The Challenges of Warehousing in China

May 1, 2006
Because information about doing business in China is difficult to come by, Dr. Charles Guowen Chang, director of the China Development Institute in Beijing,

Because information about doing business in China is difficult to come by, Dr. Charles Guowen Chang, director of the China Development Institute in Beijing, was guaranteed a full house for his presentation on warehousing at this year’s Warehousing Education and Research Council (WERC) annual meeting in Orlando this week.

Chang said the warehousing industry in China is experiencing rapid transformation and development. “Between January and October, 2005, trade between China and the U.S. reached $127.3 billion,” he said. “That is up 26.2% year-on-year.”

The challenge of logistics in China is that modern needs of distribution are clashing with a trading tradition that goes back 5,000 years. For example, while 3PLs are getting some traction in China, there is still a tradition of credibility built on asset ownership. Chang explained that thinking runs along the line that if you don’t own the asset, you don’t gain trust with Chinese people.

“Until 2004,” he said, “the government controlled the business of distribution and logistics. Since joining the WTO [World Trade Organization] things have started to change.”

Among those changes are more multinational companies building entire infrastructures to warehouse and distribute goods, he said. Many of the existing warehouses in China lack amenities taken for granted in the U.S. Totally manual operations account for nearly 40% of all warehousing; 43.8% have a mix of mechanical and manual operations, with no IT infrastructure; and a bit more than 16% have some automation and IT infrastructure.

“I would estimate,” said Chang, “only 5% of the warehouses in China have good IT systems.”

Adding to the challenge, he said, is the fact that while many Chinese companies are writing their own WMS programs, these are not being built to international standards, adding to the difficulties of non-Chinese companies.

Currently there are about 300 logistics parks being developed in China, however there is a lack of specialized warehousing. Traditionally, warehousing has developed literally along rail lines. Single-story buildings were constructed over the tracks and good unloaded from either side of the car into the buildings. Consequently, existing warehouses are in heavily populated areas making truck traffic nearly impossible. New buildings are being constructed in suburban areas. Chang estimates China is 10 to 15 years behind the U.S. in the concept of distribution centers necessary to serve internal and external needs. “On-time delivery can now be assured,” he said, “whereas in the past it was not.”

Things are changing. Lift truck use is up about 70% from where it was just a couple of years ago, said Chang. “We are seeing the increase of national networks of distributors,” he said. “Technological changes such as RFID and wireless infrastructures at the ports of entry are speeding the movement of goods on the docks as they move through customs.”

Chang said numerous opportunities exist for international investors. “The best way to do business in China now, is to network with local talent and partners. “Multinationals are strong in management skills, capital for investment and human resources,” he said.