Logistics Management

Manufacturing in China does not make sense for every company. Many companies have underestimated the logistics costs involved in manufacturing in China and have decided to bring their production back to their home country. With rising logistics costs, it makes it all the more important to have a team on the ground in China to evaluate the production and logistics costs and decide whether it makes sense to outsource. For the full article, click here.

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Rising jet fuel prices have caused many international carriers to rethink their shipping plans. Fuel prices have recently increased 25% in China. Although the price is still significantly lower than the international market price, the increase will force many carriers to cut back on their flights and focus on the profitable routes. Analysts are predicting the price will remain stable until after the Olympics when the Chinese government will likely remove more subsidies and let the price rise even higher. Click here for the full article.

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AMR (an independant research firm) recently ranked China as having the second highest supply chain risk (US had the highest risk). Factors cited in the study include geography rising transportation costs, and weakening consumer demand. While America still attracts a high percentage of sourcing due to the increased visibility of the supply chain, China still offers a major cost advantage and close proximity to a growing customer base.  To capitalize on this cost advantage without bringing on too much risk in the supply chain, it makes sense to have constant communications with every stage in the logistics process. Click here for the full article.

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China has recently opened a state of the art agricultural logistics center near Hong Kong  in southern China. The import/export center will have food-testing labs and warehouse space. This is a joint venture between the Oregon Department of Agriculture and a private Chinese firm.

 

The new logistics center will make the growing Chinese market much more accessible. It includes a domestic distribution center. This logistics center will make importing and exporting agricultural product in China much easier. Click here for more info.

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The Chinese government has started to impose shipping restriction in advance of the upcoming Olympic games in Beijing. The Chinese Post Office has suspended mailing of liquids or powders as a safety precaution. Other products such as  powdered goods, chemical products, unidentified metal, mechanical and electrical products, as well as sealed containers with unidentified gases and liquids will also be banned from delivery.

It will be important to stay up to date on the latest shipping restrictions from the Chinese government in the upcoming months as they are in a particular state of flux. See this article for more detail.

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The Chinese government is about to begin construction on what will be Asia's largest rail center. It will be located in the city of Chengdu, within the Sichuan province, and will serve as a railway link to the ports of Shanghai, Guangzhou, Shenzhen, Qingdao, Lianyungang and Tianjin.

It will reduce the transport time of rail cargo from its current 5-6 days down to 2 days and is another example of the enormous scale of Chinese logistics development projects.

See the article here.

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Chinese manufacturers are being hit by rising raw materials prices, increased inflation and currency appreciation all at the same time. This is leading some companies to look outside China for their low manufacturing cost solution. While these trends are likely to continue, I think that China will remain a competitive and attractive manufacturing hub for much of the world for many years to come.

While input cost are on the rise, productivity gains are only beginning to be felt and companies in China should look towards increasing worker productivity as the next frontier of COGS savings.

Read the full article here.

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In an exciting development, the Chinese government took a major step forward in improving communication and coordination across the logistics sector. The newly formed Ministry of Transport will combine the activities formerly conducted by the Ministries of Communications and Construction, the General Administration of Civil Aviation of China (CAAC) and the State Post Bureau under one roof. This will lead to streamlined organization and control of many logistics activities, thus enabling China to drive down its logistics costs.

Unfortunately,  the Ministry of Railways was not folded into the Ministry of Transport at this time. We all hope that progress is made on that front over the months to come.

 For logistics managers concerned w...Read More

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The data is in from the first comprehensive wage study conducted in China and the results are instructive for US managers who source goods from China. The summary is:

• The average China hourly wage is $0.98/hr, so there is still a significant wage difference between the US and Chinese labor costs
• Benefits actually are a larger percentage of the hourly wage in China vs. the US
• Benefits rates are going up
• There is upward price pressure on wages that has and will continue to erode a portion of China's low cost manufacturing position amongst its global competitors (India, Vietnam, etc) but as they move up the value curve, China remains an attractive place to locate manufacturing and develop supplier partners.

See t...Read More

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The world's sea-crossing bridge is opening in June. The world's largest deep-water port facility will be operational by 2010, a rail system and highways system designed to rival the United States'. Throw in some Magnetic Levitation  trains and you have to agree with the author of this article that the scale of the infrastructure project going on in China right now is indeed "mind boggling" See the complete article here.

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The bad news is that China was hit by one of the worst snow storms it has seen in over 50 years. All transport and travel have been seriously disrupted with millions of Chinese workers being left stranded on the eve of Chinese New Year (China's biggest travel holiday by a long shot). The good news from a supply chain point of view is that many or even most of China factories had shutdown before the worst of the storm and chaos hit, so the disruption to production will be relatively minor. It's still no picnic over there, but the worst of it is over. See this article for more information.

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Often times, companies focus on FOB product cost or total landed cost, but don't properly weigh the value of having high quality suppliers. The attached article makes a strong case for why selecting the right suppliers is one of the largest drivers in determine your company’s overall success in China. This article provides a lot of food for thought and is worth the read. Find the article here.

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