Last mile transport is the greatest challenge for logistics companies in China, while high road tolls and unregulated penalties have forced them to think of ways to lower costs. Total logistics costs in China topped CNY9.4 trillion in 2012, equivalent to 18% of gross domestic product (GDP), according to the China Federation of Logistics and Purchasing (CFLP). Road tolls and trucking penalties accounted for a third of those costs. About 95% of the country’s highways and 61% of its first-tier roads are toll roads, with only the roads leading to suburban areas or within villages free of charge. Trucks are also subject to many restrictions and penalties that weigh on the costs of logistics firms. “I wish the government could allow trucks to use highways after midnight,” said Johnny Chou, President and Chief Executive of Best Logistics Technology. The ban has left trucking companies with no option but to use highways illegally after midnight in order to guarantee timely delivery. China’s logistics market is very fragmented, with up to 10,000 logistics companies in operation, meaning that only a handful can take advantage of economies of scale. Traveling empty is also a severe problem for trucking companies, because they lack the comprehensive networks needed to optimize the routes they serve, leading to wasted capacity. Shenzhen Speed Distribution, a logistics subsidiary of consumer electronics manufacturer TCL, said it tried to mitigate costs through the use of an extensive warehouse network and better inventory control. Transport-related costs accounted for 70% to 80% of the operating costs of the Shenzhen-based logistics company, with warehouse costs making up the rest, General Manager Jiang Huangfa said. Most costs are out of the company’s control. “What we can do is to minimize the percentage of empty-leg trips and control the stock to just-in-time inventory level”, Jiang said. TCL has 20 non-factory warehouses and 40 regional distribution centers to increase the utilization rate of trucks on pre-designed routes and has outsourced its trucking needs to more than 200 companies with nearly 1,000 trucks, the South China Morning Post reports.