Manufacturers in China’s interior look for cheaper transport solutions

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The following news comes from our friends at Yangtze Business Services (no relation).

“Rising fuel prices, worsening road congestion and a search for greener forms of transport are persuading an increasing number of manufacturers in China’s interior to consider making greater use of waterways and the railways (see below). This is one of the main findings in the latest edition of Yangtze Transport: Accessing China’s Interior [now publsihed].

The central government has decided to increase investment in the river to encourage this trend. At the end of August, the State Council met to discuss crucial role of the Yangtze River and other inland waterways in the construction of a comprehensive transport system. Waterways will become a top priority for co-ordinated planning and investment, offering an efficient, safe and eco-friendly mode of transport within the next 10 years. Money will be invested in dredging to improve the quality of the Yangtze trunkline as a shipping channel, while the vessel standardisation programme will be accelerated so that old vessels are withdrawn more rapidly. New legislation will be introduced to minimise energy consumption and carbon emissions.

Cargo throughput of the 24 major ports on the Yangtze trunkline stood at 1,272 tons in 2009, according to official figures, up 12.6 per cent on the previous year. Container throughput bucked a declining national trend by increasing 4.5 per cent to 7.33m TEU.

Traffic remains heavily concentrated in the lower reaches where the shipping conditions are better, the local economies are more dynamic and access to the sea is easier. The Jiangsu ports from Taicang to Nanjing accounted for 67 per cent of the Yangtze’s total throughput in terms of both containers and general cargo. This shows the continued dominance of the economies around the Yangtze River Delta.

However, the dynamics seem to be changing, albeit slowly, as more manufacturers set up plants in central and western provinces. In 2009 traffic volumes in the upper reaches made up 7.7 per cent of the total, up 0.7 percentage points over the previous year, while the middle reaches accounted for 9.8 per cent of the total, up 0.8 per cent. Consequently the proportion of traffic in the lower reaches was reduced from 84 per cent in 2008 to 82.5 per cent in 2009.

L’Oreal
The global cosmetics and beauty group L’Oreal has a production facility in Yichang, Hubei province. It makes skincare products for the Mininurse brand, as well as lipstick for the L’Oreal Paris, Maybelline and Yusai brands.

The absence of a local cosmetics industry in the Yichang area means that L’Oreal has to source its raw materials from the distant coastal provinces of Jiangsu, Zhejiang and Guangdong. Most of its Mininurse finished products are trucked to a distribution centre in Suzhou, from where they are transported to domestic retailers or shipped to overseas markets.

L’Oreal’s global commitment to cut carbon dioxide emissions is expected to translate into detailed quotas within the corporation in the next two years. As a consequence, the Yichang plant is studying the options of using the waterway and rail networks and the impact of carbon dioxide emissions on its overall logistic planning.

TPV
Taiwan-based TPV is the world’s largest manufacturer of computer monitors. It has two plants on the mainland, one in Wuhan and the other in Xiamen. About 60 per cent of its Wuhan output is exported, mostly by waterway, making TPV the largest user of Wuhan’s container terminal, Yangsi.

The direct Wuhan-Yangshan shuttle service, which resumed in 2009, is helping to cut TPV’s journey times to Europe and improve reliability. However the shuttle service from Waigaoqiao to Yangshan is unpredictable, resulting in 20 per cent of TPV’s containers each year missing their scheduled outbound service. Some 2-3 per cent of TPV’s containers are trucked to Shenzhen before going on to the ocean-going vessels.

The company is constantly monitoring routes to exploit improvements in transport infrastructure and reduce logistics cost. One such option is to use trains to transport its products to Shenzhen. The company will closely follow the construction of new high-speed lines that will allow freight and passenger services to be run on separate tracks. As a result, freight rates are expected to fall significantly.

Terex Corporation
US-based Terex Corporation has a joint venture in Luzhou, Sichuan province, with Sichuan Changjiang Engineering Crane, China’s third largest hydraulic crane manufacturer. Changjiang Crane was one of many companies that was moved to southwest China in the mid-1960s and is today a leading domestic producer of on-highway truck cranes.

The joint venture manufactures some 1,600 cranes a year, giving it a national market share of some 5 per cent.
It does not use Luzhou’s port to transport finished products because of the lack of a ro-ro terminal and the special vessels needed to transport cranes. Instead, it drives the cranes to customers in eastern China, clocking up an average journey of 2,000km on each new product by the time it reaches its destination. The company’s management team is looking into the option of using the ro-ro terminal at Chongqing. It will also consider using the Yangtze in future if it decides to import or export components by container to the US or Europe.

LWB Refractories
LWB Refractories, part of Magnesita Refractories of Brazil, has a wholly-owned plant in Chizhou. It makes dolomite refractories and bricks, mostly for stainless steel producers such as Zhangjiagang Pohang Stainless Steel in Jiangsu province, Taiyuan Iron and Steel in Shanxi province and Pohang Iron and Steel in South Korea.

Apart from dolomite, LWB Refractories’ most important raw materials are magnesite and coal, which are sourced from Liaoning province in northeast China. Currently these commodities are transported by road, an increasingly expensive option given the recent rises in fuel prices and toll rates.

Its finished products are trucked to clients situated within a radius of 300km, and even further in the case of Taiyuan Iron and Steel. The Taiyuan route is proving very expensive, so LWB is actively investigating the option of making deliveries to this client by rail; barge is also commonly used. Its exports are shipped in containers via the port of Chizhou and then onwards on ocean-going vessels from Shanghai. The company says the container is a cheaper and safer means of carrying its products, and that Chizhou port is competent in handling containerised cargo of this type. However it complains that there are insufficient containers available in Chizhou and an inadequate number of shipping lines that call at the port. LWB hopes for significant future improvements in both these areas.

Looking forward, LWB will try to cut its dependence on trucking its raw materials and finished products and instead explore the options of barges and train to reduce costs. From Liaoning, for example, it could transport magnesite and coal to Shanghai and then on to Chizhou via the Yangtze.

About Yangtze Transport: Accessing China’s Interior
The third edition of this bilingual report, completely updated and revised, contains 12 chapters of independent analysis on key transport issues, including government policies, investment opportunities, shipping trends along the Yangtze and the changing nature of the road, rail and air cargo networks in the region. The guide also profiles the 24 major port cities along the Yangtze trunkline, each with case studies of FIEs already operating there. Price £85.

To request a review copy or to find out more information, contact:
David Lammie on +44 (0)20 8874 3217, +44 (0)7922 285766 or email dl[at]YangtzeBusinessServices.com
www.YangtzeBusinessServices.com

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