FedEx, UPS win courier licences in China

PUBLISHED : Wednesday, 12 September, 2012, 12:00am
UPDATED : Wednesday, 12 September, 2012, 10:28am

FedEx and United Parcel Service has won licences to start domestic courier businesses in some Chinese cities, as they push to expand in the huge market.

FedEx, the world's biggest cargo airline, can begin service in eight cities, while Atlanta-based UPS's licence is for five. It doesn't include letter delivery.

They will compete in a local courier business dominated by state-owned China Postal Express & Logistics, which has about 30 per cent of the market. The licences will help Memphis, Tennessee-based FedEx and UPS benefit from rising demand driven by online shopping.

The approval "sets the platform for eventual consolidation and market-share gain opportunity," said Nate Brochmann, an analyst at William Blair & Co. "We're still in the very early innings in terms of the domestic Chinese opportunity. For the most part it doesn't change the competitive landscape there."

The licences let both companies serve Shanghai, Guangzhou, Shenzhen and Tianjin. FedEx was approved for Hangzhou, Dalian, Zhengzhou and Chengdu, while UPS can operate in Xian.

The approval was a starting point for long-term growth and would help the companies improve network efficiency, said Brochmann, who rates the shares of FedEx and UPS as outperform. UPS and FedEx will be able to handle deliveries under the licences without a local partner.

A UPS spokesman said China's State Post Bureau was expected to continue its review for more cities because approvals were done in batches.

FedEx had been working to gain its own domestic licences in China for three years. "Based on our customer demand, there is a clear need for fast and reliable domestic express service in China," a spokeswoman said.