China - Container transport services and trade : framework for an efficient container transport system

Report No. 15303-CHA China Container Transport Services and Trade: Framework for an Efficient Container Transport System October 10, 1996 Infrastructure Operations Division China ancl Mongolia Department East Asia an(i Pacific Regional Office Document of the World Bank  CURRENCY EQUIVALENTS (as of Januarv 1. 1996) Currency = Renminbi Currency Unit = Yuan (Y) Y 1.00 = 100 fen Y 1.00 = $0.12 $1.00 = Y f.4 FISCAL YEAR January I - December 31 WEIGHTS AND MEASURES I millimeter (mm) = 0.0394 inch (in) I centimeter (cm) = 0.3937 ipch (in) I meter (m) = 3.2808 feet (ft) I kilometer (km) = 0.621 14 mile (mi) I square meter (m2) = 1 0.7639 square feet (ft) I square kilometer(kmn) = 0.3861 square mile (mif) 1 cubic meter (m3 ) = 35.3147 cubic feet (ft') I hectare (ha) = 2.4711 acres (ac) 1 liter (1) = 0.2642 US gallon (gal)  PRINCIPAL ABBREVIATIONS AND ACRONYMS USED B/L - Bill of Lading CAS - Country Assistance Strategy CFS - Container Freight Stations CGA - Customs General Administration CIB - China Import and Export Commodity Inspection Bureau COSCO - China Ocean Shipping Company CRC - China Railway Container Transport Company CT - Container Terminal CY - Container Yard dwt - Deadweight tons EDI - Electronic Data Interchange EDIFACT - Electronic Data Interchange for Administration, Commnerce and Transport EIR - Equipment Interchange and Receipt FDI - Foreign Direct Investment FTC - Foreign Trade Corporation GDP - Gross Domestic Product ISO - International Standards Organization JIT - Just-in-time JV - Joint Venture LCL - Less-Than-Container-Load MOA - Ministry of Agriculture MOC - Ministry of Communications MOFTEC - Ministry of Foreign Trade and Economic Cooperation MOH - Ministry of Health MOR - Ministry of Railways NCCTF - National Container Cooperation Task Force OECD - Organization for Economic Cooperation and Development Penavico - China Ocean Shipping Agency PSB - Public Security Bureau SETC - State Economic and Trade Commission SEZ - Special Economic Zone Sinotrans - China National Foreign Trade Transportation Group SIT - Sinorail Intermodal Transport Company SOE - State-Owned Enterprise SPC - State Planning Commission STC - China Ocean Shipping Tally Company TEU - Twenty-Foot Equivalent Units UN/ECE - UN Economic Committee for Europe   CONTENTS PREFACE ............................................................. iii EXECUTIVE SUMMARY ..............................................................v 1. CONTAINER TRANSPORT AND CHINA'S FOREIGN TRADE .........................1 A. Introduction ..............................................................1 B. The Container Revolution ..............................................................2 C. Logistics Management ..............................................................3 D. Changing Requirements of China's Foreign Trade ............................................4 E. Regional Disparities ..............................................................6 2. CHINA'S CONTAINER TRANSPORT SYSTEM ....................................................8 A. Organization of Container Transport: The Intermodal Chain ............................8 B. Participants in the Intermodal Chain ............................................................. 1 I C. Seabome Container Traffic ............................................................. 14 D. Inland Container Movement ............................................................. 15 E. International Norms ............................................................. 18 F. Performance of China's Container Operations .................................................. 19 3. BARRIERS TO THE MOVEMENT OF CONTAINERS ....................................... 22 A. Institutional Problems ............................................................. 22 B. Inadequate Transport Links to the Interior ........................................................ 23 C. Ineffective Competition ............................................................. 25 D. Cumbersome Border Procedures ............................................................. 27 E. Inadequate Facilities and Low Technology Base .............................................. 29 4. REMOVING THE BARRIERS TO INLAND CONTAINER TRANSPORT ....... 31 A. Redefine the Role of Government ............................................................. 3 1 B. Develop Container Transport Links ............................................................. 33 C. Stimulate Competition ............................................................. 34 D. Improve Border Procedures ............................................................. 37 E. Improve Technology and Facilities ............................................................. 39 5. IMPLEMENTING RECOMMENDED ACTIONS .................................................. 41 A. Action Programs for Policy Reform ............................................................. 41 B. Physical Developments ............................................................. 42 C. Role of the Bank ............................................................. 43  - 11 - Annex 1: Description Of COSCO And Sinotrans Groups ................................................ 47 Annex 2: International Efforts For Trade Facilitation ..................................................... 51 Annex 3: Cost Of Inefficient Container Transport System ............................................... 55 TABLES IN TEXT Table 1.1: World Container Trade Development ..............................................................3 Table 1.2: Exports of Goods and Services Relative to Gross Domestic Product (%) ........5 Table 1.3: Foreign Trade and Investment Indicators, 1991-93, by Region ........................7 Table 2.1: Profile of Intermodal Industries ............................................................. 12 Table 2.2: Government Agencies and Their Affiliated SOEs .......................................... 13 Table 2.3: Aggregate Container Volumes in China .......................................................... 14 Table 2.4: Inland Penetration of Seaborne Containers Entering China Through Ocean and Land Gateways ............................................................. 15 Table 2.5: Container Cycle Times in Elapsed Days La ..................................................... 17 Table 2.6: Transport and Logistics Costs ............................................................. 18 Table 2.7: Ranking of Services ............................................................. 19 Table 4.1: Barriers and Recommended Actions ............................................................. 32 Table 5.1: Bank Recommended Action Programs .................................. 44 BOXES IN TEXT Box 2.1: Bill of Lading .................................. 11 Box 2.2: The Link Between Chinese Shippers and Foreign Trade Corporations ............. 21 Box 3.1: The Shanghai Experience ........................................................ 27 FIGURES IN TEXT Figure 1.1: Regional Disparities .........................................................6 Figure 2.1: Process of Intermodal Chains .........................................................9 Figure 2.2: Container Cycle Time on Rail, Truck and Inland Waterway ......................... 16 MAP IBRD 28073: Container Transport Network in China  - iii - PREFACE This sector study is a result of joint efforts by the Chinese government and the World Bank. Based on an agreement between the State Economics and Trade Commission (SETC) and the Bank in March 1994, a Chinese team of experts from SETC, the Ministries of Railways, Communications, and Foreign Trade and Economic Cooperation, the Customs General Administration and other agencies and enterprises launched a study to assess the country's container transport and border procedures, and identify the areas needing improvement. The effort was supported by a Policy and Human Resource Development Grant from the Japanese Government, which covered technical assistance (TA) from a group of foreign experts. The study was begun in May 1994 and completed in October 1995. A final version of the report will be soon sent to the Bank. In conjunction with the Chinese study and built on it. the Bank initiated this sector study in February 1995. It describes the barriers that hinder intermodal transport and presents a policy framework against which the country can develop an efficient and market-oriented system. This report was prepared by Messrs. Shunso Tsukada (task manager), Ronald Kopicki (co-task manager), Suitbertus Van der Meer (consultant) and Peter Yee (Transmode Consultants Inc..). Input to the report was provided by Messrs. Takashi Muragaki (OBPFM), Masakazu Watanabe (FSD), Bala Subramaniam (UNCTAD), Soren ILennartson (consultant). David Blond, Robert West and Ms. Yvonne Taylor (of DRI McGraw-1ill) and Ms. Bavani Krishnamurthi (consultant). Valuable assistance was obtained from Messrs. Ye Chunhe and Chen Juemin of the Bank's Resident Mission in China. Peer reviewers were Messrs. Hans Peters (TWUTD), Jacques Yenny (ECIIN), Robert Schware (IENTI) and Carlos De Castro (trade facilitation specialist). The report was edited by Ms. Barbara Koeppel. The Division Chief is Mr. Richard Scurfield, and the Department Director is Nicholas C. Hope. Valuable comments were provided by Messrs./Mss. Albert Keidel. Robin Carruthers. Tilly Chang, Hennie Deboeck, Zafar Khan, Alfred Nickesen and Toshiro Tsutsumi. Special thanks are directed to the initiator and organizer of the TA program, Mr. Ma Liqiang, the Deputy Director of SETC, the heads of the Chinese study team, Prof. Wang Derong and Ms. Wang Huimin and key team members, Messrs. Xia, Liu Biag Liau, Chen Shu Qun and He Ke. Gratitude is also expressed for assistance offered by the Canadian International Development Agency, which funded the sector study.   v - EXECUTIVE SUMMARY A. INTRODUCTION 1. Over the past three decades, the growth of world trade has outpaced economic growth by a factor of three. In part, this remarkable surge occurred because of the introduction of container transport, which sharply reduced the direct and indirect costs of moving cargo across national borders. 2. Containers offer a faster, more reliable and economical service, which is critical for shipping high-value products. They transfer cargo easily from one mode of transport to another, enable operators to offer door-to-door, land-sea complete service with predictable delivery times, and reduce pilferage en route. For these reasons, 80 percent of ocean-going general cargo, measured in terms of value, and 50 percent measured in terms of weight, now move by containers. Indeed, many companies in developed countries are unwilling to place orders with factories located in areas where containers, with all their advantages, are unavailable. 3. China's Foreign Trade and Regional Disparities. Since China opened its economy to the world in 1979, foreign trade expanded sevenfold, from $13 billion to $113 billion in 1994 (in 1990 constant prices). During this time, its foreign trade mix shifted from one based on raw materials, which move in bulk lots, to one based on manufactured products, which move in smaller lots and are therefore appropriate for containers. This trend is expected to continue, reflecting ongoing structural changes in the country's foreign trade, from low- to high-value commodities. However, this expansion will be deterred if the transport sector fails to provide services that can accommodate the change. 4. This remarkable growth of exports has been regionally-based. It has flourished in the coastal areas, primarily in the southern and eastern parts of the country, while it has lagged in the interior. This inequality has reinforced existing economic disparities. Unless transport links connecting the inland regions to the coast are improved, the disparities will most likely deepen. At present, while inland provinces account for 63 percent of the population and 46 percent of overall income, they produce only 17 percent of China's exports. 5. China's Container Transport. Container shipping began relatively late (in 1978) and grew steadily over the next decade. However, from 1990 to 1994, it soared: In these years alone, throughput rose from 1.5 million TEU (20-foot equivalent units) to 5.1 million TEU, averaging 36 percent a year. Nevertheless. this phenomenal growth is confined to coastal regions. Only 8 percent of seaborne containers travel beyond these provinces. Indeed, most containers are stripped in ports and their cargoes are carried in  - vi - breakbulk to inland destinations. Thus, the greatest benefits of container transport have yet to be realized. 6. The purpose of this sector study is to explore policies the country could develop to move seaborne containers from ocean gateways to inland provinces and thus improve the latter's opportunity to participate in China's export growth. Indeed, if an efficient inland container transport system could be developed, the price of exporting and importing goods could be reduced by 2 percent-6 percent. Although these figures appear small, they are large enough to significantly affect the exporters' competitiveness in tight markets. B. BARRIERS TO CONTAINER TRANSPORT 7. In general, Chinese container services operate below world standards. For example, an October 1995 survey indicted that foreign shippers gave China's intermodal system a "3" on a scale of one-to-ten, while those in the United States and Hong Kong were rated "8.8." This poor performance is due to five institutional and physical barriers. (a) Uncoordinated and Duplicated Government Responsibilities/ Regulations. Government agencies still have vestiges of the command economy and are structured along modal lines. Many are involved in the intermodal transport system, approach the process from their own perspective, and pass laws and regulations without coordinating with the others. The result is an array of overlapping jurisdictions and fragmented legal structures. Moreover, the agencies control every aspect of container transport and function both as regulators and operators, either by themselves or through their affiliate enterprises, which creates collusive relationships between the state and enterprises. (b) Inadequate Transport Links between Interior Regions and Gateway Cities. The shortage of transport capacity is a long-standing problem. The lack of rail capacity has deprived shippers of access to cost-effective long-distance service, the most critical element for moving cargo to and from inland destinations. Further, service is often irregular and of poor quality. Trucking service is also poor, partly due to the equipment but mainly to the quality of the highways, most of which were originally designed for local traffic and do not accommodate tractor trailers easily. Inland waterway service is also inadequate because of a lack of container handling facilities. (c) Lack of Effective Competition, Particularly in Intermediate Services. In almost all subsectors, the state-owned enterprises (SOEs) dominate. This is a particularly grave problem for the interrnediary industries because of the critical role of freight forwarders and shipping agents in intermodal transport. Although these industries were theoretically opened to outside firms in the early 1990s, the China Ocean Shipping Company  - Vii - (COSCO) and China National Foreign Trade Transportation Group (Sinotrans) groups still have market shares of 75 percent and 20 percent, respectively, among the shipping agencies, and 20 percent and 60 percent, respectively, among freight forwarders. This dominance allows them to provide intermodal service without considering clients' needs. (d) Cumbersome Border Procedures. Although these have improved since the mid-1980s, border procedures still delay containers at points of entry. More inspections are required in China than in other countries: Besides the usual inspections for customs, animals/plants and health quarantine, authorities have also required commodity inspections, with respect to international/bilateral agreements, and the tally of containers, to certify that each is transferred from the terminal operator to the shipping line. Further, the inconsistent way that regulations are applied, along with a lack of transparency, confuses foreign shippers and delays the process. (e) Lack of Container Handling Facilities; Poorly Developed Information Systems. Unlike the coastal cities, which have a full contingent of container freight stations, trucks and empty containers, interior provinces lack such facilities and equipment. Thus, inland shippers have to wait for empty containers to be sent from the coast to the interior, which adds to the time and costs. Similarly, information systems and other technology are problematic: For example, the way in which containers are sent, received and tracked (the equipment interchange and receipt [EIR] system), is ineffective because transport operators do not honor contracts to return containers by specific dates. This occurs because the agreements are difficult to enforce. C. RECOMMENDATIONS TO REMOVE THE BARRIERS 8. The study recommends 13 courses of action to remove the barriers. These include the following: Redefine the role of the government (a) During the transition from a command to a market economy, the Government should establish an intermodal system in which market forces play a greater part in determining prices and resource allocations. To this end, efforts should be made to separate the Government's regulatory and operational functions, creating an "arm's length" relationship with its SOEs; (b) The Government's capacity to coordinate activities should be strengthened. To accomplish this, the inter-agency committee (the  - viii - National Container Cooperation Task Force) should be expanded so it can better deal with the issues surrounding border procedures; (c) All laws and regulations should be reviewed so as to identify, modify or eliminate those that hinder competition and impose costly administrative requirements; Maximize the use of existing transport infrastructure (d) Although lack of infrastructure is a key issue in the intermodal system, and addressing it will take a decade, much can still be done to move containers further inland. To this end, container line-haul services. particularly those of the railway, could be improved if a dedicated service was introduced. Further, authorities should explore greater use of the Yangtze River, which offers considerable opportunities for transporting containers. (e) Container handling capacity at both the sending and receiving ends (in cities with regularly scheduled long-haul services) should be improved by developing transshipment and handling facilities; Establish user-oriented, competitive intermodal transport services (f) Until now, foreign operators (which are larger and have greater capacity to compete) have not been able to compete with the giant SOEs that dominate intermodal transport. Because they could provide shippers with high-quality alternatives, particularly in intermediary services, they should be allowed to enter the market and conduct business in a communal manner; (g) To create competition and ultimately improve the quality of service, the large SOEs should be broken up and transformed into groups of smaller companies (which could compete among themselves). Over the long term, these smaller companies should be spun off from the group; (h) Prices of container transport services should be reviewed and restructured so as to attract Chinese shippers who are not yet using containers; Simplify border clearance procedures and the documentation process (i) To simplify clearance procedures at the borders, authorities should introduce a one-stop checking system in which Customs officials judge whether other inspections are required. Also, the requirements for a bonded transit system should be simplified and inspections should be deferred until cargo reaches the inland destination. Further, commodity inspections and tallying requirements should not be mandatory.  - ix- (j) Standardized shipping and trade documents, developed in the Shanghai pilot program, should be applied throughout the system; (k) An electronic data interchange system (EDI) should be introduced to modernize administrative and commercial procedures. This effort could start at the municipal level, and, if successful, be expanded nationwide; Upgrade technology and promote the inflow of funds to accomplish this (1) New container-handling technologies, particularly the EIR processing system and container tracking system, should be introduced at major internodal hubs and along corridors that handle container traffic; (m) To mobilize financial resources, joint ventures with foreign investors, as well as leasing and improved access to financial institutions, should be explored. D. ROLE OF THE GOVERNMENT 9. To introduce the 13 recommended courses of action listed above, the report suggests various programs, along with the time-frames and the agencies responsible for implementing them (see Table). Some of the actions can be initiated in the short term (1-3 years) because the Government has already begun to move in these areas. Those recommended for the medium term (3-5 years) are equally important, but will take longer to launch. 10. To implement the programs, the lead agency will need to coordinate the conflicting interests of various agencies, among other tasks. Thus, a priority has been to create a coordinating body, as outlined in para. 8. The immediate concern of this group would be to develop and adopt the above action programs. 11. The World Bank stands ready to support the Government in this new strategy.  - x - TABLE: BANK RECOMMENDED ACTION PROGRAMS Recommended course of Time Suggested action Specific activities frame Responsibilities Separate regulatory from * Establish an "arms-length" relationship between the Govemment and Medium SETC/Ministries operational functions enterprises Strengthen coordinating - Strengthen the coordinating function of NCCTF and expand it to Short SETC/Ministries function include trade facilitation * Improve coordination between terminal/transport operators in Medium Operators transshipment of containers and in scheduling of service provision Reformulate a legal * Review the existing laws and regulations and revise those that hinder Medium SETC/Ministries system competition and delay container processing Maximize use of existing Develop a master plan for Yangtze River container transport Short SPC infrastructure * Compile an inventory of traffic bottlenecks along highways and Short Municipalities prepare investment plans to remove them * Adopt interprovincial licensing for long-haul trucking and allow the Short MOC private sector to haul containers * Apply the new wagon allocation system nationwide Short MOR * Operationalize two rail container transport companies Medium MOR * Introduce a separate registration system for tractors and trailers Short Public Security Bureau Develop intemmodal hubs Promote investments in container handling facilities and facilitate Medium Municipalities investments in load center cities Establish user-oriented, * Eliminate restrictions on the scope of business carried out by foreign Medium MOFTEC/MOC competitive intermodal freight forwarders affiliated with foreign shipping lines services * Remove entry restrictions to non-SOE shipping agencies Short MOC Reform intermediary Transform major intermediary SOEs into group(s) of smaller and Medium COSCO/Sinotrans SOEs more manageable enterprises * Confine the functions of holding companies to setting overall Medium COSCO/Sinotrans policies Restructure intermodal Review pficing schedules for container services Short SPC/Ministries pricing Progressively relax Govemment controls on container service prices Medium SPC/Ministries Streamline border Establish a one-stop checking system Medium CGA/MOH/MOA inspections Facilitate bonded transit to inland destinations Short CGA * Reform the charging system for animal/plant inspections and health Medium MOA/MOH/MOF quarantines * Lengthen the service hours for border procedures Short SETC/Ministries * Remove commodity inspections and tallying from mandator border Medium CIB/STC inspections * Relax entry restrictions into commodity inspections and tallying Medium CIB/STC markets Adopt simplified Ensure broader use of uniform shipping/trade documents Short MOC/MOFTEC documents Adopt waybills for trade/shipping-related transactions and/or Medium MOC/MOFTEC introduce electronic form of bills of lading Provide electronic data * Refine EDI-related standards, including EDIFACT Short MOC/CGA/MOFTEC interchange (EDI) Experiment with municipality-based EDls Shon Municipalities * Establish a nationwide EDI system Medium SETC/MOC/CGA/ MOFTEC Upgrade the technology Facilitate the import of tractor trailers Medium MOFTEC/CGA base and facilities Establish an enforceable FIR system Short MOC Strengthen financing * Create an environment conducive to JV investment Short SETC/MOFTEC capability Establish a legal and judicial framework for leasing Medium MOFTEC/MOC * Channel funds into the intermodal sector areas through Medium BanksfMunicipalities intermediation Note: Short termn imnplies one to three years, and medium term, three to five years.  - 1 - 1. CONTAINER TRANSPORT AND CHINA'S FOREIGN TRADE * With its long coastline and enormous hinterland, China has a great need of an effective intermodal container transport system. At present, however, container transport is confined mainly to the coastal regions. This has been one of the major factors that keep the interior provinces from participating in China's recent export boom; in turn, this reinforces the existing economic disparities between the coastal and interior provinces. Thus, this study analyzes the barriers to efficient intermodal transport and recommends actions to address them. * This chapter describes two phenomena shaping today's dynamically changing world trade. These include: 0 The container revolution, which occurred during the last three decades and dramatically changed the international transport system. 0 The practice of logistics management, applied by manufacturers and retailers alike. * It also describes the nature of China's foreign trade, its use of container transport, and how current practice contributes to regional disparities. A. INTRODUCTION 1.1 Since China opened its economy to the world, foreign trade has been pivotal to its growth: Over the last 15 years, the export-to-gross domestic product (GDP) ratio increased from less than 10 percent to 26 percent. This rapid expansion was largely fueled by direct foreign investment. Such investment has mainly been in export-oriented manufacturing, which accelerated the shift toward higher-value trade that is suited to container transport. 1.2 With this shift, China significantly increased the percentage of its containerized exports: The containerization rate' reached 13 percent in terms of weight and is estimated to be over 60 percent in value. 1"Containerization rate" in terms of value or weight is defined as the percentage of containerized goods to total value or weight of goods.  - 2 - 1.3 Despite the country's long coastline and enormous hinterland, the growth of exports and the use of containers have largely been limited to the coastal areas and associated with oceangoing shipping: Over 92 percent of seaborne containers do not travel beyond the coastal provinces. Therefore, although the economy as a whole reaps the benefits, the interior provinces have not participated in the export boom. This, in turn, reinforces the economic disparities between coastal and interior regions. 1.4 The purpose of this report is to explore the issues the country must address to move containers from gateway cities to inland production centers. This discussion will include ways to streamline border procedures, which hinder the speed and ease with which containers are processed. In so doing, the study will help (a) alleviate transport bottlenecks and (b) minimize regional disparities in export activities, objectives of the Bank's Country Assistance Strategy. 1.5 The report builds on the "Transport Logistics Study" carried out by a Chinese team under the State Economic and Trade Commission (SETC) with technical assistance from foreign experts.2 While the first study reviewed the nature of the container system and border inspections, and identified specific areas that needed to be developed, this new report, prepared by the World Bank, defines the policy framework and courses of action that can foster these changes. 1.6 The study contains six chapters. The first provides a background, describing the patterns of world trade and macroeconomic issues that affect or are affected by the development of container transport. Chapter 2 describes the current container transport system, focusing on the organization of intermodal industries, the inland movement of seaborne containers, and shippers' perspectives about China's transport. Chapter 3 discusses the barriers that prevent intermodal services from being delivered efficiently. Chapter 4 recommends courses of action to remove the barriers. Chapter 5 summarizes the Government's and Bank's roles in the process of producing an efficient intermodal system. B. THE CONTAINER REVOLUTION 1.7 Since the first oceangoing operation between Port Newark to Rotterdam, Bremer Haven and Grangemouth in 1956, international container transport has developed rapidly (see Table 1. 1). Because shippers insist on this form of transport, ports around the world have had to accommodate them; and, because the mode is highly capital-intensive (requiring container ships, special berths equipped with gantry cranes, and ship-to-rail transshipment facilities), containerization has become a self-reinforcing process. Some major ports will only accept general cargo in containers, while major shipping lines only guarantee delivery times for container cargo. Thus, 80 percent of the world's deep-sea 2 The final report will be available in the summer of 1996.  .3 - general cargo, measured in terms of value, and 50 percent measured in terms of weight, move in containers. TABLE 1.1: WORLD CONTAINER TRADE DEVELOPMENT Year Loaded container trade L/ Port throughput (million TEU) (million TEU) 1970 2.1 6.3 1975 6.1 18.3 1980 12.8 37.3 1985 19.3 36.7 1990 24.8 77.9 1995 32.6/b 96.5Jb La Loaded containers, net of domestic and transshipment traffic volumes. /b Estimated. 1.8 Because containers can be easily transferred from one mode of transport to another, they have enabled transport operators to offer faster and more reliable service: They move from origin to destination on a door-to-door basis under one bill of lading, and they reduce the amount of pilferage. Moreover, they shrink economic distances between coastal ports and inland manufacturing centers, which stimulates import and export industries in the hinterland. For example, in the midwest of the United States, intermodal container transport altered the locational preferences of entire industrial sectors over the past two decades. Indeed, it is clear that container transport profoundly affected that country's cargo transport and foreign trade. 1.9 Today, multinationals prefer to deal with producers in countries that have good distribution systems-those with reliable transport infrastructure and services as well as efficient border procedures-so as to minimize the costs and risks associated with the international distribution of cargo. These corporations are increasingly selective about where to locate regional production and distribution centers and often move from one country to another to obtain less costly but reliable service (among other reasons). For example, over the last 10 years, the frontiers of light industry production moved from Hong Kong, Taiwan (China) and Korea to Thailand and Malaysia, and then to Indonesia and India. C. LOGISTICS MANAGEMENT 1.10 The concept of logistics management derived from practices employed by the military to move personnel, arms and food in a systematic manner. During the Gulf War, for example, US forces served 122 million meals in Kuwait. Delivering three meals a day to each soldier required extensive planning, organization, mobilization of human resources and equipment.  -4 - 1.11 In commerce, the tern- refers to planning and managing the flow of raw materials, in-process inventories and finished goods along with the information needed from the point of origin to the point of consumption. 1.12 As manufacturers expanded their markets abroad, they had to reduce their products' cycle time (the point from which orders are placed, through design and manufacturing to shipment), which meant improving the use of assets and level of service (managing logistics effectively). In so doing, they could respond more quickly to market changes. 1.13 Second, they sought to reduce their working capital through tight inventory control. Because 35 to 50 percent3 is usually tied up in inventory, which can be raw materials, work-in-progress, and finished goods waiting to be delivered, they employed the just-in-time (JIT) concept: It required suppliers to deliver the exact units and amounts needed at a specified time determined by a manufacturer's production schedule. This involved extremely tight scheduling within the chain between those who supply intermediary products and those who produce the final product. 1.14 Third, they stressed customer service, whereby firms try to differentiate their products/services from others and in so doing, provide buyers with significant value- added benefits. This required a commitment to reliable deliveries as well as ancillary services such as shipment tracing and paperless purchase orders. 1.15 The concept also involved tight management throughout the chain of supply: Close links were created between suppliers in one country, production centers in a second and distribution centers in the home country through the use of information technologies, such as electronic data interchange (EDI). 1.16 State-of-the-art logistics were also practiced by international retailers such as Benetton and Federated Department Stores, which contracted for the production of their apparel with Asian manufacturers, who, together with retailers, tried to reduce the cycle time and quickly replenish the items that sell most rapidly during peak seasons. Retailers such as these need to have enough inventory in their outlets to satisfy customers but not so much that they are left with surplus at the end of each fashion season. This just-in- time, just-enough management of the supply chain required tight inventory control, timely feedback on buyer preferences and service-responsive transport providers. D. CHANGING REQUIREMENTS OF CHINA'S FOREIGN TRADE 1.17 From 1990 to 1994 alone, exports doubled, from $62 billion to $112 billion (in constant 1990 prices), raising the export/GDP ratio from 19 percent to 26 percent. Thus, although China differs greatly from other countries due to its population size and the 3 James F. Robeson, "The Logistics Handbook," New York, 1994.  -5- complexity of its economy, the country is beginning to look more like the other fast- growing newly industrialized economies (see Table 1.2). TABLE 1.2: EXPORTS OF GOODS AND SERVICES RELATIVE TO GROSS DOMESTIC PRODUCT (%) Years China Korea Thailand Indonesia Taiwan (China) 1990 19.1 29.8 34.0 27.4 47.7 1991 20.9 28.1 35.4 28.1 48.5 1992 22.5 28.9 36.0 28.9 44.5 1993 24.1 29.4 37.0 27.6 45.7 1994 26.4 - 38.1 28.3 45.0 Source: Bank Economic and Social Database; and Country Assistance Strategy document. 1.18 From the early 1980s through 1994, China's foreign trade mix shifted from one based on raw materials, usually transported in bulk, to one based on manufactured products, usually moved in containers, in the oceangoing leg of travel. These products, which include textiles, electrical appliances, footwear and toys, accounted for 79 percent of the country's exports in 1994. And, as the value-to-weight ratio of its traded products increases (China's containerized export cargo over the past four years rose, on average, from $4,900 to $6,650 per ton), such trade is ever more suitable for container transport- not only to foreign destinations, but to inland destinations, as well. 1.19 This structural change in China's foreign trade was largely the result of foreign direct investment (FDI), including that by multinationals. In gross terms, it grew from virtually none in 1980 to $33 billion in 1994 and now accounts for half of all FDI in developing countries. The first phase began in the 1980s and was concentrated in Guangdong province because of its proximity to Hong Kong and ethnic/linguistic links. Later, it flowed to Fujian province, particularly from Taiwan (China), because of strong ethnic ties between these two regions. Then, as port infrastructure was built along the Chinese coast in the late 1980s and early 1990s and more shipping services were made available from mainland ports to foreign markets, FDI began to spread along the eastern and northern coasts. Most was directed toward export industries, much of this in special economic zones (SEZs), and is now a driving force in the boom: For example, in 1993, 28 percent of exports and 40 percent of imports were attributed to activities of foreign- funded enterprises; these usually demand better transport and logistics systems to ensure that needed inputs/products arrive on time and that exports meet production and marketing schedules. 1.20 The advantages China offers as a trading and investment partner are: (a) its huge pool of inexpensive and literate labor; (b) a potentially large domestic market hungry for consumer products; and (c) a high savings rate that allows foreign technologies to be adopted and manufacturing capability to expand. However, as China increasingly integrates in world trade, its comparative advantage will need to be based not only these features but on the quality of its services, such as good order-to-door cycle time, door-to-  - 6 - door reliable transport, competitive transaction costs tL clear cargoes, and minimum losses in transit. E. REGIONAL DISPARITIES 1.21 As mentioned earlier, the recent surge in exports increased the degree to which coastal regions, primarily in southern and eastern China, participated in this expanded foreign trade, while interior provinces fell progressively behind: Interior provinces account for 63 percent of China's population and 46 percent of its overall income, but only 17 percent of foreign trade. Figure 1. I presents the disparities in terms of per capita GDP and exports for the seven regions in China.4 FIGURE 1.1: REGIONAL DISPARITIES Regional Disparity: GDP and Exports per Capita (1993) /a 784 699 700 6 600 6 500 a AE 392| | o 400 300 292 0 Per capita GDP 2 Per capita exporb 200 100 0 0~~~~~~~ S I Region Za The Seven Regions comprise: 1. South Hinterland: Sichuan, Guizhou, Yunnan and Guangxi; 2. Central Core: Henan, Anhui, Jianxi, Hubei and Hunan; 3. Far West: Xinjiang, Tibet, Qinghai, Gansu and Ningxia; 4. North Hinterland: Heilongjiang, Jilin, Inner Mongolia, Shanxi and Shaanxi; 5. North Coast: Liaoning, Hebei (includes Beijing and Tianjin), Shandong; 6. East Coast: Jiangsu (includes Shanghai) and Zhejiang; 7. South Coast: Fujian, Guangdong and Hainan. 4 World Bank, China: Regional Disparities, Washington, D.C., World Bank, 1995.  - 7 - 1.22 These disparities are mainly the result of the greater distance from the ports to the interior regions, which led FDI to flow to the coastal areas. The importance of FDI cannot be overstated: 28 percent of exports and 40 percent of imports were linked to activities of foreign-funded enterprises (see Table 1.3). TABLE 1.3: FOREIGN TRADE AND INVESTIMENT INDICATORS, 1991-93, BY REGION Trade Ministry Data. Customs Data. 1993 Foreign-Funded Foreign Direct Investment 1991 (S million) 1993 ($ million) Enterprise Trade Share 1992 Level % of fixed Imports Surpl./Deficit Imports Surpl./Deficit Exports Imports ($ million) investment China Total 63.790 8,120 103,950 -12.188 28% 40% 11,292 8.2% Far West 150 662 1,143 -262 5% 7% 1 00% North Hinterland 1.440 2.477 5.213 1.761 4% 18% 252 1.7% South Hinterland 1.080 1.516 3,534 -275 7% 26% 343 2.5% Central Core 1,030 3.323 4,953 -359 8% 32% 543 2.7% North Coast 10,450 8.392 19,478 -4.066 21% 32% 2.091 6.4% EastCoast 12,240 4.272 19.664 -1.834 24% 42% 2,197 7.9% South Coast 11.790 5.708 49.964 -7.153 40% 48% 5,578 25.2% Source: China: Regional Disparities (the World Bank, 1995). 1.23 The disparities can also be traced to the preferential policies and treatment conferred on coastal provinces in the 1980s. At first, SEZs were established, beginning with Shenzhen in 1980, followed by Zhuhai. Shantou, Xiamen and Hainan. In 1992, free trade zones were introduced in four cities-Dalian, Tianjin, Shanghai and Shenzhen. In the same year, in an attempt to extend these benefits to inland regions. the Government designated a large region along the Yangtze River, from Shanghai to Chongqing in Sichuan Province, as a sixth SEZ. 1.24 Due to these policies, most export industries located within these zones. In general, they import raw materials and intermediate products, instead of obtaining them from nearby provinces within China, and low-cost, skilled labor transforms them into finished products for re-export. This pattern developed largely because inland transport is inadequate and it has created two distinct Chinese economies: One is growing rapidly and linked to the global economy, wvhile the second is growing slowly and detached from both the global economy and high-growth internal markets. Thus, unless transport links (including container service) to and from the interior are improved, regional disparities in exports, investment and growth are likely to intensifv over the next decade.  - 8 - 2. CHINA'S CONTAINER TRANSPORT SYSTEM * This chapter describes China's container transport system, focusing on the intermodal industries, the inland movement of seabome containers and shippers' perspectives about the quality of service. It concludes that: 0 The Government dominates container transport, permeating every aspect of the market through its role as regulator and operator. 0 Container traffic through the mainland ports has grown significantly, at 36 percent a year from 1990 to 1994. However, inland traffic lags behind; only 24 percent of seabome containers travel beyond port cities, and only 8 percent cross beyond the coastal provinces. 0 The container transport system operates below world standards: International shippers give it a rating of 3, on a scale of 1 to 10. while those in the United States and Hong Kong were rated 8.8. A. ORGANIZATION OF CONTAINER TRANSPORT: THE INTERMODAL CHAIN 2.1 Because containers with commodities to be exported from China cross borders, the process involves various steps and entities (see Figure 2. 1). These include: (a) Obtaining Export Licenses. Companies involved in international trade first must obtain export licenses from the Ministry of Foreign Trade and Economic Cooperation (MOFTEC). Once this is accomplished, Chinese shippers must apply to the People's Bank of China to open foreign currency accounts; (b) Arranging for Payment. When foreign buyers agree to import goods from China (usually from foreign trade corporations licensed by MOFTEC), they enter into contracts for trade: They instruct their banks to issue letters of credit5 to the Chinese sellers' banks. These banks then inform the sellers that credit is available. Once the sellers satisfy the terms and conditions in the letters of credit, preparations begin to ship the goods; A letter of credit is defined as a document authorizing a bank to pay the bearer a specified sum of money upon receipt of a document that proves the commodities ordered by a buyer have been shipped. It provides a useful way of settling foreign trade transactions.  - 9 - FIGuRE 2.1: PROCESS OF INTERMODAL CHAINS Activities and Players in Containerized Freight Movement Activities Principal Players Export/lmport Licensing | MOFrEC Contract Between Exporters and Importers Shippers (both Chinese and Foreign) lr m [Arrangements for Transport, Container Freight Forwarder, Shipping Agent Handling and Inspections ?Haulage from Shipper's Trucker/Railway/Inland Waterway Premises to Container Freight Forwarder Freight Station (CFS) Consolidation and Packing CFS Operator at CFSCFSOprao 1 - Border Inspections by Agencies for Customs, Animal/Plant Relevant Agencies Commodity Inspections, & Tally , _~~~.9 Hauling to Container Terminal (CT) at Ports Trucker iContainer Processing itt Terminal Operator ~CT Shipment to International Shipping Lines Destination  - 10- (c) Selecting Freight Forwarders. The sellers must then hire freight forwarders (licensed by MOFTEC) to handle the transport arrangements and provide them with whatever information is needed. The forwarders contact shipping agents, licensed by the Ministry of Communications (MOC), to book space in oceangoing vessels, and then arrange for the cargo to be picked up. In this process, freight forwarders arrange for haulage from the sellers' premises to container freight stations; (d) Hauling Goods Inland. Goods are carried by trucking firms licensed by provincial communications departments, railway operators, or sometimes by inland waterway operators in breakbulk to container freight stations near the ports. At the same time, containers are provided at the freight stations by the freight forwarders who secure them from shipping lines or container leasing companies; (e) Consolidating and Packing Containers. At the freight stations, containers are packed with the goods to be exported. If these are small- sized (less-than-container-load-LCL) cargoes, they are consolidated with other LCL cargoes to make a container-load and then packed into a container; (f) Inspecting Cargo at Borders. Freight forwarders then arrange for the necessary inspections-whether of commodities, plants and animals, health or Customs-with local offices of the Commodity Inspection Bureau, the Ministry of Agriculture (MOA), the Ministry of Health (MOH), and Customs General Administration (CGA), at the container freight station or other designated places. Customs then seals them; (g) Hauling Cargo to Container Terminals. When container termninal operators (licensed by MOC) in the ports are ready to receive the containers for loading onto vessels, freight forwarders arrange for haulage by truck from the freight stations to the container terminals; (h) Processing Containers at Terminals. At the terminal gate, containers are checked with regard to their physical condition and passed on to the terminal operator, along with an EIR that records those findings. The terminal operator then coordinates with the shipping line to load containers onto the vessel. While waiting for the vessel to arrive, containers are stacked in the adjacent yard. They are then loaded into vessels, counted and certified by the China Ocean Shipping Tally Company (an MOC affiliate); (i) Shipping to Foreign Ports. Once a container is loaded and the vessel embarks for foreign destinations. the shipping agent issues a bill of lading to the forwarder, on behalf of the shipping line (see Box 2.1), which certifies that a particular cargo has left the port. The forwarder, in turn, passes the bill of lading on to the Chinese seller, who takes it to a bank and receives payment, even before the goods arrive at the ultimate destination.  - -~~~~~~-1 Box 2.1: BILL OF LADING The most fundamental of all shipping documents in international trade is the bill of lading (B/L). It is defined as a document issued by a carrier to a shipper, acknowledging receipt of goods, and stating the points of pick-up and delivery, value declared for carriage, freight charges and tenns and conditions of transport. The bill of lading is negotiable. Its delivery serves to transfer title to the goods named in the bills. To obtain the goods that have been shipped, buyers must present an original B/L. Since freight forwarders mail the B/L to the buyers, in some cases, mailing of the bill takes more time than shipping, and a faxed B/L is not valid. Because of these requirements, an increasing number of buyers and sellers are using waybills. However, the waybill is not a document of title, and buyers do not have to produce them to claim the goods. (See Chapter 4 for a more detailed discussion on waybills.) B. PARTICIPANTS IN THE INTERMODAL CHAIN 2.2 Intermodal Industries. Container transport involves four types of participants. These include: (a) transport operators, such as oceangoing shipping lines, railway lines, truck operators, inland waterway service providers; (b) intermediary service providers, such as freight forwarders, shipping agents and tally companies; (c) operators at container freight stations (CFS) and terminals; and (d) shippers (see Table 2.1). As the table indicates, the services are dominated by the SOEs, with only limited participation by the private sector. Where the latter is involved, it mainly is in foreign-funded joint ventures (JVs), in four of the intermodal markets (trucking, CFSs, container terminals at ports, and freight forwarding). 2.3 Government Agencies. Three types of Government agencies are involved in different capacities. They include: (a) agencies such as SETC and State Planning Commission (SPC) that coordinate policies and investments; (b) line ministries such as MOC, Ministry of Railways (MOR), and MOFTEC that regulate industry activities; (c) agencies such as CGA, MOA, MOH, and China Import and Export Commodity Inspection Bureau (CIB) that carry out border inspections; and (d) Public Security Bureau (PSB) which regulates the use of vehicles. Each agency assumes defined responsibilities (see Table 2.2). 2.4 The Government dominates almost every aspect of container operations. Line ministries cover not only safety regulations and border controls, but also economic regulations such as market entry and pricing. Also, they are involved as operators, either alone or through their affiliated enterprises.  - 12- TABLE 2.1: PROFILE OF INTERMODAL INDUSTRIES Oversight Private Sector Industrv Agency Brief Profile of Industry Participation Oceangoing MOC The industry is dominated by Chinese shipping lines - COSCO (50%) 120 JV shipping shipping and Sinotrans (20%), provincial lines of Guangzhou. Shanghai & companies (end of Tianjin (15-20%). All of these lines are SOEs. 1995) Railway MOR MOR is the sole operator. Container operations are still designed for None domestic containers with minimal handling of International Stan- dards Organization (ISO) containers (these account for 5% of total containers handled by MOR). In 1994, 110,000 TEU were handled. Trucking MOC Large freight forwarders and provincial trucking SOEs are major A number of foreign- operators: Sinotrans is the largest, with a 1,400 tractor trailer fleet, funded JVs. which is one third of the country's total. Inland MOC There are 7-8 container operators along the Yangtze River. The Many operate on the waterway largest is Changjiang Shipping Corporation. Many more operate Pearl River services between the Hong Kong and Guangzhou areas. along the Pearl River. Freight MOFTEC Freight forwarders arrange transport services and border inspections 100 JV forwarders forwarding for shippers. More than 800 forwarders are licensed by MOFTEC (by and 10 wholly the end of 1995). Most are affiliated with Sinotrans or COSCO, and foreign-owned some are provincial or municipal SOEs. The Sinotrans group has a forwarders (end of market share of 60% and COSCO has 20%. 1995) Shipping MOC Shipping agents represent the shipping lines; they sell space on None agents vessels, contract with shippers, quote tariffs, and issue bills of lading. Over 170 shipping agents are licensed by MOC (by the end of 1995). Penavico, a subsidiary of COSCO, has 75% of market share, while SinoAgent, a subsidiary of Sinotrans, has a little over 20%. Container MOC It is at these facilities where small cargoes are consolidated into A number of foreign freight container loads, and containers are packed or stripped. Often, border funded IV CFSs in stations inspections occur here. Many operators are affiliated with major the peripheries of (CFS) freight forwarders or provincial and municipal SOEs. major ports. Container MOC CT operators process containers from terminal gates to ships; they use 10 JV terminal terminals heavy equipment such as transtainers, tractor trailers and cranes. operators (Shanghai (CT) Most CT operators are affiliated with port authorities. Each major & Yantian ports) port has 1-2 operators. Tally MOC Tally operators verify quantities of containers taken on or off vessels; None services also, they document the hand-over from shipping lines to terminal operators. China Ocean Shipping tally Company is the sole operator. Foreign MOFTEC Enterprises are licensed by MOFTEC as FTCs. Of the 3,000 FTCs, Probably none trade most are SOEs at the central and local levels. corporations (FTC) Note: JV = Joint Venture.  - 13 - TABLE 2.2: GOVERNMENT AGENCIES AND THEIR AFFILIATED SOEs Agency Responsibilities and Affiliated SOEs SETC * A coordinating agency, one echelon above the line ministries and provincial govemments; also a secretariat for the National Container Cooperation Task Force, a recently established ad-hoc committee for promoting cooperation among agencies involved in container transport. * Responsible for economic operations (mainly short- and medium-term). SPC * A coordinating agency, one echelon above the line ministries and provincial govemments. * Responsible for long-term investment planning, extensively involved in developing transport infrastructure. * Regulates prices of major public utilities, including transport. MOC * Regulates all modes of transport except railway (ocean-going shipping, inland waterway, coastal shipping, trucking). * Regulates several intermodal services: shipping agencies, terminal operations, container yards, freight stations, and tallying. * Responsible for developing highway networks and ports * Its major affiliated SOEs are: * COSCO, which provides intermodal services through its subsidiaries such as: COSFRE (freight forwarding); Penavico (shipping agency and freight forwarding); China Road Transport Company (trucking) * Changjiang Shipping Corporation: inland waterway along Yangtze River * China Ocean Shipping Tally Company (STC): tallying MOR * Provides rail service through its 12 regional administrations. while its headquarters plans, manages and operates the national rail system * Operations are highly regulated by central govemment (wages by the Ministry of Labor, tariffs and major investments by the SPC) * Its affiliated SOEs are: * CR Foreign Service Company: freight forwarding * China Railway Container Transport Center: rail-based container transport service * Sinorail Intermodal Transport Company: rail-based container transport service MOFTEC * Responsible for administering extemal trade, including export/import licenses * Regulates intemational freight forwarding * Licenses foreign trade corporations * Its major affiliated SOEs are: * Sinotrans: freight forwarding and ocean going shipping * China Maritime Shipping Agent commonly known as SinoAgent, a subsidiary of SINOTRANS: freight forwarding * 12 foreign trade corporations CGA * Evaluates and collects import duties and compiles foreign trade statistics * Enforces standards on the physical condition and safety of containers * Promotes Customs brokerage services MOA * Inspects animals/plants MOH * Inspects for health quarantine PSB * Administer vehicle registration of tractor/trailer and other trucks. CIB * Inspects export and import commodities  - 14- C. SEABORNE CONTAINER TRAFFIC 2.5 Oceangoing container shipping in China began later than in other Pacific Rim countries: The first regularly scheduled service was launched by COSCO in 1978 between Shanghai and several cities in Australia. Since then, it steadily increased, fostered by 14 port cities6 being designated as "open cities" in 1984. From 1985 to 1993, the volume handled at ocean gateways grew from 0.6 million TEU to 3.8 million TEU, with an average annual growth rate of 27 percent (Table 2.3). TABLE 2.3: AGGREGATE CONTAINER VOLUMES IN CHINA (Containers, both empty and loaded, in terms of '000 TEU) Land Gateway Ocean Gateway Year Shenzhen Other /a Seaport/b L Total 1980 55 0 65 120 1985 150 7 572 729 1990 1,300 20 1,500 2,820 1993 4,350 20 3,829 8,100 Annual Growth Rate 1980-93 40% - 37% 38% 1985-93 52% 14% 27% 35% 1990-93 50% 0% 37% 42% /a Others include: Macau (highway), Manzhouli (to Russia-rail); Erlian (to Mongolia -rail), Sui Fen Hei (to Russia near the Democratic People's Republic of Korea-rail), and Gong Bei (highway). /b Seaports include river ports directly visited by ocean-going vessels. /c Seaports handled 5.07 million TEU in 1994. Source: Technical Assistance Report on Transport Logistics Study. 2.6 This trade is centered at about 35 seaports. The four largest are in Shanghai, Tianjin, Qingdao, and Dalian, which handled 934,000 TEU, 482,000 TEU, 303,000 TEU, and 256,000 TEU, respectively, in 1993. Although the ports are predominantly served by Chinese shipping lines, foreign lines have also begun to operate. These include APL, Sealand, Maersk and NYK. Their market share varies by port (e.g., 5 percent at Tianjin and 35 percent at Qingdao), and is estimated to be around 10 percent, overall. 6 Dalian, Qinhuangdao, Tianjin, Yantai. Qingdao, Lianyunguan. Nantong, Shanghai, Ningbo, Wenzhou, Fuzhou, Guangzhou, Zhangjing and Behai.  - 15 - 2.7 An even larger volume of China's container trade is handled through the Shenzhen gateway to and from Hong Kong7 by highway. This land route handled 4.3 million TEU in 1993, 11 percent more than all the Chinese ports combined. This larger share reflects the rapid growth of foreign trade in the southern coastal provinces and the fast and reliable service at Hong Kong container terminals. D. INLAND CONTAINER MOVEMENT 2.8 Container Traffic. Containers are penetrating the country's interior, but only to a very limited degree. As shown in Table 2.4, the highest rate' is in the coastal regions (63 percent), with the central core region and the hinterlands both registering 8 percent, and the far west, just I percent. This reflects China's dual economy, caused by the shift in the coastal provinces from inward-oriented self-sufficiency to international commercial integration. TABLE 2.4: INLAND PENETRATION OF SEABORNE CONTAINERS ENTERING CHINA THROUGH OCEAN AND LAND GATEWAYS Cargo Destined to Cargo Carried by Inland Container Region Regions (TEU) La Container (TEU) Lb Penetration (%) Far West 486 5 1.0 North Hinterland 30,858 1,712 5.5 South Hinterland 19,042 2,420 12.7 Central Core 50,039 4,170 8.3 North Coast 847,884 437,494/c 51.6/c East Coast 1.248,196 760,663/c 60.9/c South Coast 3.208,496 2,155,877Lc 67.2/c Total 5,405,001 3,362,341 62.2 L Volume of cargo expressed in TEU entering China through gateways, both ocean and land, and transported inland either in containers or breakbulk. Lb These figures represent the volume of loaded containers. /c These figures account only for containers which travel outside port cities, but remain within each region. Source: Chinese team on Transport Logistics Study. 7 The main focus of this study is on the inland movement of seaborne containers entering China through its ports. Containers passing through Shenzhen by truck are already moving directly to nearby inland destinations in door-to door service. 8 The penetration rate is defined as the percentage of loaded containers that travel outside the port cities over the total number handled at the ports and land gateways.  - 16- 2.9 As shown in the above table, the average container penetration rate is relatively high (62.2 percent), but this is because almost all cargo entering through the Shenzhen land gateway moves in containers. However, the rate of those entering through sea ports is still low: It is estimated that only 24 percent of containers that land at the seaports travel beyond port cities and only 8 percent move beyond coastal provinces. Of the former, 93 percent are carried by truck, 4 percent by inland waterway and 3 percent by rail. Most stay at the port for packing or stripping and the containerized goods are transported as breakbulk cargo by truck (85 percent of the total) or rail (15 percent). Thus, port-to-door container movement is uncommon and occurs mainly in the coastal regions, particularly where the cities are near the ports. 2.10 Container Cycle Time. Cycle time refers to the period it takes for a container to move from a ship until it returns, empty, to the shipping agent at the port, and is a good indicator of how well the system operates. In 1994, a survey was conducted of Chinese freight forwarders, which involved container flow data on 100,000 boxes (a 40-foot container is counted as two boxes). The results are summarized below. FIGURE 2.2: CONTAINER CYCLE TIME ON RAIL, TRUCK AND INLAND WATERWAY 35% -4 Highway 30% -U=Rail 25% -\--Waterway 20% 15% IL 10% 5% 0% v CD C LO 0 0C 0 C> 0 Ct L Do 0 Lo C o V ' _' -' N. N t ) tO 10 10) (D (D N< N J N - {D - CD am CD - (O - (D0A _) _0 N N')