Large-scale courier enterprises across the Chinese mainland grew 46% year-on-year over the first four months of 2012, setting a dramatic pace for a business that’s coming into its own with the rise of online sales.
For example, courier revenues grew 37% year-on-year, up 11% over the same period last year.
Since May, total business volumes for the courier sector have exceeded 15 million orders per day, close to the peak of last year’s high season.
According to sources in the supervisory industry department from which these statistics came, there are currently six large-scale, branded courier enterprises on the Mainland handling over one million express articles daily.
There’s also a large number of small- and medium-sized couriers handling business at regional, provincial and same-city levels.
Together, they form an industry with annual business revenues exceeding Rmb70 billion, employing over 700,000 workers and are of considerable economic scale and social influence.
Sustainably high growth
E-commerce transactions across the country hit Rmb6 trillion last year, while online retail transactions exceeded Rmb800 billion, accounting for 4% of total retail sales of consumer goods.
Over 70% of online retail sales rely on courier services. Those for online sales account for more than half of the total courier sector.
The exponential growth of the Mainland’s online shopping market is still going. It’s estimated that in the next four to five years the scale of the online shopping courier market will grow at an annual rate of over 40%.
Standing to benefit from this development, the market size of the whole sector in 2015 is expected to more than triple, compared to 2011.
Aiming to be fastest in e-commerce
In June and last month, heavyweight e-commerce enterprises on the Chinese mainland, such as 360buy, Tmall,Amazon China and Suning.com tussled over prices. Critics say this is the first ever head-on battle among the Mainland’s e-commerce giants.
In this competitive market, logistics services play a key role. iResearch Consulting Group revealed that last year people naming “price” for why they choose online channels dropped compared to 2010, while services such as logistics took 6.4 percentage points to reach 25.7%.
E-commerce enterprises are attaching far more importance to reducing supply chain costs and enhancing service standards.
|Courier company operations grow.|
These enterprises either seek logistics co-operation with manufacturers or set up a distribution arm of their own.
The first route focuses efforts on core businesses, lowering fixed asset investment. But it means these players can’t directly control the logistics flow or guarantee timely delivery.
However, e-commerce players like 360buy.com and Vancl.com went for their own logistics systems, lowering distribution costs.
This has been useful in first-tier cities such as Beijing, Shanghai and Guangzhou for example, where the cost of bespoke logistics system represents between Rmb4 and Rmb5 per order. Delivery by a partner manufacturer would more than double.
Some e-commerce enterprises have themselves also rolled out courier services. 360buy.com said it’s building its own logistics channels, to be open to partner manufacturers by the end of this month.
However, such services are relatively rare, due to the investment cost. This year alone, 360buy.com has already invested Rmb3.5 billion in a logistics and information system.
So, the majority of large-scale e-commerce enterprises are prepared to set up their own logistics systems in first-tier cities offering door-to-door B2C delivery and payment services, while co-operating with partners in second- and third-tier cities.
Choosing the route
China’s courier sector is featured by fierce competition, with 27 industry leaders.
Currently, these comprise the World Express Mail Service (EMS), foreign courier giants and private courier enterprises.
EMS is a wholly-owned company directly under China Post; although commanding top position in the market, its comparative advantages are sliding due to its state-owned culture.
Meanwhile, both foreign courier and private courier enterprises are growing fast and each have business strengths.
The Research Centre for Urban and Environmental Studies with the Chinese Academy of Social Sciences (CASS) reported that the high-end international courier service market has the highest profit margins and is the most technology- and knowledge-intensive.
The market is mainly dominated by the “Big Four” (FedEx, DHL, UPS and TNT) which account for over 70% of market share.
These couriers mainly target high-end clients and actively try to enter various kinds of online shopping platforms.
On the other hand, private courier enterprises target the medium- to low-end market, so are strong in same-city services.
Research last year showed private courier companies account for over 75% of the same-city market.
The report also pointed out that the lower charges, more flexible services and higher efficiency of Mainland private enterprises have gained them a place in the market amidst steep competition.
However, the Chinese courier industry represented by EMS, ZJS Express, S.F. Express and Shentong Express is “still confined to the uniform point-to-point and door-to-door courier service mode”.
|E-commerce platform launched byS.F. Express.|
To enhance competitiveness, many private enterprises are now proactively seeking transformation.
Larger companies are turning from franchise operations into self-operators.
S.F. Express is an example. This Hong Kong-invested enterprise, leads the private courier service market, developing from the franchise model, positioning itself in the medium- to high-end market.
It has an assessment system to enhance staff competitiveness and looks at the market’s actual needs. It’s also heading up the value chain, transforming cost advantages from technology, equipment and service quality.
Going up and out
Some courier companies have quickened their pace of venturing outside China.
Recently, China Post announced that courier enterprises including ZJS Express of Shenzhen have applied for permission to provide international services, which are much more lucrative.
Last year, the volume of international, Hong Kong, Taiwan and Macau express services accounted for only 3.5% of the industry total, yet they contributed to 24.4% of total revenues.
Cross-regional courier services continue to rise. Last year, accumulated business revenues hit Rmb44.5 billion, up 41.8% year-on-year, while its share of the industry total rose by 4.1 percentage points.
China Post has also set criteria for enterprises applying for courier business licences.
|National standard for express services implemented.|
For enterprises operating in provinces, autonomous regions and municipalities directly under the central government, their registered capital may not be less than Rmb500,000.
For those operating across provinces, autonomous regions and municipalities directly under the central government, their registered capital should be less than Rmb1 million.
For those operating international courier service, their registered capital may not be less than Rmb2 million.
The higher market access thresholds test the service capability of small courier companies and also raise the requirements of staff.
After the announcement of a courier operational list, qualified enterprises have lost no time recruiting the right personnel.
Ganji.com, one of the largest lifestyle information service websites on the Mainland, shows that demand for courier workers grew markedly across the country, with demand in June jumping 120% over May.
Shenzhen commands the highest pay, while the growth in demand for staff in Dongguan is the biggest.
This reflects how market competition in the Pearl River Delta (PRD) region has accelerated with demand.
Starting from the second half of last year, S.F. Express opened over 20 convenience stores in Shenzhen. The company is opening three more new stores in Dongguan this year.
Other large-scale courier enterprises such as YTO Express, ZTO Express and ZJS Express are also strengthening their business network in the PRD.
E-commerce enterprises including 360buy.com and Suning.com have also increased the number of their sub-websites.
Leading courier market share for express services
But courier services have greater room for development in the central and western regions. Services are growing as rapidly as in the eastern region, while logistics co-operation between e-commerce enterprises and partner manufacturers is close.
Some provinces (like Hubei and Jiangxi) in the central region plan to develop themselves into regional courier hubs over the next five years, and they’re bound to introduce policy support measures.
These provinces will invest heavily in construction of roads and aviation facilities, developing into new growth areas for years to come.