For its next major push forward China has got to get its logistics right. And it is doing it through desperately needed improvements to the transport infrastructure and the use of tehnology to control the movements of goods. With some of the bigger companies the logistics within the company are already world class.

Benz-DaimlerChrysler is showing the way with its factory in Beijing by introducing just-in-time methods which, in turn, depend totally on efficient logistics within the company and among its suppliers.

In 2006, BeijingBenz-DaimlerChrysler Automotive Ltd (we will call it BBDC becaue life is to short) opened an all-new state-of-the-art factory in Beijing to build Mercedes Benz E- and C-Class sedans, as well as Chrysler’s best-selling big-grilled 300C sport/luxurymobile.

The idea was to have a totally modern factory using enterprise resource planning for just-in-sequence production. This is a step in the just-in-time process.

BBDC went to two companies for electronic solution — SAP and Seeburger. The result was the first fully integrated automotive supply chain management infrastructure in China and one of the most advanced systems of its kind in the world. (And, by the way, some snazzy vehicles which are world class.)

When you make a move like this it is complicated beyond measure. For not only must you make it work in your own factory you need to implement a form of the system throughout the supplier network, down to the smallest local suppliers.

James Hatcher, managing director at Seeburger Asia Pacific, using the acroynm EDI for electronic data interchange as if it were part of daily speech, said, ‘EDI is not widespread in Asia, but it was mandated by Daimler Chrysler to optimize BBDC’s supply chain. The project therefore had even more challenges than a typical EDI implementation.’

BBDC used Seeburgerhandle business-to-business integration. Seeburger established a strategy to EDI-enable 100% of BBDC’s suppliers which must have been a task and a half. But it was done on time and was readywhen the plant opened in mid-2006.

That is making sure that machines are made with the right parts ready at the right time and is to be applauded.

The next major step is to see that the completed goods — in this case vehicles — can be moved to their final destination at the lowest cost and highest speed. This is the main problem facing the logistics industry of China and government and industry are working together on it at the moment.
Source: Supply Demand Chain

Ping An Insurance, China’s second biggest insurer, will pay $2.3 billion for a 14% stake in the Beijing-Shanghai High-Speed Railway.

Ping An has raised billions of dollars recently to pay for such acquisitions.

In remarks posted on the central government’s Web site, Cai Qinghua, who is also vice minister of the Railway Ministry, said the National Council for the Social Security Fund would also buy a stake in the railway, investing RMB10 billion ($1.4 billion) for an 8.7% interest.

Construction of the railway has already begun in Beijing. This is one of these solid investments which China throws up where the scale of investment is so large that only the very, very big players and the government can afford to ante up.

We are looking at $2.7 billion for 24.7%. Using back-of-envelope economics that has to be about $10.4 billion all up and so a return of something closer to a billion dollars a year, rather than half a billion is expected.

That is very serious investment but you can see that a high speed run between Bejing and Shanghai is a natural.

Instead of the misery and expense and time of hacking it to the airport you get on the train ten minutes before it is due to leave, work on your laptop and before you know it you are at the center of your destination city. Which means it is as near as guaranteed investment as exists.
Source: Businessweek

The China Business News reports that the plan for Sinotrans to merge with China Changjiang National Shipping has been approved by the State-owned Assets Supervision and Administration Commission. The two central government-controlled companies will set up a working team to finalize the details.
Wuhan-based CSC Group, China’s largest river shipping company, controls two listed arms — Changjiang Shipping Group and Nanjing Water Transport Industry.

Beijing-based Sinotrans, parent of the Hong Kong-listed Sinotrans, is the country’s largest logistics service provider. It also indirectly controls Shanghai-listed Sinotrans Air Transportation Development.

It will take at least two months to finalize the plans due to complications in the corporate structure.

The Assets Supervision and Administration Commission has repeatedly said that it hopes to reduce the number of state enterprises directly under central government control via mergers or acquisitions which will make them easier to manage.

When the merger is completed, China will have four central government-controlled shipping companies — China Ocean Shipping which is COSCO, China Shipping Group, China Merchants Group and this new entity.
Source: Forbes

Booz Allen says very firmly that the implications for the supply chain clear — even more so than in Western markets, companies operating in China must have different supply chains to meet the needs of groups of individual product-markets.

Edward Tse in a recent issue of Booz Allen’s Strategy + Business magazine wrote:

‘In working with multinational companies that enter China, either to manufacture goods or to sell to Chinese markets, we can almost always tell which ones will succeed and which will probably fail.
‘Too often, Western companies think they can profit in China by simply focusing on the largest and most well-known metro areas such as Beijing, Shanghai, or Guangzhou. But today that is unlikely to be enough.’

Companies frequently must set up distribution ‘into second-, third-, or even fourth-tier cities. Doing this is not as easy as, say, expanding beyond New York and Chicago to Buffalo and Peoria. As you move into China’s second-, third-, and fourth-tier markets, you’ll find a steep drop-off in infrastructure, channels, management sophistication, and disposable income.’

Procter & Gamble is already doing that and setting up very different supply chain capable of physically delivering products effectively to these more remote markets – and at a cost to make and deliver at even lower levels than is required for the first tier cities.

Tse notes that until just a decade ago, most milk outside the largest cities was consumed in powdered form, as production and distribution systems could not get regular milk safely to consumers.

But as the supply chain solved that problem, Chinese milk demand exploded — allowing a few companies to profit handsomely and continue to enjoy high growth rates. (Our illustration may not be directly associated with logistics but it is the on the opening page of the Procter & Gamble site and is dashed attractive.)

Source: SupplyChain Digest

The Economist with a major article — not all totally complimentary — on the galloping pace of building and expansion in China.

Some examples of growth.

Beijing’s new airport terminal, seen here during construction, was designed by the British firm Foster + Partners, and planned and built in four years by an army of 50,000 workers.

The terminal is 3km (1.8 miles) long. The floor space is 17% bigger than all the terminals at London’s Heathrow combined (including about-to-open Terminal Five). Part of a $3.8 billion expansion, which included the opening of a third runway in October, it is due to open at the end of this month, weeks ahead of schedule.

It is the ninth busiest airport in the world.

And it is part of the rush to improve China’s logistics infrastructure.

Between 2001 and the end of 2005 more was spent on roads, railways and other fixed assets than was spent in the previous 50 years. According to the state media, investment will see double-digit growth every year for the rest of the decade.

The world’s longest sea-crossing bridge is due to open in June: a 36km six-lane highway across Hangzhou Bay.
Shanghai is home to the current world-record holder for such a structure, the 32km Donghai bridge. This was opened less than three years ago to link the city with Yangshan port.
Yangshan is intended to be one of the world’s biggest deep-water facilities when completed at some point after 2010.
From August the 115km journey from Beijing to Tianjin, its nearest port, will be reduced to half an hour with the inauguration of a bullet-train link
Work began in January on a 1,300km line between Beijing and Shanghai which will be completed in five years’ time.
The world’s highest railway from Golmud to the Tibetan capital, Lhasa was completed in 2006.
Since the 1990s China has built an expressway network criss-crossing the country that is second only to America’s interstate highway system in length. By the end of 2007, some 53,600km of toll expressways had been built. The aim is to have 70,000km of expressways by 2020.
The World Bank says that China’s railways carry 25% of the world’s railway traffic on just 6% of its track length. In the past couple of years investment has grown considerably. This year’s target is $42 billion, compared with a total of $72 billion in the preceding five years.
The increase in air passenger traffic has been dramatic: from 7 million passengers in 1985 to over 185 million in 2007.
Source: The Economist

A goods train from Beijing has arrived in Hamburg. The ‘Beijing-Hamburg Container Express’ left the Chinese capital on January 9 with its cargo of shoes, toys and electronic goods and covered the distance of 10,000 kilometers (6,200 miles) in 15 days.

Germany’s state-owned rail operator Deutsche Bahn logistics chief, Norbert Bensel, said the inaugural journey on the new rail route had delivered its cargo in roughly half the time it would have taken to arrive in the northern German port city by sea. The sea journey takes about 30 days.

Norbert Bensel said, ‘The test train was a success. We have demonstrated that we can transport goods by rail between China and Germany safely, reliably and yet twice as fast as compared with ships. At the same time, we are considerably cheaper than air freight for many types of cargo.”

The train made its way from China to Germany through Mongolia, Russia, Belarus and Poland.
Source: AFP

According to the Beijing Public Transport Group Beijing’s public transport system served what we are told is a passenger volume of 4.6 billion person-times in 2007, while the bus system alone catered for four billion person-times, up 13% over the previous year. I think we can do without this person-times nonsense.

The word passengers serves the purpose very well.

What made it work the most was price.

The bus fare was 1RMB (13 U.S. cents) was adopted on 1 January 2007, and transit cardholders received a 60 to 80% discount.

Subway tickets were RMB2 with no differentiating prices.

Beijing spent almost half of its transportation infrastructure budget on its bus system ahead of the 2008 Olympic Games.

Li Jianguo, deputy director of the Beijing Municipal Committee of Communications who is plainly a person with a very clear idea of the problem said, ‘It has been proved that a market-oriented public transport system can not ease traffic. So the government plans to develop itas public welfare.’

These words should be written in letters of gold and placed on the desk of every transport minister in the world.

More than 80% of Beijing residents acknowledged a considerable reduction of transportation costs.
More than 60% considered it effective in helping to curb traffic congestion.

Beijing now has five subway lines with a total length of 142 kilometers. They include Line 2 covering the downtown area, Line 1 and the Batong line connecting east and west parts of the town, Line 13 running through the northern part of the town and suburbs, and Line 5, connecting the south to the north.
Currently, five new subway routes are under construction including a 28-km line linking downtown area to Beijing Capital International Airport.

According to Beijing Morning Post the combined length of subway lines is expected to reach 561 kilometers by 2015, the longest in the world, with a capacity of carrying nine million passengers a day.
Source: People’s Daily Online

The Shanghai-Beijing high-speed railway IS going to happen because in the next few days contractors will be chosen and work will start almost immediately. This is a massive scheme — a bigger investment even than the Three Gorges project.

Five construction groups are tendering to build the 1,318-kilometer railway.

The project has been divided into six sections for contracts and the combined investment involved is said to reach about RNB100 billion yuan (US$13.7 billion).

The total cost will be twice that as the budget needed to includes trains, management and logistics. The Ministry of Railways will fund nearly 80% of it.

The high-speed rail link, scheduled for completion in five years, will cut by more than half the travelling time between Shanghai and the capital — from 12 hours to less than five.

The trains will travel at up to 350 kilometers per hour.

Liu Xiaoming, deputy director of Beijing’s municipal committee of communications promises that all of the people living within Beijing’s Fourth Ring Road and that is a large slab of the population — will never be more than about one km from a subway station once a new citywide mass-transit rail network is completed in 2015.

By that time, 8 million people will use the subway every day; at the moment the figure is 2.9 million.

The forecast is that by by 2015, about 45% of all journeys made in the capital, including those by bus, will be on public transport. That is compared to 34.5% at present.

Ten new subway lines are currently under construction although most of them will not be completed until after the 2008 Olympics.

Two — Line 10 (which includes the branch going through main Olympic venues) and the airport rail line — will be opened ahead of the Games.

By next year, the total length of the city’s subways will be 200 km.

This year, the price of a standard bus ticket was reduced to RMB0.4 (5 cents) for public traffic card holders and a subway ticket to RMB2, making Beijing one of the cheapest places in the country for public transport.

Liu Xiaoming said, ‘The investments and efforts have stopped Beijing’s traffic situation from deteriorating, and in some areas have actually seen improvement.’ Much improvement is still needed to make the traffic relatively civilized.
Source: People’s Daily Online

It has been a long time a’coming but it looks as though the Beijing-Shanghai express railway will happen although not in the immediate future. Bids have been invited for the project, which is to begin construction in January.

The Beijing Shanghai Express Railway Company has just invited global firms and organizations to compete for the project consulting work.

Which does not give anyone very much time to get a proposal together if work is starting in January.

Two other contracts, for civil construction and engineering supervision work, are limited to domestic institutions and companies.

The bidder for the global contract could also be a joint venture of one foreign consulting institution and two local ones, with the Chinese side as lead bidder.

Bidding closes on December 17 which is less than a week from now. At a guess the decision has already been made or there will have to be an extension on the deadline.

Construction is projected to take five years. The RMB160 billion yuan (US$21 billion) project seriously looks like becoming a reality.

The Beijing Times, citing sources familiar with the situation, said the Ministry of Railways would provide 78.9% of funding, significantly more than the 51% proportion mentioned in earlier reports. The remainder of the funding would come from local governments and companies.

The project will provide five-hour express services between the two cities. The 1,318-kilometer high-speed railway, when completed, will be the longest high-speed rail line in the world carrying 160 million passengers annually.

Source: People’s Daily Online