Are China's Transport, Distribution and Logistics Efficient?

Are transport, distribution and logistics in mainland China efficient?

Victoria University

China. Currently the worlds manufacturing plant, and is constantly growing. China’s main export destinations are the United States, the European Union, Hong Kong, and Japan which accounts for 68% of export value. In the last decade China’s booming economy has greatly benefited from globalization and trade liberation. With such a huge amount of product’s being manufactured in China, it brings to concern how these products are getting out of China. Is China’s transport, logistics and distribution systems efficient?

China’s logistics first started off with the three-tier distribution system, this distribution model used the top down approach. Under this distribution model, only state owned wholesalers were allowed to provide logistics services. The three major hubs for tier-1 distribution centres were located in Tianjin, Shanghai and Guangzhou. Tier-2 distribution centres were typically located in Provence capitals, this tier mainly dealt with distribution to major urban areas, storage and transportation. Tire-3 operate in smaller cities and towns, they provided additional storage and final delivery location. When a product reaches tier-1 locations it then flows down each tier until tier-3 in which the product is then delivered to the business or customer. Amongst this tier system, there were no competitive motives; the performance of the system was measured in terms of the fulfilment of the central administration goals as well as arrangement with political interests. Today China has liberated the three tier system, the state still takes part in state owned enterprises, but limit the partition of privately owned companies were allowed and encourages (Luk & Sherriff, 1998).

The impact of a products being delayed can be a problem, delays can be associated with the image of the company, and having an order delayed can cause negative reputation with supplier. In terms of exporters in relation to delays, in some cases they would need to offer price discounts, rebates, or maybe penalised. Longer delays may even lead to cancelations of orders, the return of cargo, which can cause major logistical problems at port, and may also disrupt the supplier’s cash flow.

The rail network in China is vast; however it is still not capable of easing congestion on highways. There is still a shortage or rail way networks in China. The rail system has been primarily used to server as a means of transporting build material such as coal, steel and iron additionally the rails system has also been used to transport iron ore, coal and other taw materials. China rail has not proved viable for finished goods and industrial products to long booking times and delays. During 2005 less than 1% of containers were moved by rail, during this time container trucks were the dominant transport mode for freight. China’s manufacturing is moving more inland and ports are becoming more congested. China plants to solve this by increasing their rail logistics by introducing eighteen inland railway logistics hub. (Mongelluzzo, 2007).

China is still growing at an alarming rate, and China’s infrastructure is still not capable of coping with the huge demand generated by its economy. Compared to other countered, the efficiency of China’s logistical industry is still low compared to the ratio of logistics expenditure to GDP. Furthermore the addition of packing, transport, storage and Damage, the ratio of logistics coast to total manufacturing range from 40% to 60%, where in other developed nations this can be close to 20%. IF logistics costs are broken down, transport accounts for a substantial 57% of costs of inventory. This indicates transporting costs in China can be more than double that of a developed country. (Johnson, 2007).

Most of China’s warehouse were built as single story buildings, these structures had low celling, poor lightning, and inadequate temperature control this then lead to food and perishables to spoil. Additional there were also unskilled managements in place. Manual labour is still heavily utilised in China given its abundance and given that it’s cheaper to hire someone instead of using technology to facilitate the temperature, in this circumstance. Automation in warehousing is rare most of order placements and retrieval is done manually, which can lead to errors being made.

China churns out a lot of products for a lot of companies and countries, the main and in some instances the only way of getting a product out of China is thought its ports. Almost 90% of China’s international trade is handles though maritime transport. This called for major investments in port infrastructure, and intense competition had led to extremity efficient ports that are in some instances better than some European and North American Ports. Despite Chinese ports being so efficient, they are still affected by bureaucratic customs procedures and in some cases low customer service. Companies which are located close to Ports are less affected by the inefficient transport and logistics mentioned before (Culliane, 2004).

China understands this massive foreign investment and the Chinese government is always expanding. Since 2000 major transport infrastructure has been built, including 250,000 kilometres of highways and 24,700 kilometres of express way, at the end of 2006 the total length of Chinese highway had reached 3,457,000 kilometre’s and 77,00 kilometres of railway (Waters, 2007). Additionally China has kept improving their infrastructure since 2006. Completion of 14 expressways including one from Beijing to Hong Kong and Macao, six new additional railways for passengers transport, including one between Beijing and Shanghai, inner city rails from Beijing to Tianjin and the upgrading of five existing railways including one between Datong and Qinhuangdao, dredging of deep water channels at the mouth of the Yangtze river, more dredging at the mouth of the Pearl River to the sea, and channel dredging in the Yangtze and pearl river valleys as well as the Beijing-Hangzhou canal. Furthermore an addition of ten new airports were constructed, such are those in Shanghai, Beijing, and Guangzhou. New pipelines and railroads infrastructure for transportations of iron ore, coal, imported crude oil and container at twelve seaports, including those at Shanghai, Dalian and Tianjin ports. New coal transit and storage points in eastern China. All of these major infrastructure improvements were done between 2006 and 2010. (CGOWP, 2006)

China’s infrastructure, for transportation and logistics were lacking behind in the early 2000’s and late 1999’s however with the current rate at which china is improving their infrastructure it’s no doubt China will improve their transport, distribution and logistics in the future. The growth in port capacity has kept pace with demand and is not seen as a major bottleneck besides the regulations of customs. The development of rail network and improvements with dredging in major river arteries can dramatically improve the efficiency of moving items. Major companies which are located inland from china’s coast are suffering in getting their products to ports; however costal companies which are located near ports don’t have this problem. However costal real-estate is becoming more expensive and companies are being forced inland additionally some companies operate in both locations which need items from inland manufacturing facilities to be transported to costal manufacturing plants, so improvements in rail network will ease this problem and will give more confidence for new companies to move inland (Luo et al., 2014).

In terms of recommendations, I would recommend China to continue growing, and improve their infrastructure, however many foreign countries might see this as a problem due to human rights. When China wants to construct a highway, they just relocate people and build it, without the public’s opinion taken into consideration. A prime example of this happening was when the Chinese government decided to solve their power shortage, and build a dam on the Yangtze River. Three Gorges Dam is the largest hydro power dam in the world, capable of generating 98.8 TWh of power per year. When upon competition thousands of people were forced to move elsewhere. Additional upon full capacity of the dam hundreds of acres of land were destroyed by the water (Y et al., 2015).

Bibliography

B.Y.P., L., D, W. & , 2014. Changing landscapes of transport and logistics in China.

CGOWP, 2006. China’s Key Transport Infrastructure Projects. [Online] Available at: http://english.gov.cn/archive/statistics/ [Accessed 15 March 2015].

Culliane, K..F.W.T.&.C.S., 2004. Container Terminal Development in Mainland China. Transport Reviews, p.24.

Luk & Sherriff, T., 1998. Structural Changes in China’s Distribution System. International Journal of Physical Distribution & Logistics Management, pp.28, 44.

Luo, X., Zhu, N. & Zou , H.-F., 2014. China’s lagging region development and targeted transportation infrastructure investments.

Organisation for Economic Co-operation and Development., 2002. Transport logistics shared solutions to common challenges. Paris, France: Organisation for Economic Co-operation and Development.

Y, Y. et al., 2015. Concentrations, distribution, sources, and ecological risk assessment of heavy metals in agricultural topsoil of the Three Gorges Dam region, China. Kluwer Academic Publishers.

Dylan Moonsamys4082152Victoria University