Chapter 2.11: Freight Forwarding in China

Liu Baocheng, Professor, University of International Business and Economics

Overview

The task of freight forwarding involves a facilitation service for the physical movement of goods. The customer of the freight forwarder is technically called the 'shipper' or 'consignor.' Broadly speaking, the facilitation service for the movement of goods can be broken down into three dimensions: transportation, communication and documentation. The freight forwarder does not have to transport the goods by itself using its own facilities, because this is primarily the function of the carrier that possesses sea- borne vessels, railway wagons or airplanes. Frequently the freight forwarder offers short distance transportation, eg from the warehouse to the container yard or from the plant to the loading port with trucks . Briefly, the role of freight forwarding is to bridge the gap between the shipper and the carrier. The freight forwarder can act either as an agent for the shipper or as the receiver of the goods. See Figure 2.11.1.

Figure 2.11.1: The position of a freight forwarder

Under the state's economy, professional distribution options were scarce because provinces and organizations were supposed to be self-reliant. Firms had little choice but to rely on state distribution networks, which were organized along rigid, vertical command-control lines. Since China adopted the opening policy at the end of 1978, transportation has been a burgeoning industry that has attracted the attention of both domestic and foreign freight forwarding firms. The underlying trend of the past 20 years is one of centrifugal force as trading volume has expanded and infrastructure improved.

The government regiment over the administration of transport industries inclusive of the vehicles, terminals, routes and services, is divided into the different modes of operation. The Ministry of Communications (MOC) is in charge of water and highway transport; the Ministry of Railways (MOR) is in charge of railway transport; and the Civil Administration Aviation of China (CAAC) is in charge of air transport. The freight forwarding industry, particularly those parts related to import and export, is under the supervision of the Ministry of Foreign Trade and Economic Cooperation (MOFTEC).

Traditionally, foreign forwarding services were completely under the monopoly of the China National Foreign Trade Transportation Company (Sinotrans), itself under the administration of MOFTEC, since most of its direct clients are foreign trade corporations under MOFTEC's regime . The shipowner services were vested with China Ocean Shipping Agency (Penevico, an acronym derived from its former name “ People's Navigation Company) with branches across Chinese coastal ports under MOC for the same reason. Since 1984 both Sinotrans and Penevico were given permission to step into each other's business. Soon the freight forwarding market was gradually liberalized for domestic companies. By the end of July 2002, according to the China International Freight Forwarders Association, the number of freight forwarders approved by MOFTEC that are eligible to conduct international business reached 3,216 (including subsidiaries) covering over 30 sectors of the national economy. Among them there is a 70:30 ratio, both in terms of ownership structure and geographic distribution “ 70 per cent are state-owned and 30 per cent are joint ventures ; 70 per cent are concentrated in the coastal regions and 30 per cent are spread out into the hinterland. So far, nearly 300,000 persons are employed in the freight forwarding industry.

In 1996 the State Council approved the establishment of the Shanghai Shipping Exchange under the auspices of the Ministry of Communications and Shanghai Municipal Government. The Exchange, being the first in China, was created to foster the development of China's shipping market and to help shape Shanghai into an international shipping centre . The Exchange has achieved great success in providing services to the shipping market, including organizing and procuring the filing of freight tariffs, coordinating freight rates, issuing shipping information, conducting research on shipping policies, publishing and issuing the Chinese freight rates index and establishing the Shanghai Shipping Service Center.