China's Winning Warehouses

For investors, that makes for exciting opportunities. First, there's a chance to make money from China's perhaps temporary leading position in global logistics. In this column I'll identify three companies, two based in Hong Kong and one in Japan, that are among the best positioned to profit from China's success in addressing the global logistics crisis.

Second, there's a chance to make money from the developed world's response to China on logistics and from the competition to build out inland infrastructure. It used to be that goods from China's factories would be heaped into massive containers and then loaded on ships in Hong Kong's super-efficient port and shipped to warehouses and distribution centers in Long Beach, Calif. (which, with Los Angeles, makes up the busiest port in the U.S.), or Rotterdam (the Dutch port is Europe's busiest) for sorting and redistribution into yet more warehouses for sorting and delivery to company distribution centers for ultimate delivery, after another sort, to individual stores.

Now, more and more goods are sorted in China, loaded onto pallets in warehouses in Shanghai, shrink-wrapped, loaded onto container ships and then delivered, still shrink-wrapped on the original pallet, directly to a superstore owned by Wal-Mart Stores(WMT Quote) in the U.S. or Tesco in Europe.

Thanks to increases in the amount of goods sourced from China, the availability of cheap labor to sort and re-sort shipments and improvements in product tagging and in computerized systems that read and track the tags, more and more companies are sorting their goods in Chinese logistics depots for delivery either straight to individual stores or to company distribution centers.

Let's make one thing clear: Though an abundance of cheap labor to work in these distribution centers certainly doesn't hurt, the Chinese edge rests on sophisticated technologies that reach from warehouse to container port to ship. By applying those technologies on the vast scale made possible by China's role as workshop to the world, logistics companies in China can wring immense savings and time out of the distribution system.

For example, Hong Kong, the first port in the world to employ cranes that could lift three containers at once, is the world's most efficient port, but it's now being challenged by new Chinese port facilities in Shanghai, Shenzhen and Guangzhou. In addition, China's deep-water ports are designed to handle the new, larger container ships that can handle up to 10,000 20-foot-long containers.

Two Ways to Win

As an investor, you can profit from this trend in two ways. First, you can buy shares in the companies that show signs of coming to dominate a still very fragmented logistics industry in China.