Booming E-commerce Swells China's Delivery Service, Though Industry Sees Few of the Profits

Every year is a record-breaking year for China's e-commerce sector, but the express delivery companies that delivery all of those parcels still struggle to stay above water.

Ed Newton
    Jan 12, 2018 5:30 AM  PT
Booming E-commerce Swells China's Delivery Service, Though Industry Sees Few of the Profits
author: Ed Newton   

China continues to be held in thrall by e-commerce. The latest numbers show that about 36 billion parcels were delivered in China during the first 11 months of 2017, representing a 29-percent increase compared to 2016.

That amounts to more than 27 packages for each of China's 1.3 citizens. And the increase in volume is only expected to grow.

While the boom in deliveries has meant a boon for e-commerce giants like Alibaba and JD.com, the increasing consumer demand has not translated into brighter prospects for China's express delivery firms, engaged as they are in the torridly competitive search for clients.

Indeed, there are about 19,000 delivery companies in China, most of them small courier businesses delivering parcels though busy city streets. 

In an effort to stay competitive and to increase company visibility, six of the larger express delivery companies - ZTO Express, STO Express, YTO Express, Shanghai Yunda Express, Best Inc., and SF Express - have gone public, with another planning to do so. 

Introductory public offerings seek to raise funds for new equipment and improved services. The IPOs, however, have been treated with some skepticism by investors. Two major offerings brought disappointing results. 

In particular, Best Inc., which is backed by Alibaba, sought to raise $930 million in a September IPO in New York, but lowered its sites to $450 million. Investors balked at the initial price because of concerns about the competitive environment back in China, as well as increasing fuel and labor costs. Early trading of Best (NYSE: BSTI) shares were as high as $11.74. Shares are now trading at slightly above $9.

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ZTO Express (NYSE: ZTO) also went public, in October 2016, with an apparently successful IPO, raising $1.4 billion. But the company's stock dropped after an Alabama municipal government sued, claiming the company "improperly inflated its stated profit margins." Since then, ZTO stock has traded consistently below its IPO price of $19.50. 

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Competition among even the express delivery giants like Best and ZTO is cutthroat. While the major retailers' profits stack up, the deliverers scramble to stay above water. According to Asia Times, one of Alibaba's logisitics partners, ZTO is earning less than 30 cents per parcel in the busy Beijing market; Alibaba, on the other hand, recorded a net profit margin of 31 percent in the 12 months that ended in September. 

Meanwhile, the Chinese e-commerce market is only expected to grow. According to one estimate, after the November shopping spree known as Singles Day brought $38 billion in online trade, retail sales are approaching $1 trillion this year. 

At the very least, Xinhua reports, China expects to become by 2020 the world's largest express delivery market with business revenue of almost $123 billion.


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