Term Paper: Logistics Sector in China

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China Logistics Sector

LOGISTICS SECTOR ANALYSIS in CHINA

COUNTRY PROFILE

The formal name of the country of China is the People's Republic of China. The first dynasty recognized in the country of China, the Xiz, lasted from approximately 2200 to 1750 B.C. And is stated to have "marked the transition from the late Neolithic age to the Bronze Age. China was ruled under hereditary Shang kings in the Northern area of China with the armies of the Shang battling against their neighbors and nomadic herders coming from the North quite frequently. The second dynasty in China, the Zhou gave birth to Confucianism, Legalist, Daoism, and Monism. A very distinctive writing, philosophy, art, social and political system developed in China over the past four millenniums. In 1949, the communist took over the mainland of China. China is located in "...East Asia, west of the Korean Peninsula and insular Japan, north of Southeast Asia, and east of Central and South Asia. (Country Profile China, 2006) Estimates from the year 2005 state that 14.86% of about 1.4 million square kilometers of China's land is arable. 1.3% of this land is plated in crops that are permanent in nature. There were approximately 544, 784 square kilometers of land irrigated in 2004. Environmental factors in China are: (1) air pollution from over reliance on coal resulting in acid rain and water shortages especially in northern China; (2) water pollution from untreated wastes; (3) deforestation; (4) desertification; and (5) illegal trade in endangered species. Flooding is a primary problem in China. The national carbon dioxide emission in China are "...among the highest in the world and increasing annually." (Country Profile China, 2006) China's population is over 1.3 billion not counting the population of Hong Kong, Macau, or Taiwan as of January 5, 2006. The population growth rate has been estimated at 0.50% as of 2006. Among the problems which China faces is the factor of "increasing urbanization" (Country Profile: China, 2006) in the country. (Country Profile: China, 2006) China has had the largest population for any country in the world for many centuries. Other than the majority Han Chinese, there are 55 other nationalities or ethnic groups in the country of China the official language of China is standard Chinese or Mandari. Other major dialects in the country include Yue; Wu; Minbei; Minnan, Xiang, Gan and Hakka. There are many minority languages spoken in the country as well. Education in China is lacking in that the population of China has had "on average 6.2 years" of school. (Country Profile: China, 2006) the economy of China is the second largest in the entire world following the United States "when measured on purchasing power parity (PPP) basis.

LOGISTICS SECTOR ANALYSIS in CHINA

PART II

LOGISTICS SECTOR ANALYSIS

Primary Modes of Transportation

The primary modes of transportation in the country of China includes: (1) Ports; (2) Roads; (3) Railways; (4) Inland waterways; and (5) Air. The government of China has invested heavily in the road transport system in the country and this along with the fact that the railways and inland water transport are so unreliable makes road transport the preferred method of inland travel in China. In spite of this, the trucking industry in China is experiencing great and extreme fragmentation as well as failing to be organized nationally. The logistics sector in China was for the most part neglected between 1949 and the beginning of the reforms in China during the late 1970s.

Geographical Difficulties in the Logistics Sector

There are three problems that integration of the nationwide logistics industry in China faces which include the unfriendly geography of China as China is an extremely large country and is "...criss-crossed by major mountain ranges that cover over half of its territory, and is host to a range of special problems such as extreme altitudes, permafrost, deserts of shifting sand, and seasonal flooding." (GAIN Report, 2003) the following chart illustrates the distances between major selected cities in the country of China.

Map of China (Selected Cities)

Source: GAIN Report (2003)

Deregulation of the industry has resulted in an increasing foreign direct investment, which presently accounts for approximately ten percent of the annual fixed-asset investment in China however; the logistics networks in the country of China are in a state of fragmentation. According to estimates, logistics in the Chinese economy accounts for approximately 40% of costs of production and 90% of production cycles, which are incidentally at much higher rates than in developed economy countries. Logistics costs are stated at 10% in economies that are more developed compared to in excess of 21% in the country of China. The turnover period of Chinese products is stated at 35 to 45 days compared with less than only ten days for some of the companies overseas. (the Meridian group, 2006; paraphrased)

Shipping Ports Handle Approximately 1/2 of all Import and Export in China

The largest part of the import and export in China is handled by ocean shipping with movement of the major part of China's domestic cargo in being accomplished through coastal and inland shipping lines. The number of ports in China with a throughput volume in excess of 1mn TEUs is stated to have rise "...from 8 to 10." (the Meridian Group, 2006) Namely the ports of Shanghai, Shenzhen, Qungdao, Ningbo, Tianjin, Guangzhow, Xiamone, Dalian, Zongshan and rising star Lianyungang. (the Meridian Group, 2006) the container throughput at ports in China is stated to have been experiencing a growth of 30% per year with "an enormous scramble to invest in port logistics..." (the Meridian Group, 2006) Forecasts are presently predicting a growth in foreign trade of approximately 15% annually over the next five years in China. The Ministry of Communications in the country of China anticipates the "total ocean cargo handling capacity will reach 5 billion tons by 2010 and a contain throughput of approximately 130 million TEUs." (the Meridian Group, 2006)

3 PL Providers

Stated as a major challenges for China is the linking of its port facilities to "...its less developed hinterland infrastructure." (the Meridian Group, 2006) Additionally there is a challenge related to inter-modal links inland in China both to and from coastal ports although the government in China has made a commitment to upgrade the infrastructure in the country. Continued deregulation of the market environment and a continuing rise in the domestic retail volumes has resulted in the role of third-party logistics (3PL) providers becoming one of increasingly importance. The 3PL providers in the country of China comprise approximately 20% of the logistics market. (the Meridian Group, 2006) Companies in China are reluctant to outsource these services although larger companies in China such as McDonald's have been successful in utilization of 3PL providers. The 3PL sector in China is undergoing growth of a rapid nature and the average annual growth rates are at approximately 25% since 2002. As a matter of face, the 3PL sector has a vast market scope and "...almost every sector of production [is] expanding fast than 3PL capacity." (the Meridian Group, 2006) Deregulation brought about by the World Trade Organization '...has opened "...the entire logistics sector to fully foreign ownership of logistics service providers 6 of the world's top 10 logistics providers have entered the market, and industry analysts predict the China logistics market will continue to grow at a rate of more than 20% each year." The industry is stated to appear to be: "...entering the market and further industry consolidation is likely to be a major trend for the foreseeable future." (the Meridian Group, 2006) in summary, the Meridian group terms the logistic sector in China to be the: "...keystone of a successful, growing business environment in China." (the Meridian Group, 2006)

Ten Key Challenges

The work of LT Staff (2004) sets out ten key challenges that the Chinese logistics industry faces in what is termed a period of: "...spectacular growth helped by economic development and the increased acceptance of out-sourcing by Chinese manufacturers and retailers. " (Staff, 2004) Staff relates that there are still several challenges looming that derive from "...deep seated structural problems to the unpalatable prospect of an economic 'hard landing'" (Staff, 2006) the first of the ten challenges posited by Staff (2004) is the challenges of the 'poor infrastructure' that the logistics industry in China faces due to "...insufficient integration of transport networks, information technology (it), warehousing and distribution facilities." (Staff, 2004) the logistics sector in China is stated by Staff to be: "...of low quality, highly inefficient and with little technological competence." (Staff, 2004) Secondly, China has a challenge in the area of "regulation" and while the market in China is among the most highly regulated worldwide the regulation operates on different levels due to national, regional and local authorities with differing regulations causing a hindrance in the creation of national networks. (Staff, 2004; paraphrased) Stated as the third challenges is "bureaucracy and culture" as there are still stated to be high levels of "cronyism" making it a requirement that companies establish links with… [END OF PREVIEW]

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