Demand Slump Stumps Transporters

The company is one of China's largest private logistics companies and is one of the first private third-party logistics providers. Besides transportation, it also provides services such as managing inventory, distribution, direct store delivery and packaging. Its customers include some Fortune 500 companies like P&G and Philips.

"We try to create new value for customers rather than competing on price," said Xie Jianmin, marketing director, PG Logistics, adding that value-added services promise "much higher" profit margins than road transportation.

"Under a difficult economic environment, more and more companies will be forced to outsource their supply chain management in order to reduce costs. That would create new opportunities for us," Xie said.

Meanwhile the company is also trying to rely less on export-oriented businesses and is focusing more on consumer goods for domestic markets, Xie added.

Shanghai Pudong Trucking Corporation too has similar plans. The company's cold chain business remained "robust" in 2008 despite the global financial crisis, Song said. "After all, people still have to eat," he added.

Rural consumption could become another driving force, Xie said.

While pinning hopes on domestic demand as global economic crisis hits exports, the Chinese government has vowed to improve farmers' incomes. The government recently announced plans to expand subsidies for farmers' purchase of home appliances nationwide from February 1 to boost consumption.

With subsidiaries in 78 cities, PG Logistics plans to expand its network to cover third- and fourth-tier cities in the near future, Xie said.

"It is unrealistic to say there will be huge growth in these areas in the short term. But they are new markets for us and they offer larger room for growth than first-tier cities," Xie said.

Meanwhile, the government's mammoth investment packages to stimulate economy would also create new opportunities for some logistics companies, Chu said.

The State Council, or China's Cabinet, announced a package of investment plans to stimulate the economy in November. The government plans to invest heavily in a wide array of national infrastructure and social welfare projects, including constructing new railways, roads and airports, as well as rebuilding communities devastated by an earthquake in Sichuan in May. These projects are expected to trigger an overall investment of up to 4 trillion yuan till 2010.

The package could spur demand for machinery and construction materials. For example, the Ministry of Railways plans to spend 600 billion yuan on railway infrastructure this year which would demand 20 million tons of steel and 120 million tons of cement, Yang Zhongmin, an official from the ministry, was quoted as saying by Xinhua.

"Transportation companies that ferry construction materials and large industrial equipment will clearly benefit from the government's stimulus plan," Chu said.