CUSTOMS' LACK OF PRACTICE
Amid piles of cardboard cartons in the dimly lit upper storeys of Kerry Logistics' Yantian warehouse in southern China, workers fill boxes for export, pulling shirts in the right mix of sizes for each destination store from a row of shelves.
The boxes will later be put into a container, taken to the neighouring Yantian container terminal and put on a ship, probably to the US – the main destination for goods from this eastern side of the Shenzhen Special Economic Zone bordering Hong Kong.
Elsewhere on the same floor, workers are carrying out quality checks on electronic goods, while others are repacking separate elements of a hi-fi system into a single box.
The Yantian warehouse is among the most sophisticated logistics facilities in mainland China, carrying out packing, assembly and labelling work on products for clients, sometimes including final assembly in Yantian of parts made in different countries. It increasingly sends goods out packed in the right order to go straight from the destination port to customers' factories or stores, cutting out the need for expensive distribution centres in receiving countries.
The challenge for China is to overcome the country's arcane web of customs rules and other hurdles and bring more of its logistics facilities up to the same standard. Many in the industry complain that, elsewhere in the country, customs officers still ban the kind of repackaging and assembly commonplace at Yantian.
The job of raising standards looks set to become more complex, however, as the country's manufacturing spreads beyond its traditional heartlands and customers abroad source supplies from a wider range of factories.
Randy Rogers, a senior executive in China of Excel Supply Chain, part of the DHL Group, says his company is regularly asked to redesign customers' supply chains to cut the costs of their increasingly complex Chinese businesses. In over-complex supply chains, goods are often moved too frequently in and out of warehouses and between vehicles.
“It's not unusual to see customers touching a product four or five times before it hits the shelf,” Mr Rogers says. “There's a lot of cost involved in doing that.”
Kerry Logistics, owner of the Yantian facility, is having to expand fast to cope with growing demand away from the traditional manufacturing hubs, according to Vera Tang, director of global business at the company's Hong Kong head office.
“We're planning to build some more international standard distribution centres inland, other than those we already have along the coastal area,” she says. “As far as the distribution network is concerned, we need to take care of the third-tier cities, not just the first-tier and second-tier ones.”
The changes are being driven by a variety of factors. Daniel McHugh, chief executive for Asia Pacific of the express business of DHL, the logistics provider, says production of high-value components such as microchips – once thought too complex for China – is gradually shifting from elsewhere in Asia into China.
“We're seeing an increase in domestic transportation in China,” Mr McHugh says.
China's consumers are also producing more demand. Meanwhile, the oldest cluster of manufacturing facilities – around Shenzhen – is diminishing in importance as the region becomes more expensive, labour shortages bite and factories face the strict enforcement in the region since January of China's once largely ignored labour law.
Victor Mok, another senior Excel executive, says many businesses are fanning out along the coast to relatively undeveloped coastal cities such as Xiamen and Ningbo. Like longer-developed coastal cities, they have excellent port facilities.
Inland cities such as Chongqing, Changsha and Wuhan are also attracting investment that would once have been confined to the coast. The economics of driving trucks long distances to serve such places are improving as their consumers become richer, according to Mr Mok. The inflow of consumer goods into the cities provides trucking companies with cargo to move in the other direction from their outward flow of manufactured goods.
However, according to Ms Tang, customs officers even in Shanghai remain far more bureaucratic than those around Shenzhen. Southern China's more sophisticated officers make the work of Kerry's centre in Yantian port possible by flexibly and intelligently applying the rules surrounding the facility – part of a customs-monitored bonded logistics park.
“The Shanghai bonded logistics park is far behind what we can enjoy in southern China and Yantian,” Ms Tang says. “The policies laid down by the customs office are usually not clear enough.”
Yet, Shenzhen, a bustling, heavily-polluted city of 20m people where there were only small villages 20 years ago, shows how quickly things change in contemporary China. Customs officers have adapted to handling the exports of the world's new manufacturing powerhouse. “I think it's a matter of time,” Ms Tang says. “The more experienced they are in dealing with different requirements from the users, the better they can react to them.”