China Logistics

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2.2 Rail

The Ministry of Railways of China (MOR) is one of the world’s two largest railway passenger carriers (measured by passenger-kilometers) and is second only to the entire US railway system in freight traffic (measured by ton-kilometers). MOR’s labor force (3.3 million in total, about 1.5 million transport-related employees29) is about twice that of India and is ten times larger than the US railroad workforce. In physical productivity terms, the density of traffic over the MOR network (measured in ton-km and passenger-km per km of line) is about twice as high as the next highest railway system (India) and is nearly three times the density in the US, while the annual output per locomotive, per freight wagon and per passenger coach are among the highest in the world. In comparison to its historical role as the backbone of the transport network, rail is still the predominant shipping mode for the strategic commodities as well as other bulk materials today, such as chemicals. However, transporting commercial freight by rail generally has been a low priority; there have always been severe capacity shortages and a poor service mentality.

Some surveys indicate that between 25 percent and 30 percent of the country’s demand for cargo space on railroads cannot be met, and that approximately 2,00030 towns are inaccessible by rail. It is also estimated that China is laying new double and electrified track faster than any other country in the world. As of by October 2000, China had 6,8000 km of railway tracks.31 The system is heavily used. Top priority is given to passengers and those commodities from agriculture and extraction industries controlled by state planning committees.

Figure 5 Comparison in Tons Originating between US rail companies and Chinese Rail Administration (data source: MOR China )

Under the existing 14 administration units, China’s rail freight carriage is clearly threatened with fragmented service requiring many transactions. Chronic under-capacity means that bookings for less frequently used routes like Xinjiang generally need to be made as much as 30 to 40 days in advance. A survey by the China Communication and Transportation Association indicates that there is no notification of arrival at rail stations (the consignee or agent has to check frequently for arrival of goods), there is little integration of information technology between the provincial railways, and refrigeration is often lost during changeovers when reconfiguring the compartments. Moreover, to retain control over their key equipment, each of the Ministry of Railway's 12 Regional Divisions prohibits its locomotives from crossing divisional boundaries. The resulting interlining between different provincial administrations increases costs and significantly degrades service quality. Trip times from Shanghai to a northeastern province average 15-45 days. (Delivery windows generally are measured in weeks rather days.) In addition cargo often ends up at the wrong destination or is simply lost in some rail yard.

Some companies prefer to use trucks over rail because the railway containers are not compatible with maritime containers, or because there is no inter-modal link or convenient rail siding. In these cases, goods must be double handled, increasing the damage rates. (the damage rate for rail is estimated to be three times that of road transport). It is said that HAVI Food Service, which handles distribution for McDonald’s, uses truck rather than rail, simply because there is no reliable refrigerated service line at a competitive price in the market.32

In the next 5 years, an east-west high-speed railway artery will appear along the Yangtze River, linking Shanghai with major cities of Sichuan Province. The new railway is to run through seven cities and provinces: Shanghai, Jiangsu, Anhui, Jiangxi, Hubei, Chongqing and Sichuan, with a full length of 2024km. Both the GNP and grain production along the reaches of Yangtze River accounts for over one third of the national total and nearly forty percent of cities and population of China are located there. The new railway would help speed development of the regional economy by transporting natural resources from west to east and foreign capital and technologies from east to west. The major North-South railways:“JingJiu” and “JingHu”, which connect Beijing and Hong Kong, Beijing and Shanghai respectively, run through major industrial cities and agriculture bases in China.

China’s Rail industry is controlled by the Ministry of Railways (MOR); in some sense a pricing cartel. Rumors suggest that the MOR will be eliminated and replaced by more efficient corporations with responsibility for freight, passenger and express services respectively.

2.3 Waterways

Inland Water Ways (IWW)

China has 5,800 rivers navigable for 110,200 km, 15 rivers over 1,000 km long and 12 lakes with an area greater than 1,000 km2.33 Nevertheless, the major IWW consist of only four rivers and one canal, which carry 80%34 of the total IWW traffic. The Yangtze River system is by far the country’s largest IWW. China has a long history of using this extensive waterway network of rivers, lakes and canals since the excavation of the Grand Canal, connecting river tributaries, was started in about 480 BC. However, the infrastructure and floating equipment have deteriorated badly. The size of the navigable network reduced from 172,000 km in 1960 to 148,400 km in 1970 and to 109,700 km in 199335. The Yangtze River’s 55,300 kilometers of waterway account for half of the country’s total river course. The total cargo volume is expected to be 300 million tons by 2010.36 Inland water transport for domestic distribution of goods is inexpensive, but it often is underutilized for a variety of reasons. For example, most ports lack the ability to process and manage cargo at international standards of efficiency. Shipping schedules are often inflexible. Delivery reliability is low and inter-modal operations often require multiple crane moves. Bureaucracy-related delays in customs processing occur routinely. Many ports cannot accommodate larger cargo vessels above 10,000 tonnages.
Over the past 10 years the IWW transport sector operations have gradually shifted from fully state-controlled operations (planning, infrastructure, cargo allocation, fleet operations, port operations) to a mixture of state-controlled activities, incorporated state-owned but commercially and financially independent operations, and an increasing private sector involvement (fleet operators).
IWW sector may negotiate the transport and port handling tariffs within a margin of +/-20% of standard tariffs set by the Provincial and/or Local Price Bureaus; a tariff variation of more than 20% requires approval of the Provincial and/or Local Governments.

Fleet operations

The shipping companies are financially and commercially independent, especially since the 1989 commercialization reform; they pay taxes to the provincial and central government; are entitled to plan their own investments within limits and fund their development from profits.

Free competition between the shipping companies has already been instated, although the fleet composition and performance show that the state-owned companies carry comparatively more cargo over longer distances in larger barges. It is therefore good to know the ongoing gradual incorporation of the state-owned shipping companies. All shipping companies have free access to resources such as labor, fuel, equipment and materials. Tariffs are still set by the Provincial Price Bureau, although a variation of +/-20% is free to negotiate. Credit lines are expected to open up to the private investor, creating potential for private ownership and further liberalizing the tariffs.
In Hunan, Guangxi and Zhejiang, night navigation is practiced.

Port operations

Like most strategic components of China's post-1949 economy, China's ports were developed with the Cold War objective of achieving local self- sufficiency. This led to the evolution of many small ports, often little more than 100 miles apart. Today, these same ports compete fiercely with one another for hub status.

To date, unfortunately, opportunities regional cooperation has been largely ignored and much money has been invested in white elephants. More than $8 billion has been spent since 1988 on new container-handling capacity, with another $6 billion committed through 2000 on ports and waterways from Qinhuangdao in the north to Yantian in the south. Additionally, foreign participation options are growing, ranging from port development to shipping. Both joint venture and wholly owned foreign enterprises have become involved in port and wharf construction and operation projects. A limited number of foreign transport operators have been authorized to deliver freight inland and offer door-to-door service, which can include use of the main river network.

Shanghai, Ningbo and Guangzhou ports have the highest holding capacity in China. Qinhuangdao, Tianjin, Dalian and Qingdao follow.

Tianjin Port, in north China, will invest Rmb1.5billion this year to increase its capacity. The money will be used to build and upgrade infrastructure, including the second-phase construction of a navigational channel for large vessels with a capacity of 100,000 tons. In 2001, the port handled 113.69 million tons of cargo, up 18.8percent year-on-year, to become the largest of its kind in north China.

Qingdao Port handled 100.08 million tons of goods in the year 2001, with nearly 70 percent of the goods either imported products or Chinese products for export. The port, ranked third among the major ports in China, handles 2.6 million containers in 2001.

Shanghai, China's largest seaport, has ambitious development plans with significant inland implications. Work has begun on a 10-year, $900 million dredging project to deepen the mouth of the Yangtze River. When completed, this will enable ocean-going vessels of up to 1,000 TEUs to sail up the Yangtze as far as Wuhan (725 km), the major transportation hub of central China. Further, if the controversial Three Gorges dam project is completed, similar vessels could navigate the length of the Yangtze up to Chongqing (2,400 km). In anticipation of these developments, surrounding river ports are enhancing their facilities to take advantage of the new traffic. Shanghai was the world's third largest port and fifth largest container port in 2001. Shanghai handled a record 8 million containers during 2002, ranking fourth in the world.

Other major port developments in the south have transformed the Pearl River delta into a major gateway with potential to become a long-term competitor to Hong Kong. Shenzhen Port in south China's Guangdong Province handled 5.08 million TEUs of containers in 2001, taking the 8th place in the world. The Yantian port near the Shenzhen border with Hong Kong has emerged as a deep-water alternative to Hong Kong. Three berths opened at Yantian in 1995, and at least 10 more are scheduled for construction. Meanwhile, the Shekou port is evolving into a major container-handling facility for the Shenzhen Special Economic Zone. Shenzhen’s growth has been astounding. It ranked only No.21 in 1997 among the world’s container ports. Despite these developments, Hong Kong's Kwai Chung port, the world's busiest, continues its expansion with Terminal 9 due to open this year.

China's domestic waterways—encompassing more than 38,000 navigable miles—carry nearly 1 billion tons of cargo, though containerized traffic remains a tiny fraction (less than 3 percent) of the total. Development priorities are aimed at increasing domestic containerization and improving access to the Yangtze River.

The responsibility for inland waterway port operations has been transferred to the Provincial Communication Departments. In some cases specific port companies or corporations have been established to assume responsibility for the operation and further development of certain port facilities.

Ocean Shipping

Ocean Shipping has been among the most open and advanced sectors in China logistics. With accession to WTO, China’s exports are expected to increase with cargo destined for international markets expected to rise to 650-700 million tones by 2005, from only 400 million tones in 1999. Container ports like Shanghai and ShenZhen are predicted to join the ranks of the top 5 biggest container ports of the world in terms of throughput. Container volumes are predicted to rise above 40 million TEUs by 2005.

China recently invested US$1.7 billion in inland water transportation, with the goal of developing an international standard container network with inter-modal capabilities. The largest three Chinese carriers – COSCO, China Shipping Group and Sinotrans – will benefit from WTO entry. Some of them are already ranked among the top carriers in the world.

In general, ocean and inland water transport is not suitable for moving high-value finished goods and time-sensitive freight.. Because of its low cost and low pilferage and damage rates, shipping and inland barges can be a good solution for bulk commodities transportation. However, this mode is severely underutilized for lack of required infrastructure.

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