Transport Efficiency through Logistics Development

Policy Study

• Publisher: Asian Development Bank
• Year: 2012
• ISBN:
  9789290928799
• Edition: 1
• Topic: Volkswirtschaftslehre
• Subtopic: Exporte & Importe

Logistics includes material flow, information flow, and financial flow between the point of supply and the point of consumption, with transport serving as its core. With the rapidly evolving economy of the People's Republic of China (PRC), there is a need for a modern transport and logistics system that is efficient, safe, sustainable, and meets customers' requirements. This policy brief describes the current state of transport and logistics development in the PRC. It provides policy recommendations that are suitable for application in the PRC, based on the results of the study and analysis of best practices in different countries.

1	LOGISTICS CONCEPTS AND RESPONSIBILITIES

A. Logistics and Transport

Transport is a central ingredient in the time and spatial economic utility of products and services. Multimodal transport, which combines the advantages of each mode, can be a particularly efficient and effective approach.

Logistics is a process of planning, implementing, and controlling the efficient flow of products, information, and funds to conform to the client’s requirements. Transport is a core component of logistics, moving goods between different points in the supply chain. Logistics encompasses the storage of raw materials, work-in-process parts, and finished products, as well as a variety of value-added services.

Achieving logistics efficiency and effectiveness requires

• improved efficiency of each mode of transport;

• coordination and seamless interchange of different transport modes;

• effective integration of all supply chain management functions (including demand management, supply management, manufacturing, storage, transport, distribution, and value-added services); and

• enhanced collaboration among supply chain partners (e.g., suppliers, manufacturers, distributors, and end users).

B. Logistics Performance

Logistics performance should be assessed from the point of view of users and society. The micro view focuses on the level of satisfaction of individual users, including manufacturers, traders, and other commercial enterprises. The macro view focuses on the contribution to a country’s economic and social development, and the satisfaction of public needs.

Individual logistics users are concerned about cost, efficiency, and service quality (including safety, transit time, and reliability), and demand that logistics enterprises reduce cost and improve speed and service quality. From the macroeconomic and social perspectives, however, logistics is concerned with more than just achieving economic efficiency. It should also reduce external costs (e.g., safety hazards and pollution), conserve energy, and optimally utilize the country’s resources.

C. Government and Market

Logistics development has always been driven by market demand, which leads logistics enterprises to continuously develop, upgrade, and transform their services to meet market needs. Government can play a proactive role in logistics market development, but government policies should concentrate on assisting logistics enterprises to improve their business competitiveness and vitality, and promote the development of a robust logistics market.

The government can serve three major logistics development functions:

i.	Establish, improve, and maintain progressive laws, regulations, and institutional frameworks to ensure effective operation of the logistics sector and to create a fair and equitable competitive environment.
ii.	Guide the logistics sector toward safe, energy-efficient, and environmentally friendly operations and reduce negative externalities.
iii.	Develop appropriate policies to address areas where market mechanisms may not work effectively, such as by improving national transport and logistics infrastructure, expanding the use of information technology, and developing technical standards.

In practice, different governments adopt different approaches to logistics development. The United States (US) relies on free market mechanisms to define the path of logistics development. The US government limits its role mostly to the first two functions listed above, with little market interference. The governments of Germany and Japan, on the other hand, play a much stronger role. In addition to tighter market regulation, they also shape logistics industry development through policies (such as Germany’s Freight Transport and Logistics Planning policy and Japan’s Quadrennial Policy Framework for Integrated Logistics). The US model can sometimes lead to shortsighted, exploitative behavior in markets, whereas the Germany/Japan model may not attract sufficient private sector usage of government logistics investments. The People’s Republic of China (PRC) is in the midst of an economic and social transformation that will reshape government functions. The government needs to carefully consider its special situation when deciding on the proper model for logistics development.

It is important to recognize the role of industry associations in logistics development. Industry associations are effective intermediaries between the government and the associations’ members. Given the high fragmentation and diversity of transport and logistics operators, logistics associations can facilitate communication between operators and government regulators. This promotes good relations between the government and logistics enterprises and enables private sector input to be incorporated into government decisions.

D. Role of the Ministry of Transport

The logistics industry is multisectoral and requires the participation and collaboration of various government departments and agencies.¹ Based on the relationship between transport and logistics, and in accordance with the Reform Plan of Ministries in the PRC (approved by the Eleventh National People’s Congress, March 2009), the role of the Ministry of Transport and its subordinate agencies is to “participate in preparation of logistics development strategies and plans” and “take charge of the supervision of the logistics market.” Its focus should be to

• assist national, provincial, and municipal comprehensive transport departments in logistics development planning;

• support the construction of transport hubs, including the development of network linkages and hubs connecting different modes (e.g., seaports and river ports, airports, or transloading facilities), and enhance the capabilities of existing facilities;

• foster the growth of “modern logistics providers” that apply state-of-the-art logistics concepts and advanced transport management models;

• introduce proven operational models like “drop and pull”² and “cross docking”;³

• support the development of both asset-based carriers such as “less-than-truckload terminal network carriers” and asset-light logistics intermediaries such as third-party logistics providers or “3PL” and fourth-party logistics providers or “4PL”;⁴

• promote the creation of unified technical standards;

• construct an effective system to regulate the transport market and to strengthen the technical capacity of transport enterprises;

• craft policies to support the development of the transport industry; and

• encourage the formation of responsible trade associations in the transport industry.

In view of the vertical division of responsibilities among government units, provincial and municipal transport departments should take charge of supervising local logistics markets. The national government should focus on formulating macro-strategies; harmonizing policies and regulations; establishing standards; and making critical investments to assist in the development of model logistics parks, conduct fundamental research, and formulate standards. The planning, funding, and supervision of logistics development should be handled by the provinces and municipalities. Local logistics development planning and supervision should be based on local logistics needs and guided by national strategies, plans, and policies.

* * *

In conclusion, transport is not only an integral part of the supply chain but also the most significant contributor to logistics costs. There is a need to improve the efficiency of the PRC’s transport system through logistics policy development, with a special emphasis on promoting multimodal transport. The performance of the logistics industry is a function of both market conduct and market structure. The regulations governing the conduct of the logistics industry and its structure are interrelated and influence market performance, which is measured by logistics efficiency. At the same time, logistics performance influences public policies targeted at changing the conduct and structure of the logistics industry.

The study provides policy recommendations to (i) address challenges posed by the lack of inter- and intragovernment coordination, and deficiencies in infrastructure; (ii) achieve logistics efficiency by effective integration of all supply chain management functions (including demand management, supply management, manufacturing, storage, transport, distribution, and value-added services); and (iii) enhance collaboration among supply chain partners (e.g., suppliers, manufacturers, distributors, and end users).

2	DEMAND ANALYSIS

A. The Maturing Industrial Structure

The PRC is at an advanced stage of industrialization. Equipment manufacturing has led to the rapid development of heavy industry, propelling growth in the iron and steel, nonferrous metals, energy, and natural resources sectors. The country has become the world’s largest center for producing labor-intensive industrial products. Under the PRC’s policy of growing new, strategic, high-technology industries (especially high-technology service industries), knowledge-based high-technology industries will become its new engines of economic growth. With rising incomes, citizens’ consumption patterns have now adjusted from the earlier predominance of food and clothing to include increased housing- and transport-related consumption.

Although heavy industries will continue to play a prominent role in the next phase of the PRC’s development, its wholesale and retail-oriented service industry will enjoy a higher rate of growth and will gradually steer the economy toward a service-driven “late industrialization” stage. Consequently, future logistics demand is expected to have the following characteristics:

• The PRC’s equipment manufacturing plants and their upstream iron, steel, nonferrous metals, and electric power suppliers are still located in the eastern coastal area and the Yangtze River and Pearl River deltas, whereas the country’s coal and mineral resources are located mostly in the northwest and southwest. Therefore, transport needs for moving bulk cargo, such as coal and mineral ore, will remain strong.

• The rapid development of light manufacturing an...