With a growing economy that has not been too badly hurt by SARS and the global recession, China's logistics industry is estimated to be growing at annual rates exceeding 30 percent, with domestic players leading the way in international shipping, domestic air cargo, domestic trucking and express package delivery.
Shanghai, with the help of the central government, now serves as the "Dragon's Mouth," the logistics hub for the entire Yangtze River Basin, an area that nearly half of China's 1.2 billion people call home.
The Port of Shanghai last year handled 204 million tons of goods, making it the largest port in China and the world's third-largest overall in tonnage terms after Rotterdam and Singapore. Annual volume is expected to top 250 million tons by the end of this year. The port handled 8.6 million TEUs last year, making it the fourth-largest container port in the world, after Hong Kong, Singapore and Pusan. Shanghai handled 3.8 million TEUs in the first half of this year, up 31 percent from a year earlier. Last year, it surpassed Kaoshiung. In a bid to boost annual handling capacity to 10 million containers by the end of next year, China is pumping 7 billion yuan ($845 million) into the port. This, together with the construction of the nearby Port of Yangshan, will reinforce Shanghai's position as the central logistics center for China's coastal region.
Waterways have proved to be among the most important logistical channels in and out of China, building the backbone for the country's kinetic foreign trade. On the southern stretch of the Chinese coast, Hong Kong is still the most important international hub, handling 19.1 million TEUs last year. But given Hong Kong's lagging integration into the mainland, the main port at the Pearl River Delta, Guangzhou, which ranks 27th in the JoC's ranking of the world's Top 50 Container Ports in 2002, is expected to rise in importance to serve the country's southern landlocked areas. Guangzhou expects to handle 2.1 million TEUs by the end of this year, and capacity is expected to increase to 6 million TEUs by 2010. The city plans to inject $1 billion into modernization and expansion projects at the port in the next few years.
Last year the port handled 128 million tons of goods, making it the third largest port on the mainland after Shanghai and Ningbo, the latter also situated close to the Yangtze River Delta.
But it is Shanghai that is seemingly garnering the most attention. All of the world's top 20 container shipping companies have established representative agencies in Shanghai, and China's two largest ocean shipping companies - China Ocean Shipping Co. and China Shipping Group - have moved their headquarters to the city.
Sixteen international routes connect the city with more than 500 ports in nearly 200 countries and regions. The city, with its 16 million-strong population and GDP growth exceeding 10 percent, is being nurtured as an economic hub by the country's political leaders. The Shanghai area represents 1 percent of China's population, 5 percent of its GDP, 10 percent of the country's foreign direct investment and 13 percent of the nation's imports.
The city recently won the bidding to host the World Expo in 2010, and will invest hundreds of millions of dollars in urban infrastructure to prepare for the event. With massive investments flowing in, Mayor Han Zheng is moving quickly toward his goal of making Shanghai the high-technology center of China within the coming decade. To meet the goal, the port is undergoing a significant upgrade under the guidance of the Shanghai Model Port Alliance, a public-private partnership. The modernization will include a more automated port facility, minimizing loss of goods and time while helping Customs collect more accurate tariffs. If the Shanghai project accomplishes its goals, there is interest in replicating the process at other Chinese ports.
Shanghai is the industrial, financial and commercial center of China. It is also home to a concentration of manufacturing activity in the key industries of automotive, electronics, telecommunications, machinery, textiles, iron, steel, pharmaceuticals, biotechnology and petrochemicals.
For that reason, rapid expansion of the port is imperative. Trade growth is rapidly outpacing capacity, and congestion is becoming the norm rather than the exception. For example, Shanghai's port at WaiGaoQiao is among the world's fastest-growing, with average annual growth of 29 percent over the past three years. Throughput is expected to reach 8.5 million TEUs by 2004.
Complicating matters is the port's location on the Yangtze River Estuary, where channel depths reach a maximum of 23 feet. That means certain ships can arrive and depart only at high tide. The port's shallow approaches and constant silting led local officials several years ago to develop a plan to build a deepwater port and new "port city" on nearby Yangshan, a group of small barrier islands 20 miles offshore.
The Yangshan Islands boast a natural water depth of 49 feet, where the largest ships can come and go freely. The barrier islands create a sheltered bay and convenient, navigable approaches to what will become the new Shanghai Deepwater Port. The first phase of the project is scheduled for completion by 2010, boosting Shanghai's capacity to 20 million TEUs. The entire project should be finished 10 years later.
The "port city" will essentially include a massive logistics center, warehouse area, customs, quarantine and transportation links to highway, rail, and light rail for all of the cargo coming through the port. It also will include residential and commercial buildings and possibly additional feeder ports along the coast.
But for Shanghai to truly take full advantage of China's massive infrastructure investment, the country must improve its inefficient national logistics system and modernize its archaic regulatory environment. Among the areas where foreign companies hope for improvement are:
_ Transportation regulations: China's transport regulations lack the clarity and efficient enforcement needed for modern logistics. Areas for improvement include enforcement of commercial vehicle safety standards; reduction of restrictions on cross-provincial deliveries; clarity on transport of dangerous goods and safer cold-chain transport. Old and unsafe trucks still haul goods, flouting China's poorly enforced local regulations, creating a health and safety hazard and a burden on China's roads. Cross-provincial transport should be open and unrestricted, the only way to encourage a strong national economy. Today, in many localities, out of province trucks are arbitrarily stopped at city borders and subjected to tolls that local trucks don't pay, or to restrictions on completing delivery. In many cases this requires an entire truckload to be unloaded and reloaded onto a local truck.
_ Business and registration structure: Current restrictions on foreign investment prohibit wholly-owned foreign enterprises from performing third-party logistics outside a restricted chain of 15 bonded zones, none of which are designed to handle efficient domestic logistics. As China struggles to develop a logistics infrastructure to support growth and meet the rising expectations of Chinese consumers, more foreign investment and expertise will be required to build nationwide logistics networks, which will ultimately lower prices while increasing margins for retailers and manufacturers. Limitations on foreign investment in logistics not only limit investment in this sector, but also discourage a far greater amount of foreign investment in manufacturing operations for both consumer or industrial products.
__Dispute settlement: Shanghai currently provides no effective forum for dispute settlement with local service providers or agents. Having no effective legal or arbitration recourse means there is no way to receive fair damages from local freight agents who clearly deceive and intentionally fail to perform as agreed. For instance, some freight agents quote and collect fees for air freight, but send by truck instead, so goods arrive five days late. Shanghai should provide an efficient and effective small claims court for corporations to quickly achieve a ruling and collect damages. Failure to punish deliberate misperformance by certain freight agents creates an unhealthy market that will be unable to develop as rapidly as it should.
_ Import/Export cycle times and costs: China has slower import/export cycle times than other advancing Asia-Pacific Nations. For the vast majority of companies in China wishing to import products, Customs clearance is measured in two to four days, whereas in other modern, developing markets such as Malaysia, the Philippines and Mexico, clearance is completed in two to five hours. This works to China's disadvantage in attracting investment and growing the economy. Shanghai should shorten the clearance process and create rapid clearance for all companies.