"Improving logistics infrastructure such as integrating road and rail networks, construction of airports in second tier and third tier cities, and setting up of free trade zones is expected to create better connectivity to link ports and airports," notes Amelia Wong. "The improving IT integration of local 3PL service providers and the ongoing development in transportation infrastructure are expected to aid the growth in this market."
However, the market remained highly fragmented in 2006, with more than 300,000 registered logistics companies, most of which were transformed from the local transporting or warehousing companies. Hence, market fragmentation and the small-scale nature of the industry, along with unhealthy price competition restrain market growth.
In addition, complex licensing process at the national, regional, and local levels of government authorities, bureaucracy, and regional protectionism impede market growth. Consequently, moving goods among provinces continues to challenge foreign logistics service providers. For the benefit of the local governments, each level of state bureau levies toll fees on the vehicles from outside the province, favoring companies that use locally based logistics service providers. Therefore, unnecessary unloading and uploading cause delays and add to excessive cost.
"Hence, logistics service providers are recommended to streamline operation and reengineer management methodology with active deployment of technology," says Wong. "With higher operation efficiencies and cost reduction, service providers can offer more competitive prices." Although service providers are to compete on the lines of price, prompt delivery, and quality of services, they must develop customer focused solutions and pricing for various modules of services, instead of quoting a common price for all clients.
