China is making it a priority to reduce costs and improve productivity in the country’s logistics sphere. As part of its effort to create favorable economic conditions for market growth, the country recently announced plans to build 150 devoted logistics facilities.
More specifically, the goal is to build 30 high-tech logistics hubs by 2020. Inland harbor, cargo port, airport, service-oriented port, commerce and trade-oriented port, and inland border ports will all be in the mix for the 127 cities that qualified for the project. The number of newly built facilities is projected to reach 150 by 2025, according to China’s National Development and Reform Commission (NDRC) and its Ministry of Transport.
Cities identified for logistics hub growth include:
- Shenzhen
- Beijing Tianjin
- Nanjing
- Shanghai
- Guangzhou
- Zhenzhou
- Foshan
- Xi’an
- Fuzhou
The logistics hubs will incorporate automation in new ports and smart warehouses, and unmanned vehicles, robots, and drones will be integrated into parcel-delivery processes.
Providing a solid foundation for e-commerce and enabling express air and high-speed rail logistics, cold-chain processes, and cross-border delivery were also identified as priorities.
“The logistics sector is the groundwork of strategic importance for the development of market economy,” said Premier Li Keqiang at a July 2018 State Council meeting. The government has stated that it is aiming to lower the percentage of GDP devoted to logistics costs.
According to the NDRC, the cost of logistics in China took up about 14.9% of the GDP in 2016. While this was down 1.1% from the year before and was part of a four-year drop, the rate remains high among developing countries. “We must take actions to drive China’s logistics costs toward the lower end among developing countries,” Premier Li said.
China’s Need for Enhanced Logistics
China’s logistics sector is booming. In the first 10 months of 2018, the sector saw 6.6% year-over-year growth carrying $33.3 trillion worth of goods, according to China Federation of Logistics and Purchasing.
The country surpassed the U.S. as the world’s largest e-commerce market in 2015, and Forrester projects that China’s online retail market will reach $1.8 trillion by 2022.
“Chinese consumers have taken online consumption to the greatest level in the world,” Stuart Ross, head of industrial at JLL in China, told the Financial Times.
Yet the vast country is challenged by a lack of rural infrastructure to support logistics and meet consumer demand. Zhengzhou, Chengdu, and Xi’an are three growing logistics hubs, yet these and other interior cities “suffer from trained talent shortages, inconsistent infrastructure, regulatory limitations across geographies, fragmented distribution systems and underusage of technology,” according to a PwC Hong Kong report.
Demand for warehouse space is high. Yet “transport accounts for 40-50% of the cost of logistics, so reducing the distance from warehouse to consumer is crucial,” according to Victor Mok, a co-president at GLP, China’s largest warehousing operator.
The country’s government is aiming to curtail costs and reduce delivery times for the many commerce giants battling it out for market domination in China, and as we enter into 2019, all eyes will be on the country’s progress in the logistics space.