Logistics Functions Returning in Earthquake Area

June 1, 2008
The Chengdu area of China was growing its industrial and logistics infrastructures when a major earthquake struck the region.

The earthquake that struck Sichuan Province in China on May 12th was immediately destructive and disruptive to manufacturing and logistics operations in the area. Recovery of the infrastructure has been slow, and initially focused on support for relief efforts.

Almost immediately, the Chengdu airport closed and diverted flights to other regional airports, stopping or diverting 169 inbound and 108 outbound flights. Within a day, the airport was inspected and service was restored.

The Ministry of Communications immediately allocated RMB 10 million ($1.43 million) in emergency funds to restore transportation to quake-hit areas. Efforts were begun to restore access for rescue and recovery efforts, and the 312 National Highway leading to Chengdu was repaired within a couple of days and other roads leading to the disaster area were at least partially restored. (The 312 highway spans 3,000 miles from Shanghai to Xinjiang.)

A rail line from Shaanxi to Chengdu was damaged by the earthquake, causing a cargo train carrying petroleum products to derail and burst into flames. A petroleum pipeline that was initially closed for inspection was reopened, allowing petroleum products to flow to the affected area. In addition, oil transport was arranged by truck, although initial moves were hampered by blocked roads due to landslides. The Sichuan region does not have oil refineries, and so it is dependent on shipments of petroleum products from outside the region.

Toyota Motor Company, which operates a production plant in Chengdu, suspended production while it inspected its plant. That stoppage was initially extended as the company inspected a crack in the paint line to determine whether safety requirements could be satisfactorily met and to determine whether the damage would affect production quality. The initial shut down affected production of 200 vehicles.

“Within our plant, the safety of our employees is top priority,” said a Toyota spokesman. “Another requirement for resuming production is the status of our suppliers and the state of the logistics infrastructure,” the Toyota representative continued.

As the company examined its own operations, ensured the safety and well being of its employees and its suppliers, it committed RMB 10 million ($1.43 million) in aid and provided 10 Land Cruiser Prados for the recovery effort.

The region has seen substantial investment recently and has been growing its manufacturing base. Many infrastructure projects were in their beginning stages at the time of the earthquake. Construction was expected to start soon on the Chengdu Railway Container Center. The RMB 2 billion ($286 million) investment was expected to create a terminal with a throughput of over 2 million twenty-foot-equivalent units (TEUs) per year. It would open direct lines to Shanghai, Guangzhou, Shenzhen, Qingdao, Lianyungang and Tianjin ports and shorten transport times from the current five or six days to just 48 hours. Along with the Chengdu International Container Logistics Park, the development was slated to create the largest inland port in Western China when completed.

Linksys, a division of Cisco Systems Inc., had announced on April 24, 2008 that it established a logistics center in Chengdu with ModusLink Corp. The center had begun trial operations five weeks earlier, in mid-March. The center provides logistics services to five Linksys product change centers in Chengdu, Beijing, Guangzhou, Shenzhen and Shanghai. Its goal was to change problem products in five to seven days vs. the previous period of three weeks to one month. Through its trial and start up operation, the facility had improved customer service levels.

Chengdu boasts an industrial development zone that includes major multinationals such as IBM, Nokia, Alcatel, Motorola, SAP and Microsoft as well as local high-tech manufacturer Lenovo. Intel’s Chengdu factory is its second after Shanghai and the first large-scale foreign investment in the electronic industry in the interior mainland of China.

From January to November of 2007, Chengdu approved 157 projects using foreign capital investment.

The city of Chengdu recently reported its gross domestic product (GDP) hit RMB 76.2 billion ($10.9 billion), up 15.1% year on year. While agricultural and meat production had increased substantially, the industrial sector showed a 25.8% increase over the prioryear period. Production volume in six key industries make up 77.4% of the increase.

Software and information service businesses increased by 50% in the period. Service industries were up 13%, and income from tourism rose 7.9%.

Foreign direct investment jumped 91.2% to $1.15 billion.

With whole villages leveled, infrastructure issues will continue to plague the recovery. As Peter Lim of Supply Chain Asia observed, referring to the dual disasters in Myanmar and China, “Logistics is a major issue in our region already without these natural catastrophes and both the government of Myanmar and China are finding it hard to cope.” He noted that initially access to Chengdu was restricted to a few points of entry through southern China and Shanghai.

He commented to Outsourced Logistics that, “Any aid or support that your audience can give to the region will be highly appreciated. The World Food Program (WFP) and companies like TNT and DHL have active programs to support the transporting of aid to disaster areas in this region, we only hope that more such logistics companies will come forward to help,” he concluded.

NOTE: Outsourced Logistics wishes to thank Peter Lim, Supply Chain Asia; David Lammie, Yangtze Transport 2008; Toyota Motor Company and others for providing access to first-hand accounts from the region.