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New China Train System Aims at IT Supply Chains

Three months ago, the Chinese government shut down its lumbering, scandal-plagued Railway Ministry. Now, the massive cargo system's replacement, China Rail Corp., is promising big changes.

Of course, a train system is in the works. The agency is also promising a comprehensive logistics operation built to serve China's new manufacturing economy — particularly the semiconductor sector.

China's rail system was built for the 19th century. A byzantine system of fees and approvals demanded as many as 12 different steps to get goods from manufacturers to port. In the information age, where just-in-time logistics placed modern demands on aging Chinese supply infrastructure, that emerged as a staggering problem.

The new, semi-private system claims to remedy that with a streamlining program focused on modern supply customers. It seeks to include door-to-door logistical support and online tracking.

“We must turn from being a bulk-goods-focused transport service provider to being a full-service logistics provider,” Sheng Guangzu, a general manager at China Railway, told reporters last month, as quoted by the South China Morning Post.

If Sheng's claims pan out, the new system could radically change the way OEMs with suppliers in China will be doing business by 2020. Until recently, China's railways were an afterthought for the IT industry. With land, sea, and air systems more reliable, and more streamlined bureaucratically, it made no sense to look to rail transport for solutions, even between China-based steps in a manufacturing chain.

However, a better rail system would clearly appeal. On a per-mile basis, rail is in most cases cheaper and more secure than trucks, both in terms of piracy and accidents.

Recognizing the market advantage a good rail system would give it, China's growing wage competitor Vietnam — Intel, Samsung, and Sony have all moved major manufacturing hubs there in the past three years — has looked at an overhaul of its own aged rail system, in part to provide links between growing IT manufacturing hubs and new deepwater ports near both Hanoi and Ho Chi Minh City. “The Vietnamese government seems determined to take bold steps toward shifting a sizable portion of passenger and freight transportation to railroads,” said an analysis by consultants A.T. Kearney.

China had to respond to the growing market pressure. The new Chinese shipping corporation claims to be looking at establishing subsidiary operations in tech manufacturing hubs like Guangdong, and will offer services that look less like a government railway and more like competition for private logistics companies like DHL. Among the services the Chinese operation wants to offer are packaging and pickup services, online tracking, and large-scale logistics support. That's a long, long way from hauling coal over mountains.

Will this work? On one hand, it has to. With Chinese wages rising, and Southeast Asian rivals able to fund infrastructure improvements, Beijing needs to tell OEMs that they will have more supply chain options in China within the next three to five years.

On the other hand, the leap China is making is a dramatic one. Clearly Beijing thinks the IT sector will buy in to the new transportation scheme. If they're right, everyone wins. It looks good, but it's a brand new scheme. The new Chinese rail system only came online just a couple of weeks ago. It will be a few years before anyone decides whether the improvements it claims are actually showing up in an OEM's bottom line.

The intent seems clear. China is betting a multibillion-dollar move to the kinds of services electronics supply chains need is the way to stay competitive. Now, it's the OEMs' turn to decide whether they agree or not.

22 comments on “New China Train System Aims at IT Supply Chains

  1. t.alex
    June 28, 2013

    With the new rail system, isn't it correct that it only helps local Chinese companies and industries? 

    And I am wondering if they are going to upgrade to high-speed train or normal train system? Certain goods need to be shipped fast rather than spending weeks on the train. 

     

  2. ahdand
    June 28, 2013

    This is something very encouraging. Automating an automated thing would boost the service for sure.     

  3. prabhakar_deosthali
    June 29, 2013

    I think just the last month there was a blog on the Trans-European train system to carry goods faster and cheaper than air shipping .

    This news about China tells us that the whole world is having a second look now on the ages old rail networks in almost all countries as a speedy transportation means for today's supply chains.

    China has already introduced very high speed trains for passenger traffic. If similar speeds are achieved for goods transportation then it becomes a good alternative for air-shipments as rail networks have a greater reach in the far flung regions than the air routes and do not need additional logistic support for the last mile delivery.

  4. Susan Fourtané
    June 29, 2013

    Prabhakar, 

    Yes, it was Jennifer's article about DHL using the Trans-Siberian route from China to Europe. Using the train route systems is also more environmentally friendly. 

    -Susan

  5. elctrnx_lyf
    June 29, 2013

    Chinas initiative to build a strong rail network that can be used for electronics supply chain is definitely a great idea. Sure this would help many OEM's to reduce the manufacturing cost and at the same time get things out same speed just like the as it is done now.

  6. Taimoor Zubar
    June 30, 2013

    Interesting development in China. I wonder if it will really have an impact on improving Chinese exports. All over the world, trains are becoming obsolete as air trips get cheaper and cheaper. If the Chinese switch from air to rail, it may seem to be going back into time. Besides, the train service can only be good for shipments within China.

  7. Taimoor Zubar
    June 30, 2013

    This news about China tells us that the whole world is having a second look now on the ages old rail networks in almost all countries as a speedy transportation means for today's supply chains.”

    @prabhakar: This trend seems ironic to me. Given how air prices have fallen over the years, I wonder what's driving people to go back towards trains. It may be a replacement for over the sea transportation though.

  8. prabhakar_deosthali
    June 30, 2013

    @TaimoorZ

    One of the biggest advatage of the rail network for goods trasnport is that it is almost like a door to door service compared to air shipment which required the last mile support from the road network.

    Even there is a plan to have a trasnsaiberian rail route to be used for fater shipments across Europe.

     

  9. Taimoor Zubar
    June 30, 2013

    @parabhakar: If you talk about a road network then that's a pure door to door system. With rail, like air, you will be dependent on the road network for the final delivery despite the fact that most cities have a railway station.

  10. Himanshugupta
    June 30, 2013

    Atleast someone is overhauling its century old railroad to cater the new generation and technological needs. I hear so many bad things about China and lot of negative PR but only a few articles look beyond the western criticism. What other BRIC nations are doing…i think democracy sucks. Those who cry for the human rights voilation should first find out the impact technoloy project will have on the poor population.

  11. Houngbo_Hospice
    June 30, 2013

    @Rich, Sounds like the Chinese government has started to understand that the country can not maintain economic growth if state companies are run by corrupted and irresponsible leaders. I guess there are many other companies that need cleaning up as well.

  12. Houngbo_Hospice
    June 30, 2013

    @SF, I remember that article. We haven't got a follow up yet. I would like to know how the project is being implementated so far, if there have been any challenges or if everything is working fine as planned.

  13. Susan Fourtané
    July 1, 2013

    HH, 

    Yes, it would be nice to know. Maybe we have to ask Jennifer if she has a follow up planned. 

    -Susan

  14. Daniel
    July 1, 2013

    “Among the services the Chinese operation wants to offer are packaging and pickup services, online tracking, and large-scale logistics support. That's a long, long way from hauling coal over mountains”

    Marc, from customer point of view convenience is more important. They are always looking for a door step service at economic cost.

  15. _hm
    July 1, 2013

    This is very much critical part of logistic in China. As reported recently, China also invested few billion dollars in developing a new port in Pakistan and rail and road to that port. This will bring down cost of moving goods with more reliable and predictable time. For some form of goods, air is not an option due to high risk involved.

    Alongwith commercial, Chinese military also has siginificant interest in this move.

     

  16. Hailey Lynne McKeefry
    July 1, 2013

    I love seeing the way that various countries are exploring alternatives. It seems that trains are coming into their own now. Expecially as high-speed trains become more commonplace and affordable, i predict we'll see the use of it more.

  17. Hailey Lynne McKeefry
    July 1, 2013

    @TaimoorZ, the road networks will need to be improved but i see this as a positive step forward. Every time we improve transportation (sea, land or air) we take a step forward in irmproving overall logisitics. Sure, the roads need work, but a good train system will put pressure on goverments to improve roads. The interconnected nature of all these types of transit will mean that imrpovements in one area will naturaly result in improvemetns to all pieces.

  18. FLYINGSCOT
    July 3, 2013

    I believe that China will make a real succes of this.  I am impressed with their bullet trains for transporting people and if they can do the same for the supply chain then it will be a real boon for the industry.

  19. SunitaT
    July 27, 2013

    There are a number of advantages that come with the rail system that is used as a medium transport for goods. Rail systems, with the technology boom, has become one of the most safest and cheapest modes of transporting goods. Moreover, with all the construction going on all around china, desolate places are being connected too, linking markets with companies at minimum cost.

  20. SunitaT
    July 27, 2013

     @Hailey. moreoever a better railroad system will prompt the government in making roads that are traffic free. With a network of roads and railways, hubs will be created that will allow faster transport of goods, even where there is no railroad.

  21. SunitaT
    July 27, 2013

    @FLYINGSCOT, And not just the chinese. Rail systems are the best and most common ways to transport goods. Although this doesn't ensure fast transport, some of the developed companies are switching to high capacity high speed trains. And i agree with 

  22. Hailey Lynne McKeefry
    July 30, 2013

    I believe in the many benefits of the rail…and i hope it comes to fruition.  Railway projects, though, are hugely expensive…. let's keep our fingers crossed that there won't be a financial hiccup that keeps it from happening. I've seen more rail projects die here in california, for lack of funds, than just about anything else.

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