China's domestic logistics industry is facing a raft of challenges, including high costs, poor infrastructure, a lack of human resources, varying government regulations and uncertainties created by a slowdown in the mainland economy.
These issues have been highlighted in a report published this month by the Li & Fung Research Centre, an offshoot of the global sourcing company, which said total logistics costs were 17.8 per cent of gross domestic product last year. While this was unchanged from 2010 and down from the 18.4 per cent in 2007, it was still double that of developed economies.
The report noted that total logistics costs rose 18.5 per cent last year to 8.4 trillion yuan (HK$10.29 trillion), with transportation accounting for 53 per cent of the total, down from 54.4 per cent in 2007.
By comparison, China's total logistics market was worth 158.4 trillion yuan last year, up 12.3 per cent year on year. The biggest share - 90.2 per cent of the total - involved the movement of industrial products, according to the China Federation of Logistics & Purchasing.
Sng Peng Koon, chief operating officer for domestic integrated logistics in Greater China for Agility Logistics, said logistics costs had risen for a variety of reasons, including higher land, labour and trucking charges.
He said truck operators had to contend with high fuel costs and multiple toll charges on top of to protect their vehicles from attack, particularly in remote areas.
The logistics industry remained highly fragmented, with no company offering comprehensive national coverage. There was also a lack of modern logistics facilities and warehousing in secondary and tertiary cities, Sng said, which had become exacerbated as manufacturing moved inland.
He said that some of the cost savings manufacturers and suppliers had targeted by moving inland were disappearing.
Even the growth of e-commerce and online shopping was facing challenges, Sng said. He said the total value of e-commerce transactions was growing by 30 per cent per year and was 'forecast to touch US$2.8 trillion by 2015. About 10 per cent of the total spend on consumer necessities would be linked to internet shopping.'
Sng said the challenges included the low average expenditure per transaction and the rising costs of home delivery coupled with issues relating to the quality of products and implementing an effective payment platform and product return and refund operation.
Thomas Blank, Asia-Pacific director for sales and marketing for logistics company Geodis Wilson, questioned how long it would take before rising labour and operating costs in western mainland cities offset the original attraction of lower costs from moving west.
Shipping goods 2,500 kilometres along the Yangtze River from Chongqing to Shanghai can take 15-22 days, depending on whether river maintenance is being done, which adds to the inventory costs of manufacturers and suppliers. By comparison shipping lines can transport the goods from Shanghai to Long Beach on the US west coast in 10 days.
Total logistics costs last year as a fraction of the mainland's GDP, unchanged from 2010 but double that in developed economies