Westward bound
The high road tolls underscore one of the more outdated myths about China – that the cost of doing business there is almost always lower than in the West, due to an ocean of cheap labor. While there are some labor savings to be found, compared to the U.S. and Europe, the rising middle class is making cheap labor scarce in the eastern cities and provinces. Real estate prices in the big cities – such as Shanghai, Beijing, Guangzhou and Shenzhen – have gone through the roof, as well.
“Expensive retail real estate means that stores often hold minimum stock, and regular replenishment is therefore required,” said Kerry’s Rowlands. “But city centers are very congested and there are often tight regulations around when deliveries can be made to malls.”
In search of more cost-efficient operations, many manufactures and shippers are now doing what the early U.S. pioneers did: Westward, ho!
The recent push to move manufacturing to the western and central provinces has been a boon to multinational forwarders, such as Kuwait-based Agility Logistics. “This is creating opportunities for logistics service providers to serve these companies,” said Soren Poulsen, CEO of the greater China area for Agility.
Kerry is well suited to this expansion, Rowlands said, as it operates a pan-China hub-and-spoke distribution network, with scheduled long-haul and regional distribution services (in Beijing, Chengdu, Guangzhou, Jinan, Shanghai, Shenyang, Wuhan and Xiamen), serving more than 2,900 delivery zones. “Choosing a partner with a number of regional distribution centers and the right spread of vehicles is important,” she added.
But sometimes just moving west isn’t the answer. In his new book, “Gobal Supply Chain Ecosystems,” Millar describes some examples of manufacturers moving their production facilities inland for the cheap labor only to discover that the only way to get their products to market is to barge them 1,200 miles by river to ports on the east coast – a two-week journey that is longer than it takes to transport the same goods by sea from Shanghai to Los Angeles.
CEVA Logistics, which entered the market about a decade ago, has also been focusing on expansion across the western, central and northern provinces, said Hakan Bicil, COO for CEVA and an executive sponsor for China. As the consumer market continues to demand more imported goods via e-commerce, he said, the Chinese government has come to realize that China’s logistics costs, as a proportion of total manufacturing costs, are higher than other developed markets.
In fact, according to Forwarderlaw.com, the government, in recent years, has encouraged freight forwarders entering China to transform themselves into full-service logistics companies, hinting that the country would open itself up to greater foreign participation in exchange for an improved logistics infrastructure.