Poor infrastructure, unreliable transport and low-quality contractors are hampering development of logistics services in the mainland. Add to that the problems of the country's regulatory requirements, and variations in each city's operating environment. Logistics, as defined by textbooks, is the process of planning, implementing and controlling the efficient, effective flow and storage of goods, services and related information from the point of origin to the point of consumption. As integrated logistics service providers increasingly work with multimodal partners - airlines, shipping lines, terminal operators and truckers - to deliver a time-definite and seamless service to customers, they face many obstacles. Probably their greatest challenge on the mainland is obtaining a licence allowing them to operate air, sea and land freight-forwarding, inclusive of operating warehouses and depots, distribution rights and inventory management. While many companies have mainland freight-forwarding licences, a single licence covering the entire range of services provided by a logistics company probably does not yet exist. Providers say the main problem is that it is unclear whether authorities really understand what logistics - a new concept sweeping the market - is about. That is evident by the protracted period commonly involved in obtaining even a single mainland licence. The experience of New World Infrastructure and Sea-Land Service of the United States in obtaining a licence to proceed with their joint-venture project at Tianjin is instructive. The companies, which have committed an investment of US$29 million, were unable to get a stevedoring licence from the Ministry of Communications for 20 months, despite having earlier received approval from other authorities. Analysts said the ministry blocked approval of the licence as a 'tit-for-tat' move after China Ocean Shipping Co's dedicated terminal contract at Long Beach in California was cancelled following challenges from conservationists. Ministry approval arrived in September and operations at Tianjin port, which posted a 7 per cent rise in exports to HK$13.1 billion last year, are set to take off from January 1. Another obstacle has been the reluctance of mainland firms and state-owned enterprises to recognise that outsourcing inventory control, warehousing and distribution can cut costs. Their reluctance is increased by the need to give information about their businesses to outsiders should they take advantage of services offered by integrated logistics providers. Hong Kong Association of Freight Forwarding Agents chairman Anthony Lau Siu-wing said logistics still was an 'infant' used mostly by multinational companies such as Walmart, electronics companies and car-makers. Such firms understood that logistics - previously treated by many as a cost-driven, back-office afterthought - presented opportunities to innovate. 'Many experts, in fact, see it as one of the few remaining areas where a company can cut costs while improving customer service,' said Norman Wilcox, managing director of Federal Express Logistics (FedEx). That was accomplished by cutting time and cost from the overall process, and reinvesting in research and development, product customisation and quick-response distribution. Time-sensitive companies generally were able to grow at least three times faster than competitors and achieve profits more than twice industry averages. Express transport and other logistics providers were replacing older methods of stockpiling inventories, which reduced carrying costs and obsolescence. Mr Wilcox said the percentage of products shipped for just-in-time manufacturing by FedEx worldwide had risen from 18 per cent in 1990 to 28 per cent in 1995, and was expected to rise to 39 per cent by 2000. Statistics showed cycle time requirements - from production to delivery - had fallen dramatically, from about 35 days to two or three in the past 40 years. FedEx is preparing to boost its mainland business by starting service at Shenzhen's Huangtian airport in April. It was forced to postpone its launch from October because customs facilities were not ready. The Huangtian service is expected to become popular because it will provide an effective conduit for logistics providers and cut shippers' costs dramatically by eliminating the high trucking costs added to air cargo shipped through Chek Lap Kok. FedEx is hoping to use experience it gained in Shanghai, where in April 1994 it became the first express company linked electronically with customs authorities. The linkage allows most shipments to be pre-filed with customs services, providing speedy passage through port of entry and timely delivery. Despite difficulties faced by integrated logistics providers on the mainland, companies that use the services are likely to enjoy the benefits experienced by multinational counterparts elsewhere. According to Danny Lau, TNT Logistics China's general manager of commercial development, companies which outsource logistics services enjoy significantly lower damage rates, lower product loss rates and better on-time delivery. Benefits of using a third-party logistics provider also included better management of logistics systems, transparency of cost controls and performance, concentration on core business, minimal capital outlay and growth flexibility. Furthermore, companies that outsourced did not face problems encountered by firms lacking logistics experience, including lack of understanding of transport and the warehousing market, as well as the need to evaluate the service quality of sub-contractors. For companies opting for their own logistics, there was the need to recruit an experienced logistics manager to train mainland logistics staff, who traditionally displayed higher tolerance of poor service. Stephen Chan, who manages the MSAS Group of Companies in Hong Kong, the mainland, Taiwan and the Philippines, said there was a lack of system interface across modes and a need to expedite introduction of bar-code technology. Besides more co-operation and investment in IT, there was a growing need for a thorough and neutral waybill from the factory line to the retail shelf, he said.