Geographically, the heavy investment in transport infrastructure has left almost
every part of the country accessible by highway and most of it by rail. Airports dot
every province, and transport capacity on the country’s most important rivers has
doubled in the last few years. The Yangtze, for example, has seen container volumes
rise from 4 million 20-foot equivalent units (TEUs) in 2007 to 9 million in 2010. In
total, it carried more than 1.5 billion tons of cargo last year, twice the weight of that
shipped on all US waterways.2
The outcome of this investment is that the less-developed central and western
regions are finally starting to become linked by reliable transport routes to the east
coast.
Cities such as Chengdu and Xi’an have already made huge leaps in using airfreight
links to develop high-technology industries producing high-value goods, which
are then flown to their final destinations. More generally, companies — especially
domestic ones — are now finding it possible to move beyond the regional or
provincial limits that have held many of them back, penetrating third- and fourth-tier
cities across the country.
Aside from the sheer scale of investment, the widely touted solution for many of
the industry’s ills is consolidation leading to the creation of a smaller number of
larger and more efficient companies. Mergers and acquisitions are taking place, but
they show no sign of accelerating. There are several reasons for this. China’s many
hundreds of lower tier cities remain best served by smaller local operators, which
both know their immediate locality well and can offer low-price services. Financing
for acquisitions is often hard to come by at a reasonable price, as are managers
with the right skills and experience to handle the integration of acquisitions.
Consequently, organic growth is preferred by many companies. Given the
fragmentation in the sector, many domestic companies — and some multinationals
— prefer to keep their transport and logistics services in-house. DHL’s decision to
divest from its domestic express joint venture seems to be an indication that the
domestic delivery market will remain largely the preserve of local companies.