Can China keep up?

Can China keep up?

Any casual stroll around the dockyards and port facilities in Shanghai will prove, beyond any doubt, that the Chinese economy is the classic definition of overheated. Everything is backed up as far as the eye can see - whether it be containers, project cargo or commodities.

It takes a little bit more digging around - talking, for example, with port managers and forwarders - to discover the truth of one Western manager's comment at a port-side restaurant: "This place is white hot, but unless they get smart about the logistics revolution, the backlog of cargo flowing in and out will put a brake on growth, in a very big way."

Glancing through the company names, corporate labels and business logos found on shirts, caps, boxes and bigger objects - all with destinations around the world - testifies to one simple fact: China, the world's premier manufacturer, has also become the world's biggest logistics chokepoint.

The horror stories heard on this most recent visit to Shanghai's port are too numerous to recount, but suffice it to say that, as the Wall Street Journal reported in June, "the Chinese government is well aware of the problems" associated with the flow of cargo into and out of the country, particularly when cargo is moving outside the east coast of the country. The article, entitled "Tortured Logistics Take Toll on Growth," cited one or two modest initiatives that, when added together, barely make a dent on the problem.

The larger question facing China is this: Will the logistics infrastructure crisis, whether at the ports or inland, become such an impediment that foreign investors will reduce their commitments? While China last year overtook the U.S. in attracting foreign investment, it is critical that China improve its transportation network, or that investment will ultimately go elsewhere. While there are signs that China is rushing to develop its logistics sector - ports are expanding, new ports are being developed, intermodal rail is being modernized, new highways are being built - questions remain over whether the development is too little - especially inland - or too late.

But logistics companies could provide a boost. APL Logistics, for example, recently opened a new flow center in the Shenzhen Special Economic Zone that offers point-of-origin inventory management in South China. The center, located near the busy Port of Yantian, has a total floor area of 298,000 square feet, roughly the size of four football fields, and provides on-site customs clearance, cross-docking, product assembly and bar-code scanning. The center operates with the latest warehouse management system and shipment visibility and information management tools, including APL Logistics' See Change Services.

"With fast-paced consumer goods manufacturers such as fashion and sports footwear producers outsourcing so much production to South China, supply-chain services need to be both fast and flexible," David Lim, president and chief executive of Neptune Orient Lines, APL Logistics' parent company, said at the center's opening. "By providing consolidation, quality checking, storage, information management and inventory visibility in one center at origin, our customers have more control over the flow of their goods. They have the ability, for example, to call on or hold stock depending on market needs. This ultimately improves efficiency and reduces costs."

The facility also allows customers to benefit from consolidating and shipping free-on-board China rather than only f.o.b. Hong Kong. This capability is important given the expected robust growth of South China-origin textile exports when quotas are lifted next year as part of China's membership in the World Trade Organization.

APL Logistics has operated in China since 1988 and was the first foreign logistics company to receive wholly foreign-owned-enterprise status. Innovations the company has introduced to China include electronic bar-code scanning and factory-based scan-and-pack services. APL Logistics operates a network of sophisticated logistics centers throughout China, including a recently opened 150,000-square-foot flow center in Shanghai's Waigaoqiao Free Trade Zone.

NOL and APL are moving ahead on several other Chinese fronts. NOL, APL and Chiwan Container Terminal have signed an agreement that will provide mutual benefits for both companies as they meet the needs of the fast-growing container trade out of South China and the Pearl River Delta. Under the 20-year agreement, APL will gain additional efficiency and berth capability at the western Shenzhen port of Chiwan. The container terminal, in turn, will benefit from APL's business expansion and container volume growth in western Shenzhen and the Pearl River Delta.

Lim said the agreement will provide APL with greater flexibility to meet the needs of customers in the region and manage costs as pressure increases on berth access and rates. APL's business at Chiwan has grown dramatically over the last few years, particularly in 2003.

APL offers direct calls to nine ports in China, including the commercial center of Shanghai, the southern ports that serve the Shenzhen special economic zone and other manufacturing centers in the Guangdong province (including Yantian and Chiwan), and Dalian, Xingang and Qingdao in North China.

"In order to continue to grow and respond to our customers' needs to ship directly out of the Pearl River Delta area, we need to provide reliable service at a time when terminal capacity is tight and demand is rising," Lim said. "Our long-term relationship (with Chiwan) allows us surety of access that will benefit our customers."

To lose the title of world's biggest logistics chokepoint, China will need a lot more companies like APL Logistics.