January 11, 2008 -- International logistics enterprises began expanding their business to China's second- and third-tier cities last year -- a trend which is expected to accelerate in 2008.
FedEx Corp. subsidiary FedEx Express, for example, announced the establishment of a branch in Huzhou, in southeast China's Zhejiang province on Nov. 11.
"Huzhou is an example of China's booming second and third tier cities," Jimmy Chen, FedEx China's vice president of domestic services, told Emerging China.
"The city's rapid economic development, strong manufacturing base and increasing export volume have brought about a wealth of new commercial opportunities to the logistics industry."
Second- and third-tier cities have become significant contributors to China's national economy. These cities have large populations. By 2008, half of China's affluent households will be located outside of the 40 largest cities, said Chen.
"In China, many high value-added industries are migrating to second- and third-tier cities, which has encouraged the need for reliable time-definite service in these regions," he said.
"FedEx actively responds to the country's inland development plan, and through our domestic network, we will not only serve our customers in key Chinese cities, but also expand to more second- and third-tier cities, which is our long-term commitment to the Chinese market," Chen said.
FedEx is not alone -- its competitors have begun to expand operations into central and western China.
"After entering into WTO, the Chinese government has put great effort into facilitating international trade, presenting the air express market with tremendous opportunities," a DHL China spokesperson told Emerging China. "The cargo volume is anticipated to grow even though several competing companies are aggressively pursuing growth in China."
To keep ahead of competition, DHL is moving into such remote areas as Tibet and Xinjiang Uygur Autonomous Region.
DHL first launched its local subsidiary, Beijing-based DHL-Sinotrans, in 1986. Sinotrans is one of Asia's largest shipping companies. Since then, the DHL-Sinotrans network has expanded far into China's second- and third-tier cities in key economic zones in eastern China, according to the spokesperson.
Today, DHL-Sinotrans has close to 200 locations in major business centers, 81 branches and over 7,500 employees. It services 318 cities across the country, covering 95 percent of China's major population and business centers.
There is a great deal of growth potential for the logistics industry in China's smaller cities, since it still lags behind the developed coastal areas, however.
"There is an obvious gap between the eastern and western regions for logistics industry of China," Nuo Wang, dean of the Transportation and Logistics College of Dalian Maritime University, told Emerging China. "The eastern regions belong to the export-oriented economy, which determined their leadership on logistics."
For example, central and western regions lag behind when it comes to transportation infrastructure, Wang said.
This can create obvious and significant problems for logistics companies.
Efficient logistics, especially express airfreight, relies on physical infrastructure such as airports and highways, said FedEx's Chen.
The increasing importance of airports to the local economies is a developing trend in China's logistics industry, said Wang.
The importance of Beijing's, Shanghai's and Guangzhou's airports is already apparent. Now, the central government is offering financial support for airport construction in central and western China, Jun Li, an analyst covering the airport logistics industry of Shanghai-based Everbright Securities Co., Ltd., told Emerging China. In addition, the government has set up expedited approvals for airport-related projects, he added.
The logistics industry is only part of the transportation ecosystems. Other factors -- such as growing tourism to Zhengzhou and Kunming -- help contribute to the growth of the transportation network, and, thus, also benefit the logistics industry, Li said.