Excerpt from: China Supply Chain and Logistics Strategy
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| November 08, 2005 | | Assessing Shanghai’s Strategic Location as a Global Logistics Hub | Shanghai’s strategic location as a logistics hub is expected to be further strengthened with the opening of the new Yangshan deep water port at the end of this year. Improvements in service levels and reductions in procurement and logistics costs may be possible by using the new deep water port and adjacent Lingang Industrial Area. Further investigation is needed in order to assess the affects of the Yangshan deepwater port on the global supply chains of companies sourcing in China. Global supply chain planners may need to adjust their 5 year plans in response to the new potential problem areas, uncertainties, as well as opportunities offered at Yangshan port and Lingang Industrial Area.
Shanghai’s ambition is to establish itself as a world-class logistics hub serving the entire nation and the world. In 2004, Shanghai took over Rotterdam to become the second largest port in terms of cargo handling after Singapore. Indeed, Shanghai is the logistics hub of one of China’s two most advanced industrial centers and the transportation infrastructure is developing rapidly to deal with the increasing demand.
The port capacity of Shanghai’s main port is constrained by its location on the Yangtze River Estuary, where the depth reaches a maximum of 23 feet. Thus, third and fourth generation container ships can only come in and out at high tide. The port's shallow approaches and constant silting led local officials several years ago to develop a plan to build a deepwater port on nearby Yangshan island. The new Yangshan deep water port is expected to absorb China’s rapid cargo handling demand, which will rise by more than 50 percent in the next five years.
Shanghai’s Yangshan deep water port Phase 1 will start operations at the end of this year. Phase 1 of the project consists of five container berths and 720,000 sqm of container yards, with planned annual capacity of 2.2 million TEUs. The second phase of the project is to be completed in 2006, providing four more berths. The new port is expected to handle 10 million TEU by 2010. The East Sea Bridge connects the port to the Lingang Industrial Park. The six lane bridge is 32.5 kilometers (20 miles) long. The depth of the port is 15.5 meters (50 feet), thus enabling 8000TEU (or smaller) container ships to use the port.
Affect on Supply Chain Strategies
The global supply chains of companies sourcing in China is long and complex. In order to assess how the new Yangshan deep water port may affect cost and service levels over the next 5 years, companies first must map out their supply chain flows and critique the network’s current capacity from China to North America or Europe. Companies then need to determine whether the Yangshan deep water port will offer a significant advantage over their current set up.
The Yangshan deep water port, along with the connecting Lingang Industrial Area, may provide new options for devising global supply chain strategies utilizing centralized inventories for global fulfillment. Consolidating inventory into fewer locations can substantially reduce total inventory requirements, resulting in enhanced competitiveness. Indeed, the advantage of managing worldwide inventories on a centralized basis is widely recognized. However, centralized systems may lead to higher transport costs since products inevitably must travel greater distances and the speed of movement is necessary to ensure shorter lead times for delivery to the customer. A comparative analysis should be performed to determine if the Yangshan port offers a better alternative to your current logistics arrangement:
- Effects on inventory and cash flow
- Transportation costs
Optimal routing, ship size and sailing frequency with respect to each level of inventory cost
- Hub and spoke networks of carriers
- Port fees and loading/unloading charges
Transportation lead times
- Customs duties and efficiency
- Value added services available near port
- Speed of movement
- Cost of land and labor
- Lead time and scheduling stability
- Ratio of transport cost to total product cost
- US port congestion and selection of China ports
Transportation to the US
Finally, supply chain planners must take into consideration the fact that the US ports are not growing at pace with Chinese ports such as Yangshan. The spectacular growth in Chinese exports to the United States has far reaching effects on the US infrastructure. As volume increases at the Yangshan Port will the US infrastructure be able to cope? Problem areas faced when transporting from China to US ports include:
- Panama Canal is at its limit
- U.S. rail network is at capacity
- Metropolitan roadways at maximum capacity
Difficulty in expanding ocean terminals in the U.S
Over the road limitations
- Decreasing number of owner operators
- Less “turns/day” and higher fuel costs and fewer drivers
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