How Blockchain Can Help Solve China’s Logistical Inefficiencies

How Blockchain Can Help Solve China’s Logistical Inefficiencies
According to MIT, China is the world’s largest exporter and second-largest importer. Whether delivering goods worldwide or to 1.4 billion domestic consumers, the Chinese logistics industry is in demand but supply chain managers are struggled to keep up. Logistics spending is about 18% of the Chinese GDP, almost twice that of the developed world. Here’s what some of those inefficiencies look like today, and how new technologies could address them.

Transportation Fragmentation

About 90% of all commercial trucks on the typical Chinese highway are owner-operated. Just like in the U.S., small freight companies struggle to make efficient use of their capacity – some estimate Chinese trucks are driving empty 40% of the time.

Most cities restrict truck traffic, so the urban “final mile” is particularly challenging because it requires distribution among many smaller transportation providers. One expert recently estimated that a 100 yuan online purchase takes as much as 15 yuan to effectively move through the last leg of the delivery journey to consumers.

Outdated Technology

Fragmentation doesn’t just create a more complicated supply chain – it also contributes to lags in technology adoption. Small firms have less capital to invest in mechanization, sophisticated communication and tracking systems, and other technologies that improve logistics.

Infrastructure Hurdles

China is the most populous nation in the world, and its infrastructure is currently not scaled to handle its logistics needs. A severe blizzard in early 2018 highlighted the limits of the Chinese freight system when railway systems struggled to handle the increased demand for fuel in urban areas. Ironically, China’s infrastructure is much better-tuned to export products than it is to move them around the country. The Economist reports:

“Two examples of the infrastructure that has helped make China a mighty trading power can be found on the outskirts of Shanghai: Yangshan, the world’s busiest container port, and Pudong airport, the world’s third-biggest handler of air cargo. Radiating out across the country are more than 100,000km (62,000 miles) of expressways and a comparable length of railways. Given all this new infrastructure, you might expect China to have a world-class logistics industry, too. It does not.”

Cold Chain Management Challenges

China’s growing middle class is rapidly expanding demand for imported food products. Food Logistics observes that 17% of U.S. agricultural exports wind up in China.

Many existing problems within the logistics industry are particularly severe in the food supply chain because delay, miscommunication, and technology issues can result in food spoilage and waste.But shipping meat, vegetables, or other products that require specific temperature requirements can be far more complicated than moving shelf-stable goods.

Future Directions International estimates that about 2% of food products in the Chinese economy is lost during transport.

Food Safety Failures

Consumers of Chinese food products (whether domestic or internationally) must reckon with food safety risks. High-profile food scandals in recent years have included a smuggling ring peddling decades-old frozen meat, baby formula contaminated with melamine, and cadmium in rice. Chinese officials who were cracking down on food safety found half a million violations across only nine months.

There are 500,000 food production and processing companies in China, and 70% of them have 10 or fewer employees. The food economy’s size and fragmentation mean that consumers, retailers, and regulators struggle to create accountability in the supply chain.

Technological Solutions

Highly successful Chinese companies such as Alibaba, one of the world’s largest e-commerce providers, are demonstrating the power of technological innovation in logistics. The South China Morning Post reports that Singapore-based logistics firm GLP is investing in multi-modal transportation solutions, cold chain logistics, and smart trucking.

Their partnership with Chinese shipping giant Cosco Shipping will help supply chain managers track freight leaving and entering ports, reducing miscommunication and delays. GLP also plans on using data analytics to help its partners and clients anticipate supply chain needs.

Though China’s relationship with cryptocurrency is fraught, its tech leaders are embracing crypto’s underlying technology, blockchain. China Central Television, China’s primary state-run broadcaster, recently declared that blockchain’s economic value is “10 times more than that of the internet.”

The blockchain is uniquely well-suited to handle supply chain needs because of its ability to manage complex, multi-party arrangements using an immutable decentralized ledger and automated smart contracts.

A blockchain ledger could, for example, help build more efficient contracts and agreements in a highly fragmented supply chain or provide a custody record for food safety officials to check. Blockchain startups such as Fr8 Network, a blockchain-based logistics platform for building shared single-truth records among supply chain participants, could be vital to advancing China’s logistics industry.

China didn’t become the economic powerhouse they are today by sleeping on solutions for improving productivity, and that principle extends to the logistics industry. Expect to see more and more advanced technology such as blockchain in the Chinese supply chain.
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