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Faster, Cheaper, Stronger
China's courier service industry has witnessed rapid development, thanks to the online shopping boom
By Zhou Xiaoyan | NO. 22 JUNE 1, 2017
Automated parcel sorting in a logistics center of STO Express in Yiwu, Zhejiang Province (XINHUA)

Zhou Dingfang, a Chinese living in Boston, misses many things about her hometown—the delicious Chinese food, old friends to hang out with and made-in-China products which are much more affordable than in the U.S. But most importantly of all, the 32-year-old misses the more efficient and customer-oriented express service in her country.

"I miss the delivery guys' phone calls hustling me to come and get my parcel. Their service is so flexible. You can talk to them and re-arrange the delivery time at your convenience, for free. They work really, really hard, even on weekends. Besides, courier services cost much less in China than in the U.S. and the delivery is much faster," Zhou told Beijing Review.

Driven by an online shopping frenzy, China's courier sector has been experiencing exponential growth for six years in a row, with an annual growth rate of around 50 percent.

China overtook the United States to have the highest express delivery volume of any country in the world in 2014, according to data from the State Post Bureau (SPB). It continued to lead in courier delivery volume in 2016, with more than 31 billion packages delivered, surging 51.4 percent from 2015. The generated business revenue totaled 397.44 billion yuan ($57.67 billion), a jump of 43.5 percent. The sector currently employs more than 2 million staff.

China made up over 40 percent of global express delivery volume last year and contributed about 60 percent to the sector's growth, according to an SPB report.

Staff members of SF Express unload express delivery packages from a plane in Nantong, Jiangsu Province, on November 12, 2014 (VCG)
Express growth

The burgeoning e-commerce sector is one of the major driving forces of the booming express market in China. Online retail sales of goods totaled 4.19 trillion yuan ($608 billion) in 2016, up 25.6 percent year on year, and accounting for 12.6 percent of total retail sales in the country.

During last year's Singles' Day shopping festival, the largest online shopping day in the country, observed on November 11 annually, 350 million express delivery orders were placed on major shopping sites, surging 59 percent from a year ago. A total of 251 million parcels were handled and delivered on that day, up 52 percent from a year ago.

Han Ruilin, a senior official with the SPB, said express service is experiencing fast growth alongside the booming online shopping market in China, which has become an indispensable part of Chinese people's lives.

"Express service and e-commerce complement and promote each other. Only when these two have a reciprocal and mutually beneficial relationship can they have sound growth," Han told Xinhua News Agency.

In February, the SPB released a plan for the development of the express service market during 2016-20, proposing to create more than two Chinese courier service conglomerates with international competitiveness that could rival foreign counterparts such as UPS and FedEx.

According to the plan, by 2020, China's courier companies will deliver 70 billion packages per year and the sector's annual business revenue will top 800 billion yuan ($116 billion), with an annual growth rate of 27.6 percent and 23.6 percent, respectively.

Xu Yong, chief consultant with market research firm CECSS Express Consulting, said the target is totally reachable, given the trend of rising express delivery fees, the overall revenue of the major courier companies and their ambitious overseas expansion plans.

Global presence

Compared with global logistics giants such as UPS, FedEx and DHL, Chinese courier companies, even the large ones, have a limited share in overseas markets. Their main market is still on home turf and overseas expansion is still at an initial stage, with limited scale and scope of business.

China's major courier companies—YTO Express, STO Express, ZTO Express, Yunda Express and SF Express—were listed in the stock market in 2016 and early 2017.

In February this year, leading courier service provider SF Express became publicly traded on the Shenzhen Stock Exchange, making it the company with the highest market value on the bourse and its founder and Chairman Wang Wei one of the richest people in China.

"Acquiring a considerable share in the global market has become a common goal for courier companies, now that they are public companies," Xu said.

"SF Express' overseas business is growing rapidly," Li Rui, Vice President of the company's International Business Division, told the Economic Observer. "Boosted by buoyant cross-border e-commerce over the past years, international e-commerce-related express volume witnessed substantial growth."

According to Li, SF Express has been striving to explore the international express service business since 2010, planning a more comprehensive international logistics network targeted at cross-border e-commerce.

Chinese courier companies are also purchasing global logistics firms as a springboard for their international expansion.

On May 8, the Shanghai-headquartered YTO Express announced its intention to acquire a 61.87-percent stake in Hong Kong-based freight forwarder and logistics specialist, On Time Logistics (OTEL), and establish its international business headquarters in Hong Kong. The planned acquisition is expected to support YTO's efforts to go global by leveraging OTEL's international business expertise, global network of 52 offices in 17 countries and regions, and the advantages of incorporation in Hong Kong.

"Cross-border shopping enjoys the fastest growth among all e-commerce sectors, inevitably resulting in the mushrooming of international courier services," Dai Yuchen, Chairman of Shanghai EP E-commerce Co. Ltd., told the Economic Observer.

Hurdles to cross

Despite exponential growth, China's courier service sector is confronted with several problems, among which are homogenous services and prolonged price wars, which result in squeezed profit margins and poorly paid couriers.

As customers hit the button and leisurely wait for parcels to come to the doorstep, couriers who work long hours are significantly underpaid and with little social security benefits.

"The hardworking delivery staff should be paid at a fairer rate. The low-price strategy is harmful to the entire courier industry and would also hurt the e-commerce sector," Han, the senior official with the SPB, said.

"Over the past years, since courier service companies offered similar services, they were mired in bitter price competitions. The regulatory authorities tried to guide them to offer differentiated services, but to little avail," Xu told Beijing Review.

However, as profit margins are continuously squeezed, consolidation among express enterprises will become inevitable, Xu said.

According to the SPB plan, to create courier service conglomerates, the major task is to make the key players stronger and encourage them to carry out mergers, acquisitions and reorganizations to expand their market share.

However, the SPB plan didn't elaborate on how the regulator would encourage mergers and acquisitions in the sector.

"The regulatory authorities might take a range of actions to encourage such deals, such as expediting the approval procedures. Preferential tax policies are also needed," Xu said.

Currently, there are around 27 branded courier service companies in China, including international brands with operations in China.

According to Xu, after the impending business reshuffles—mergers, acquisitions and reorganizations—there will be around six major players.

Improving services and diversifying business operations are also challenges faced by Chinese courier companies. SF Express takes the lead in this aspect.

According to a recent survey by the SPB, SF Express has the highest customer satisfaction rating in China.

It posted robust growth in its financial statement for the first quarter, with business revenue growing 25.55 percent year on year to 15.47 billion yuan ($2.24 billion) and net profit increasing 13.76 percent year on year to 774 million yuan ($112.3 million).

As a high-end player in the market, SF Express has established a distribution network based on owned outlets rather than franchises.

"The franchise model is gradually losing appeal and SF Express' model is finally paying off. Although the latter requires more investment in the initial stage and results in slower expansion, the company is able to have better control of the entire delivery network and the quality of service," said Lu Da, an analyst with Shenwan Hongyuan Securities.

Lu attributed SF Express' better-than-expected performance to more diversified business operations, noting that the company has made a foray into the fresh product e-commerce sector, heavy product logistics and international businesses.

Another major problem is that some courier companies have become accomplices of fake goods producers due to lack of supervision.

On May 20, a video went viral on China's social media, demonstrating how some branches of major courier companies were helping counterfeit sneaker manufacturers deceive customers by forging overseas shipment records.

Zhao Xiaomin, an expert on the express sector, said fakes have existed for years and require stricter supervision on many fronts.

"There's a complete industrial chain for fakes—producing, selling and transporting. Courier companies are part of it, although they are not at the core of the chain," Zhao told Beijing Business Today.

"Express enterprises should learn from this lesson and intensify supervision and management of their branches and staff. Especially for listed express firms, any incidents like this will be closely watched and heatedly discussed by the public and will affect their stock prices," Zhao cautioned.

Copyedited by Sudeshna Sarkar

Comments to zhouxiaoyan@bjreview.com

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