In Depth: Logistics Is Getting Pricy in China, but Reform Will Be a Long Haul

China’s e-commerce economy thrives due to its advanced logistics infrastructure, capable of delivering orders rapidly [para. 1]. However, underlying inefficiencies plague this system. A major issue is the heavy reliance on trucking, which makes the logistics costly and prone to disruptions, as evidenced during the Covid-19 pandemic when haulage traffic was paralyzed [para. 2][para. 3]. Trucking, often operated by small contractors, also inflates logistics costs to 14.4% of China’s GDP (18.2 trillion yuan in 2023) [para. 2]. This percentage is disproportionately high compared to the USA (7%) and Japan (5%) [para. 2].

To mitigate these challenges, Chinese policymakers are advocating for intermodal transport, integrating trucking with rail and water transport, though upcoming regulatory changes could introduce new uncertainties [para. 4]. In 2022, the government set a target to reduce social logistics costs from 14.7% of GDP in 2020 to 12.7% by 2025 [para. 7]. Social logistics costs encompass the movement of goods from their point of origin to the market [para. 6].

Reforming the railway system is critical but fraught with difficulties. Rail transport costs almost 25% less than trucking, yet over 80% of containers reaching Chinese ports do so by road [para. 8]. Efforts to enhance rail’s role include establishing 40 new logistics centers to streamline operations and improve coordination across different transportation modes [para. 10][para. 11]. However, challenges such as digitalization, bureaucratic inertia, and pricing complexities hinder progress [para. 14][para. 16]. The shift towards rail is partly driven by China’s “dual carbon” goals, rather than cost-cutting incentives [para. 13].

Railway freight reforms dating back to 2013 aimed to diversify cargo from bulk commodities to high-value goods but have seen limited success; in 2022, bulk goods made up 85.2% of rail freight [para. 17]. Issues like inefficient communication systems and restrictive policies remain obstacles [para. 19][para. 20]. Additionally, rail transport’s lower base rates are offset by costs associated with short-haul transfers and warehousing [para. 22]. Capacity constraints within railway bureaus further complicate market-oriented operations, with bulk commodity freight receiving priority [para. 21][para. 22]. Efforts to make rail more competitive include recent freight rate reductions in response to decreased demand from the real estate sector [para. 25].

New delivery regulations, effective March 1, which penalize couriers for not obtaining customer consent before leaving packages in designated areas, have added to logistics costs [para. 28]. These rules aim to improve consumer experience but could dampen retail market growth by raising last-mile delivery costs [para. 29]. The courier industry, already stressed by low wages and high turnover, faces significant challenges in adapting to these new regulations [para. 33].

The road transport sector, facing declining tax rebates, is also under pressure. Measures to curtail tax incentives previously offered to truck drivers and companies are expected to increase logistics costs [para. 39][para. 40][para. 41]. The China Federation of Logistics & Purchasing estimates the road freight market at around 50 trillion yuan in 2022, with digital freight services comprising 15% of this market [para. 38]. While digital platforms like Full Truck Alliance improve efficiency, deeper digital integration in logistics is lagging [para. 38].

In conclusion, while China’s logistics sector remains a cornerstone of its e-commerce success, myriad challenges, including high costs, regulatory changes, and the need for intermodal transport reforms, pose significant hurdles [para. 2][para. 4][para. 13]. The ongoing efforts to reduce social logistics costs and modernize the rail freight system are pivotal but face entrenched systemic issues that require comprehensive and adaptive strategies [para. 7][para. 19][para. 23][para. 25].