Those choking bottlenecks, together with soaring labor and land costs, have raised the logistics expenses in the country despite a collapse in international crude oil prices. Data from the China Federation of Logistics and Purchasing (CFLP) indicate logistics costs are around 18 percent of China's gross domestic product compared with around 10 percent in developed economies.

One defect of the logistics companies is their extreme sensitivity to swings in domestic and overseas demands for a wide variety of goods. As the global financial meltdown ripples through China, domestic export orders are slowing to a trickle, rubbing salt into wounds of the already suffering logistics sector.

According to the CFLP, the industry's turnover grew 19.5 percent year on year to 89.9 trillion yuan ($13.2 trillion) in 2008, about 6.7 percentage points lower than in 2007. Many transport companies now operate on a tight profit margin of 2-3 percent, while profit margins of warehouse operators can be even lower, according to a report by the China Logistics Technology Association. More than 40 percent of China's logistics firms are seeing profits squeeze or sink into the red while a growing number of small players are being forced out of the market, the report said.

But analysts believe the government's revitalization program will polish the long-term growth prospects of the industry, although it did not include the anticipated direct subsidies and tax reductions. The transport recovery will also inject steam into the tepid performance of many other sectors, they said.

"A modern logistics system is crucial to the resumption of torrid economic growth as it can directly dictate how efficiently manufacturers can move their goods and rejuvenate production," said Wang Ming, a researcher at the National Development and Reform Commission in an article in China Economic Weekly. "But it will take some time for the program to take effect throughout the sector."

Liu Jianwu, Deputy Director of the CFLP, echoed Wang's opinion.

"With the revitalization measures coming into play, the industry is braced for a turnaround in the long run, which would in turn spark a surge of services and consumption," Liu said in a statement. "To shape a safer and more orderly logistics landscape, more support should also be extended to help them innovate in their warehousing and distribution management technologies. The government should also precipitate a unified standard for quality of services, information and operation safety."

Scaling up

Modern logistics means far more than simply moving goods from one place to another as global trade supply chains become more sophisticated. Take fruit logistics as an example. The companies should not only transport the fruits, but also pack, tag and adequately store them in case of damage and decay. But in such a complex and competitive market, scale is a deciding factor.

"The bigger you are, the wider range of services you can offer," said Wang Ming. "That's why many sizable suppliers have largely held up amid downturns while their smaller rivals are struggling to survive."

By encouraging mergers and acquisitions, the government is gearing up to consolidate the highly fragmented industry and the price-focused market. The government will make efforts to foster a number of globally competitive logistics companies by 2011.

Analysts say the industry restructuring plans highlighted in the government's program will inflict some pain in the short term, but will help accomplish synergies of scale in the long term. In addition, the logistics titans can achieve greater flexibility and efficiency by integrating multiple means of air, ocean, rail and road transport, they added.

But not every supplier has the capacity or opportunity to expand through mergers and acquisitions. As a result, it is a more viable option for most of the small suppliers to specialize in a logistics area. The success of some foreign players also has illustrated how important it is to be a specialist. For instance, United Parcel Service Inc. of the United States has gained a global foothold as an express delivery service provider, while Germany's Dascher Transport Inc. leads the world in food freight.

Rural logistics

Another bright spot of the revitalization program is a firm commitment to boosting the broken logistics system in the countryside, which has become a drag on many rural stimulus efforts. For instance, many retailers attempting to tap into the rural markets usually have to deal with the hassles of finding enough well-equipped trucks to transport a variety of subsidized products to farmers, as well as driving along bumpy country roads.

The weak infrastructure adds to the costs of doing business in the countryside, forcing up subsidized product prices for farmers, said Wang Xiaolin, General Manager of the Chongqing Commercial Storage and Transportation Co. Ltd., in an interview with Securities Daily. The country's average rural logistics costs are estimated to be 30 percent higher than urban ones, Wang said.

To ease the bottlenecks, the revitalization program vows to repair the rural infrastructure networks, improve rural distribution and transport systems, and infuse them with more advanced technologies. Besides this, the government plans to cut road toll charges for rural logistics companies and support the development of rural distribution centers, Wang said.