Logistics Management - October 2011

View of cargo containersat Hong Kong harbor.BY BILL FU, BROOKS A. BENTZ, AND MARK T. MCCALLA, ACCENTURETo varying degrees, China has becomethe world’s factory: supplying NorthAmerica, Europe, and other locales withall manner of apparel, electronics, foodproducts, appliances, and componentsfor manufactured goods. But how is China’stransportation and logistics infrastructure copingwith such rapid growth? Even more important,what is the country doing to ensure the efficiencyand effectiveness of those global supply chainnetworks that have tapped its resources andfueled its rise to power?Despite China’s huge successes, it’s never been asmooth ride. According to the China Federation ofLogistics and Purchasing, logistics costs accountedfor 18 percent of the country’s GDP in 2010. Thisis twice the level of most developed countries. Taxburdens, expensive tolls, and chaotic competitionin the logistics market are the main reasons logisticscosts are so high. In fact, some of the country’smanufacturing concerns are moving to nearbylower-cost countries as China’s costs—particularlylabor—continue to rise.Still, China’s logistics infrastructure hasimproved significantly during the implementation ofthe country’s eleventh Five-Year Plan (2006-2010).Acknowledging that economical labor wouldn’tbe enough to ensure long-term growth, China hasincreased its investments in highways, railways, andother transportation facilities.However, logistical inadequacies still exist,including sub-par distribution facilities, roads, andrailway networks—especially in the western (lessdeveloped) provinces. This is a clear reflection ofChina’s unbalanced economic growth and a majordetriment to its ongoing competitiveness.TRENDS AND DEVELOPMENTSIn a logistics context, China is clearly thinkingahead. On June 8, 2011, Premier Wen Jia Baoannounced that “we must make a complete set ofpolicies and measures, and promote the healthydevelopment of the logistics industry.” The resultinglogistics improvement initiatives, known as theEight State Regulations, focus on:• tax preference;• land policy support;• road traffic improvement;October 2011 | WWW.LOGISTICSMGMT.COM LOGISTICS MANAGEMENT 37