China’s Delivery Companies Shift Focus to Profits

April 16, 2019


In 2018, 50 billion parcels were delivered in China according to the State Post Bureau. However, as economic conditions have seemingly gotten worse for the country, China’s last mile delivery companies are feeling the effects.

Statistics from Statista found that 2.79 million packages were sent in January, down 5.7% year-over-year. Rates have slowly risen over the past few years but still remain heavily subsidized in order to stay competitive.

As a result, layoffs are planned at the country’s second largest e-commerce provider, JD.com, as well as changes in how their delivery workers will be paid – from base salaries to performance-based. JD.com has made numerous investments including drones, technology investments as well as network investments with over 550 warehouses across the country. Many of these investments have weighed negatively on profit margins.

SF Express is also feeling the pinch from the country’s economic slowdown and pressured margins in the logistics sector. The company is reportedly closing its network of SF Best offline retail stores in major Chinese cities.  Just two years ago, SF Best announced plans to open 10,000 outlets within three years. Its aggressive offline expansion plans, however, resulted in heavy retail losses and a high turnover in management that negatively impacted the company.

Indeed, retail sales, which typically trended upwards in the double-digits, is now in the single-digits at 8.2% for the first two months of this year. This is still a good growth rate, but like many things in China is subsidized through government tax credits, subsidies and more to boost domestic consumption.

However, U.S. market research firm, eMarketer still expects China to overtake the United States in annual retail sales by the end of this year. The firm notes that e-commerce will anchor overall retail growth on the mainland amid the expansion of its middle class, deeper mobile and internet penetration, and improvement in logistics and infrastructure support.

But, as shown by JD.com and SF Express, years of investments to meet growing last mile delivery demands have caught up with these logistics providers and perhaps others. As China’s first quarter GDP is expected to be around 6.3%, the lowest gain since 1992, will there be any meaningful consolidation among last mile delivery companies this year?

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China’s Delivery Companies Shift Focus to Profits

April 16, 2019


In 2018, 50 billion parcels were delivered in China according to the State Post Bureau. However, as economic conditions have seemingly gotten worse for the country, China’s last mile delivery companies are feeling the effects. Statistics from Statista found that 2.79 million packages were sent in January, down 5.7% year-over-year. Rates have slowly risen over the past few years but still remain heavily subsidized in order to stay competitive. As a result, layoffs are planned at the country’s second largest e-commerce provider, JD.com, as well as changes in how their delivery workers will be paid – from base salaries to performance-based. JD.com has made numerous investments including drones, technology investments as well as network investments with over 550 warehouses across the country. Many of these investments have weighed negatively on profit margins. SF Express is also feeling the pinch from the country’s economic slowdown and pressured margins in the logistics sector. The company is reportedly closing its network of SF Best offline retail stores in major Chinese cities.  Just two years ago, SF Best announced plans to open 10,000 outlets within three years. Its aggressive offline expansion plans, however, resulted in heavy retail losses and a high turnover in management that negatively impacted the company. Indeed, retail sales, which typically trended upwards in the double-digits, is now in the single-digits at 8.2% for the first two months of this year. This is still a good growth rate, but like many things in China is subsidized through government tax credits, subsidies and more to boost domestic consumption. However, U.S. market research firm, eMarketer still expects China to overtake the United States in annual retail sales by the end of this year. The firm notes that e-commerce will anchor overall retail growth on the mainland amid the expansion of its middle class, deeper mobile and internet penetration, and improvement in logistics and infrastructure support. But, as shown by JD.com and SF Express, years of investments to meet growing last mile delivery demands have caught up with these logistics providers and perhaps others. As China’s first quarter GDP is expected to be around 6.3%, the lowest gain since 1992, will there be any meaningful consolidation among last mile delivery companies this year?

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