Along China's busy coast, port, road and air expansions are under way - opening the door for global distribution and warehouse companies to enter the world's third-largest trading nation. An influx of multinationals seeking cheap labour has made China the world's workshop and created a $20 billion logistics outsourcing market that's growing 30 percent annually, supply chain firm Schenker Stinnes Logistics wrote in a report.
So global freight and warehousing providers such as Federal Express Corp, A.P. Moeller-Maersk and ProLogis are braving a fragmented market and Byzantine regulations to help clients move goods efficiently.
But while international logistics providers can offer a one-stop shop, local companies often have close ties to local officials that can help operations move smoothly.
The practice of greasing palms to help move shipments complicates doing business in China. Customs authorities seized $1.2 billion of smuggled goods in 2003, state media say.
And even where good connections count, quality control may not. Domestic logistics providers boast good relationships with local governments but can rarely offer the full services and systems provided by multinationals.
"If I don't keep an eye on them, they're slack," George Zhao, supply chain vice president for B&Q, an arm of Europe's top home improvement retailer, Kingfisher Plc., said at a logistics seminar in Shanghai last week.
French supermarket chain Auchan said last year that up to 30 percent of goods ordered never arrive.
Transport, storage and distribution costs account for a fifth of a product's price on average in China, versus a 10th in the United States, according to US Commerce Department data.
Beijing abolished barriers to foreign investment in most logistics sectors at the end of last year, in line with commitments made upon joining the World Trade Organisation.
So speciality firm Vopak - which runs a global network of storage tanks for oil and chemical products - has found its niche with BP Plc. and BASF AG, which open multi-billion-dollar petrochemical complexes this year.
Retailers such as Carrefour - which opened its 58th store in China this month - are creating opportunities for sourcing and distribution companies in secondary cities.
"Most of the big shippers have their own logistics arms, to satisfy their customers. But there's still room for more specialised companies like us," said Owen Glenn, chairman of OTS Logistics Group Inc, which consolidates small shipments. OTS plans to open 11 offices in China by 2006, he added.
Managing supply and distribution in-house is costly for multinationals in China, argued Ming Z. Mei, China managing director for top global logistics firm ProLogis, which aims to have $1.25 billion of investment in Chinese properties by 2009.
But international third-party providers and even local giants such as freight forwarder Sinotrans Ltd must vie with the hundreds of tiny local players who have a lock on much of the business in the country's hinterland.
"There are two ways to go about entering the logistics market here. One is you have a political relationship with the government, " said an executive with a Shanghai logistics firm. "The other is, you are so good at what you do that your clients want to bring you along as part of their investment."
The need to streamline is urgent. Transport bottlenecks in China have driven up shipping prices world-wide and contributed to rising raw materials costs globally.
Ships have had to wait 20 to 30 days to unload in some cities, as coal and iron ore imports that fuelled last year's 9.5 percent growth in China overwhelm port infrastructure.
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