China's Big River Makes for
Big Logistics Opportunity
FedEx has been in China for 22 years, having been the first transportation entity permitted to have a private joint venture in the country. Fred Smith calls China "the issue of the modern economic world." Though parts of its authoritarian heritage remain unpleasant, Smith says, it's "better to have them inside the tent that outside. He points to the underdeveloped interior as a dormant opportunity.
That notion is seconded by Dennis Meseroll of Tractus- Asia when it comes to logistics facilities:
"There is a great need to consolidate warehousing and distribution facilities to improve efficiency, particularly as energy costs continue to rise," he says. "The boom in retailing and wholesaling over the last five years has created a critical mass of fragmented warehousing and distribution facilities that were constructed to meet demand. Now that we are beginning to see a critical mass of retailers throughout China, there are opportunities for consolidation and more sophisticated third- party logistics providers."
In fact Datamonitor expects global spend on 3PL services to rise from US$222 billion in 2005 to US$326 billion in 2010. The Asia- Pacific region that includes China is expected to account for nearly one- fifth ($65 billion) of that 2010 spend.
In a recent Web presentation on the new opportunities along China's 1,500- mile (2,414- km.) Yangtze River Transport Corridor, Clarence Kwan, national managing partner, and Kristian Knutsen, manager, Deloitte & Touche USA LLP's Chinese Services Group, explained that logistics is the main hindrance to fuller development of the country's "Go West" initiative. But, said Kwan, the Republic of China's 11th five- year plan recognizes this: "China has come to recognize the unrivalled efficiency offred by container transport makes building a multimodal corridor a national mission," he said.
Integrating the nation's huge hinterlands with the huge coastal economy is the chief challenge. More than 60 percent of China's population lives away from that coast, and has an average per capita income that is a mere 40 percent of the coast's. Knutsen says better intermodal access along the Golden Waterway can help both the government and companies achieve their goals. But that may be at least five years away, he says, even though waterborne shipping is helping pick up the slack, having quadrupled container traffic on the river over the past five years.
Foreign participation in the sector was only first allowed in 2005, and so a lot of companies are surveying the landscape. Those companies are used to landscapes like the U.S., EU and Japan where the logistics cost is less than 10 percent of GDP. In China, that level is not expected to be achieved until 2020. The local protectionism that many industrial manufacturers have encountered when it comes to land and regulations is alive and well in this sector too. But lagging infrastructure is still the most prohibitive factor.
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