China: Govt plans measures to boost logistics sector

Date Posted: 2012-07-28

The Ministry of Commerce will start implementing a modern logistics technology project this year to reduce distribution costs and expand domestic consumption. Nine cities, including Guangzhou, Wuhan and Lanzhou, were selected as pilot cities for the ministry's initiative and will receive funding of 15 million yuan ($2.35 million).

"At the end of the 12th Five-Year Plan (2011-15), we will strive to have network coverage for common deliveries, including uniform distribution, above 40 percent in major cities, to reduce the equivalent volume of freight transport by at least 30 percent," said a document published on the ministry's website.

The document added that logistics costs in the commodities supply chain are expected to decline 2 percent at the end of the 12th Five-Year Plan. This is the first time that the central government is funding the application of a modern logistics technology project driven by common deliveries, which allows several companies to share logistics services to achieve greater synergy, the Shanghai Securities News reported on Friday.

China's commercial logistics services have dispersed networks and outdated technical equipment and are poorly organized. Also, the last kilometer in the delivery process accounts for a significant portion of supply chain costs, the document said. "Promoting the application of modern logistics technology and enhancing the level of common deliveries is the key way to modernize China's commercial logistics services and improve the organization level, which is of great significance in lowering distribution costs and improving distribution efficiency, as well as expanding domestic consumption," the document said.

Xu Wei, a researcher from the China Center for International Economic Exchanges, said the move may lower the prices of consumer goods and thus expand consumption, while boosting production by reducing companies' costs. "Jobs will be added because the development of the supply chain needs a lot of labor. All in all, the ministry's move will have a positive effect on the country's economic expansion in the second half of the year," Xu said. The ministry will build urban distribution networks supported by major logistics parks, public distribution centers and terminal nodes for common deliveries. It will also encourage the modernization of distribution models.

Distribution companies will also be urged to boost common deliveries through alliances and joint shareholding. "In recent years, China's logistics sector faced rising labor, land and transportation costs. High transportation costs and frequent toll station fees have become an outstanding problem in China's supply chain because they not only increase the cost of logistics but also affect the quality of the transported commodities," said He Dengcai, deputy director of the China Federation of Logistics and Purchasing. "It's important to fully extend the pilot program of replacing the business tax with a value-added tax because this will greatly ease the burdens of small and medium-sized companies, which are the main players in the supply chain business," Xu said.

The ministry will also support companies' efforts to update their logistics information systems and share data and resources with producers and regulators. Companies are also being urged to use new technologies, including GPS real-time monitoring systems and RFID, or radio frequency identification systems. The introduction of a standardized system is being urged for the production, packaging, loading and transportation stages.

The ministry will also support companies that renew supply chain facilities, including building energy-efficient cold storage facilities and warehouses with automatic sorting equipment. He from the logistics and purchasing federation said he also expects detailed regulations for land use to improve the supply chain. "Surging land prices and rapid urban development in recent years drove convenient logistics terminals, such as community vegetable stalls, out of the reach of people," said He. Xu added that private capital is of crucial importance to the development of China's circulation and distribution market and should be welcomed.

Read more here.