Increasing Government Support For Transportation Infrastructure Aid The Growth Of The Logistics Industry In China
Owing to the boom in its economy and the influx of foreign direct investments in 2006, China witnessed a surge in demand for logistics, experiencing robust market growth. The Chinese Government deregulation on foreign-owned logistics companies has increased market opportunities for these companies to penetrate the market further.
New analysis from Frost & Sullivan, Strategic Analysis of the Chinese Logistics Market, reveals that the Chinese logistics market generated revenues of $7.38TR in 2006 and estimates this to reach $28.78TR in 2013.
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At the completion of the Chinese Government's 10th five-year plan on transportation infrastructure in 2005, the railway length had reached 76.6 thousand kilometers, while highways length had reached 1.9 million kilometers, with up to 41.0 thousand kilometers express highways.
Besides government initiatives, the evolution of logistics and supply chain software industry is driving the modernization and development of logistics.
"Improving logistics infrastructure such as integrating road and rail networks, construction of airports in second tier and third tier cities, and setting up of free trade zones is expected to create better connectivity to link ports and airports," notes Frost & Sullivan Research Analyst Amelia Wong. "The improving IT integration of local 3PL service providers and the ongoing development in transportation infrastructure are expected to aid the growth in this market."
However, the market remained highly fragmented in 2006, with more than 300,000 registered logistics companies, most of which were transformed from the local transporting or warehousing companies. Hence, market fragmentation and the small-scale nature of the industry, along with unhealthy price competition restrain market growth.
In addition, complex licensing process at the national, regional, and local levels of government authorities, bureaucracy, and regional protectionism impede market growth.
Consequently, moving goods among provinces continues to challenge foreign logistics service providers. For the benefit of the local governments, each level of state bureau levies toll fees on the vehicles from outside the province, favoring companies that use locally based logistics service providers. Therefore, unnecessary unloading and uploading cause delays and add to excessive cost.
"Hence, logistics service providers are recommended to streamline operation and reengineer management methodology with active deployment of technology," says Amelia Wong. "With higher operation efficiencies and cost reduction, service providers can offer more competitive prices."
Although service providers are to compete on the lines of price, prompt delivery, and quality of services, they must develop customer focused solutions and pricing for various modules of services, instead of quoting a common price for all clients.
Logistics service providers can also benefit by establishing a long-term relationship with the government, including every city transport authority as well as the central government.
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SOURCE: Frost & Sullivan