Disruption to the supply chain in China highlights the challenges faced across the region

Two events in China this week serve to illustrate the problems of managing logistics in the country. The first is the strike of truck drivers at the port of Ningbo which continues to disrupt the flow of cargo in and out of the port. A second problem has surfaced with the Chinese authorities pressing for state involvement in automotive component manufacturing. These difficulties paint examples of a picture faced across the region.

The protest at Ningbo Port has seen some violence with with rocks being thrown at vehicles entering the terminals, causing significant disruption to goods flows. Such problems are not uncommon in China. The truck drivers are believed to be protesting over rates of pay and the costs they face for doing business at the port. This is a familiar problem not just at big facilities such as Ningbo and Shanghai but, on smaller scale right across China, where a vast number of owner-drivers are managed by logistics companies which in turn are often controlled or close to ‘State Owned Enterprises’ and local communist authorities. Drivers face the problem of being squeezed by customers who are in a strong bargaining position giving them no alternative to the absorption of any rise in direct costs such as fuel. This is hardly uncommon in any road freight market, but what makes China so difficult is the opaque market structures and the lack of alternatives to the incumbent forwarders. Such ‘rent seekers’ are able to squeeze the less well connected, whether they are customers or suppliers.

In a very different way the dysfunction of the Chinese logistics market is also reflected in another recent development. It is reported in the German newspaper ‘Stuttgarter Zeitung’ that the Chinese authorities are pressuring automotive component companies to establish joint-ventures with state owned enterprises, with certain component manufacturers being obliged to hand-over half of their Chinese subsidiaries equity. Vehicle manufacturers have always been forced to establish such arrangements. The Chinese partners invariably contribute little in terms of manufacturing operations or vehicle design, however they are almost a necessity as fixers in dealing with the state managed economy, with logistics being prominent amongst the sort of services that these partners provide. Effectively if a global vehicle manufacturer wants transport provision that works it needs to cut the local authorities in on the deal. An open market solution is not available. In theory such arrangements ought to be fading away as the power of the big vehicle manufacturers increases, however the latest developments contradict this, implying that the attitudes of the authorities has not changed much.

The implication of these two developments is that the Chinese logistics economy should not be seen as an open market. Rather it is composed of a series of different interest groups who are more likely to use political influence to gain business advantage. This results in much less efficient provision but it is not something that can be solved by more and higher quality services in the market. Rather it is driven by the structure of the Chinese economy itself.

The impact of practical problems like these upon supply chain dynamics in China and the wider region forms one of the subjects that will be discussed at Transport Intelligence’s Emerging Markets Logistics Conference Singapore 2014.

To register to attend this event, please visit the Singapore 2014 Conference website. To discuss speaking and sponsorship opportunities or for further information please contact Ti’s Head of Events Sarah Smith. Also be sure to follow the latest conference news on Twitter at #TiSingapore14.