating licenses for different cities and provinces. On top of that, there is widespread levy of "illegal" charges, which go to local government. That may be surprising to Westerners who think the central government still exerts an iron rule on the country, but unfortunately Beijing has little ability to stop this.

LM: How important is it for 3PLs in China to own local logistics expertise?

Kemper: …[M]any 3PLs have realized they need to partner with or buy local expertise. For example, UPS announced that they're buying direct control of their international express operations in China's 23 largest cities. They've been partners with state-owned enterprise Sinotrans since 1988. By December of this year, they say, they'll have 1,700 employees there. Now they have the flexibility to invest as they like in facilities, infrastructure, technology, and employee development. You'll see their brown trucks everywhere. The drivers will have those familiar uniforms and use the same package-tracking network.

Clifford: The biggest move we're seeing is toward forming wholly-owned foreign enterprises rather than joint ventures. In general, shippers find that very few 3PLs are capable of providing nationwide networks and capabilities in China. Quite often, the shipper will mitigate the risks, for instance, by having different 3PLs serve them in North China and in South China—that is, from Shanghai southward. That's been the case with Dell when they ship from their plant in Fujian province on China's southeastern coast.

LM: What allowances are U.S. managers making for Beijing's "Go West" policies?

Clifford: Some investors have already gone west. For example, Ford Motor and engine maker Cummins are both established in Chongqing, deep in China's Southwest. Logistics providers have been forced to follow them in using a variety of transport modes, including ships and barges on the Yangtze River.

A good example of the western migration is Sichuan Province, about 1,000 miles inland. It's famous as the center for preservation of the giant pandas. But Sichuan is rapidly being transformed from an agricultural center into a high-tech base. Western companies have been arriving for several years; Motorola recently added investments there to form a major semiconductor research and production center.

LM: Logistics capabilities in China are changing quickly. Is this an area that shippers need to manage better?

Kemper: It's not actually just a China issue—it's a global issue. Of course, logistics managers still have to worry about getting goods across borders, but more than that, they have to be able to reduce the costs and accelerate the flow of cross-border freight.

A lot of the game here is not just about the freight cost per kilo. It's about the speed of customs clearance and about dealing with the variability of customs clearance. Logistics guys really need to be able to look at how they can keep total delivered cost low and total flexibility high. Total delivered cost includes all the hidden costs: the hidden tariff and duty costs, the hidden labor costs, and so on. That's an issue worldwide. Continued...

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