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  • Jul 26, 2014
  • Updated: 2:55am
BusinessChina Business
LOGISTICS

Online retailer may set upcargo airline

E-commerce operator JD eyes freighter fleetto beat inadequate services on the mainland

PUBLISHED : Saturday, 23 November, 2013, 2:45am
UPDATED : Saturday, 23 November, 2013, 2:45am

Online retailer JD.com says inadequate domestic air cargo services on the mainland could see the firm set up its own freighter fleet specialising in the delivery of computers and communications and consumer electronic goods.

JD is the latest e-commerce company planning to build its own logistics network to overcome the shortcomings of the mainland's distribution sector.

Shanghai-based Shentong Express and YT Express applied for airline operating licences earlier this year. But unlike couriers, JD has a more urgent need to set up its own freighter fleet.

"Mainland airlines refuse to receive shipments that are accompanied with lithium batteries because of fire hazard concerns," said Shi Tao, a vice-president of JD, the largest e-retailer for electronic and computer products on the mainland.

Most of the computers and handsets it sells are powered by lithium batteries.

JD has been approached by SF Express, a Shenzhen-based courier that is already running its own fleet, but the two have not come to an agreement on the charges.

"By setting up our own fleet, we can move our goods speedily along the truck routes, whereas now we are relying on trucks and railway service," Shi said.

Alibaba, the largest e-commerce operator in the world, decided to invest at least 100 billion yuan (HK$127.1 billion) to build its own logistics network. Chairman Jack Ma Yun has to bow to the fact that the mainland's current logistics network will curb the growth of the country's booming e-commerce business.

JD received 6.8 million orders online on November 11, three times the average daily sales. That was dwarfed by Alibaba's 100 million transactions on that day. It took JD nearly a week to clear the backlog and Alibaba is expected to take longer.

"It's already a norm in the United States and Europe that logistics companies operate their own fleets. It's nothing but a rational strategy for e-retailers on the mainland to have their own fleets," said Kelvin Lau, an analyst at Daiwa Capital Markets.

Lau said the new entrants, which focus on the domestic market, could capture the booming e-commerce business in the country. They could therefore distance themselves from the overcapacity problem in the current long-haul freighter market to North America and Europe.

Existing freighter operators, however, are doubtful whether the newcomers will succeed.

"For those who want to tap into the freighter service, I would urge them to have second thoughts," said Zhong Wei, a general manager at China Eastern Express, the new express service unit of China Eastern Airlines. "They have to face challenges ranging from high fuel costs, slot allocation for landing and air rights, just to name a few."

There is also a risk that the newcomers cannot be strategically joined to form an effective network. "There are not as many logistics players in the US, [where] the routes are pre-designed and the percentage of empty legs could be substantially reduced," said Pamela Lin, a logistics director at LVMH Perfumes & Cosmetics (Shanghai).

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