Drewry: China needs to fix logistics weak links
China’s inland transportation connections are the “weak link” in the supply chain that sees the country spend about 18.5 percent of its GDP on logistics costs, compared to about 10 percent in the United States and Europe, according to a report by London-based Drewry Shipping Consultants.
The report, Opportunities in China's Container Transport and Logistics Sectors — Fixing the Weak Links of China's Economy, said the inland transport costs to the coast from provinces like Sichuan, for export to overseas markets, are often higher than the maritime transport cost from China to the destination port, while inventory management, trucking and rail transport are inefficient.
Drewry estimates that rail container traffic in China in 2006 increased 10 percent year-on-year to 3.3 million TEUs, well below the 22 percent annual growth rate in maritime port container throughout. Only about 1 percent of containers loaded or discharged at Chinese seaports are carried inland by rail, Drewry said.
'Paradoxically, the difficulties, fragmentation and capacity shortages involved in logistics in China create opportunities for companies which have more advanced systems and the ability to minimize or overcome the difficulties or for investors who can identify market gaps,' said Philip Damas, research director at Drewry.
Damas added that Chinese traders would need better connections if they are to remain competitive in an environment of rising labor costs in the wealthier coastal provinces. 'In some cases, it is a chicken-and-egg situation, with manufacturers unwilling to move to interior provinces and transport providers lacking the scale to lower inland costs,' he said.
However, Drewry believes that China's inland transport sector can narrow the cost gap thanks to infrastructure improvements and the influx of private-sector capital and operators, helped by more liberal regulations on market entry in some sectors, most notably rail.