Long hours, shrinking profit margins force firms to differentiate

By Zhang Ye Source:Global Times Published: 2015-12-16 21:08:01

Despite China's economic slowdown, its express delivery industry is expected to continue to grow at a double-digit rate, walking hand-in-hand with the country's booming e-commerce industry. In some ways, however, the express delivery has been the victim of its own success. In an effort to keep their own costs down, e-commerce sites has put more and more pressure on the delivery companies to lower prices, especially during online mega sales like Double 12, which took place on Saturday. As their profit margins shrink, established express delivery companies have sought to diversify their services, branching out into international and rural deliveries. There is even talk that some will go public next year.

Workers sort packages on November 11 in a warehouse of Shanghai YTO Express (Logistics) Co. The warehouse, which typically deals with around 10,000 packages a day, handled 60,000 packages a day after the Double 11 online mega sale. Photo: CFP

One thing worth celebrating recently for Dou Liguo, who runs a delivery station in Beijing for a leading express delivery company, is the Mercedes-Benz GLK-Class compact SUV that he bought for 300,000 yuan ($46,410).

Obviously, the 40-year-old man has not suffered during the economic downturn of 2015. Nor has his delivery business.

"On the contrary, we are busier this year than in past years," said Dou, who manages 40 employees for a leading Shanghai-based express delivery company that he asked not be named in print.

As he spoke on Monday, Dou and his employees were preparing for the deluge of parcels that consumers had ordered on Saturday during the Double 12 online shopping festival, which e-commerce giant Alibaba Group Holdings promotes every year on December 12.

State-run China Postal Express and Logistics Co and private express companies accepted 113 million parcels on Saturday, up 60 percent from the same day in 2014 and nearly doubling the daily average this year, according to date released on Monday by the State Post Bureau (SPB).

Considering the rest of the year, China's express delivery industry has grown rapidly. As of November, express companies handled 18.25 billion parcels, up 48.1 percent year-on-year, with income leaping 34.9 percent to 245.6 billion yuan, according to the SPB.

Tied to e-commerce

Dou said he could never have imagined the express delivery industry as it exists today. When he started his business in the industry in 2004, he mostly delivered business letters for companies. Over the next decade, he and others in the business watched as the number of packages they received grew, and grew, and grew. 

"The rise of China's express delivery has followed the rapid development of domestic e-commerce industry," said Xiang Feng, president of YTO Express.

"The two has grown in concert," he added, noting that express companies are an indispensable infrastructure of the e-commerce.

Currently, the e-commerce generates about 70 percent of packages that express companies receive, Xiang told the Global Times on Tuesday.

China's e-commerce has also grown rapidly this year. In the first 11 months of 2015, domestic online shopping websites handed 2.9 trillion yuan in transactions, up 33 percent year-on-year, official data showed.

According to a report by the Hangzhou-based China e-Business Research Center, 417 million people in China shopped online as of June, up 19.1 percent from a year earlier.

"Thanks to the growth in online shopping, the station I manage is always packed with thousands of parcels," Dou said pleasantly.

Double the trouble

Although the express delivery has benefited from the rapid rise in China's e-commerce, the latter industry's penchant for a single-day mega sale can be overwhelming, according to Dou's experience.

Created by Alibaba in 2009, the Singles' Day mega sale, also known as Double 11, is a painful challenge for the country's express delivery workers.

"Double 11 is a burden to us," Dou said. "We are all overworked. For a week after the Double 11, the number of packages is double the daily average. It causes some new employees, who have not experienced these events, to quit their jobs."

This year's Double 11 generated 467 million packages, or enough to cover all 19 square kilometers of Xuanwu district in Beijing, according to AliResearch, Alibaba's research arm. The figure was 278 million in 2014.

Dou isn't as worried about employees' quitting this year due to job cuts in other industries suffering from the overcapacity. His problems these days are prices and profit margins.

"Competing for market shares, some companies accept low delivery fees from online retailers, leaving competitors with no choice but to follow suit," he said.

"It's a vicious cycle," he added.

Given the frequency of online shopping promotions this year, many online retailers have continued to hold down delivery costs to offset discounts they give to their customers, he said.

Branching out

Xiang, president of YTO, sees the ongoing price war as a result of too many express companies offering essentially the same services.

Some private express companies have taken steps to differentiate themselves by exploring new markets and adding new services.

In October, YTO announced that it had bought 15 Boeing B737-800BCF aircraft, making it China's second private express company after SF Express Co to dip a toe into the promising air freight business.

Offering international deliveries is another trend in the sector, Xiang said.

When contacted by the Global Times, Shenzhen-headquartered SF Express said it has been carving out territories for international deliveries since 2009 and now ships domestic goods to overseas markets covering North America, Europe and Asia.

China Postal Airlines, which already runs a fleet of 26 Boeing aircraft, on Tuesday signed a deal to purchase 17 aircraft from a US airplane maker, as a move to fortify its presence in the cargo airlines.

What's next?

Xiang predicted that more capital will flow into the express industry.

"Good express companies may choose to go public in 2016," he said.

Shanghai-based STO Express may be the first express company to get listed, after the company on Sunday closed a 16.9 billion yuan reverse takeover deal with Shenzhen-listed valve maker Zhejiang IDC Fluid Control Co, according to media reports.

New capital will help upgrade the entire industry, which Xiang said is in line with the central government's requirements.

Still, the expansion and diversification will continue to be the most important tasks for domestic express companies, a public relations representative with Cainiao Network, Alibaba's logistics affiliates, told the Global Times Monday.

She said that the logistics network in rural areas has not advanced enough for the e-commerce to develop.

Given the possible IPOs and the boom in demand for online shopping in rural areas, Dou was confident about the prospects in the industry.

"Despite of the aforementioned downside [shrinking profit margins], I think I will make a fortune in the flourishing sector," said Dou, who has already made a new year's resolution of buying a Bumblebee Camaro, the Chevrolet sports car that costs 400,000 yuan in China, in 2016.
Newspaper headline: Express delivery booming

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