Buzz on the streets keeps the e-commerce business running
Growing numbers of motorised tricycle express delivery boys is a sign that logistics industry has to keep pace with e-commerce
Jack Ma, founder and chairman of the Alibaba Group, is the face of China’s exploding e-commerce industry. But beneath the glittering surface of rock-star initial public offerings on Wall Street is a group of young Chinese, mostly men, whose work is essential to the industry’s success.
They are the faceless foot soldiers in the battle for greater domestic consumption, delivering packages and collecting economic growth; they are China’s army of motorised tricycle express delivery boys. They buzz about the nation’s cities weaving in and out of traffic. Their growing numbers are a cause for reflection, a sign that e-commerce is the future.
It is not just Ma, but also President Xi Jinping, Premier Li Keqiang, and half of Wall Street who are banking on Chinese e-commerce success. China needs to transform its economic structure, shifting from an economy built on exports and investment to one driven by domestic consumption. This shift has even been given an official phrase: “the new normal”.
“Everybody benefits if China grows more strongly, especially if growth is rebalanced from investment and exports towards consumption,” Daniel Gros, director of the Brussels-based Centre for European Policy Studies, told Xinhua.
There are few celebrations of consumer culture as epic as China’s November 11 Single’s Day shopping bonanza, named for the four ones in its date. It is a day where online retailers offer considerable discounts, and China’s economists smile at the sound of coffers filling. China’s e-commerce industry — comprising business-to-business and retail transactions — was worth about 13 trillion yuan (HK$16.39 trillion) in 2014, according to the Ministry of Commerce on January 21.
The total number of packages express delivered in 2014 reached 14 billion, up 52 per cent on the previous year, according to China’s State Postal Bureau on January 6. And with the e-commerce industry set to explode — KPMG estimated in 2014 that the Chinese e-commerce industry would surpass that of the United States, Britain, France, Germany, and Japan combined by 2020 — China’s logistics industry is going to play a integral role.
China’s biggest e-commerce players know this. JD.com — Alibaba’s closest rival in e-commerce — uses a business model similar to Amazon, buying goods from producers and distributors, storing them in warehouses, and offering fast delivery once orders come through. The company started operations at its Shanghai “Asia No 1” warehouse in October 2014, the automated facility is capable of sorting 16,000 packages an hour, with its total floor space of 100,000 square metres. Additional JD.com Asia No 1 warehouses are under construction in Guangzhou, Wuhan and Shenyang, with facilities in Beijing, Chengdu and Xian in the planning stages.
While Alibaba lacks JD.com’s in-house logistics network, moves are under way to remedy the situation. In May 2013, a number of China’s e-commerce companies, led by Alibaba and including logistics companies ZTO Express and Yunda Express, launched the China Smart Logistic Network (CSN). While the network will reportedly take eight to 10 years to complete, the aim is to be able to deliver any package to any city in China within 24 hours.
In June 2014, Alibaba signed an agreement with China Post, the nation’s official postal service — run by the government-owned State Post Bureau — to collaborate in e-commerce and logistics while sharing resources such as warehouses and processing centres. The move was made as Alibaba, in addition to every other Chinese e-commerce platform, looks to underused third- and fourth-tier cities and the rural areas, for growth. China Post has a delivery infrastructure in the rural regions that no e-commerce or logistics company could match.
“China will see the emergence of online platforms that can handle transactions of more than 10 trillion yuan a year,” Ma said at the China Post signing ceremony in June 2014. “We need to make sure the development of a logistics system in China can support the surging development of e-commerce.”
The future is bright, but reform is needed if inefficiencies and a lack of customer service in China’s logistics sector are to be addressed. There are thousands of small, private companies, and many observers feel consolidation is needed to counter the fragmented and highly competitive, price-driven state of the market.
While international competitors FedEx and UPS make up a sliver of total deliveries, these companies are expected to play a greater role as China opens up and gives foreign companies greater room to operate. These foreign deliverers will soon have company, as the State Post Bureau announced on January 1 that it had approved Yamato (China) Transport, OCS Overseas Courier Service (Shanghai), and Kerry Logistics to operate on the mainland.
It remains to be seen how foreign companies compete in a country where express deliveries cost so little, or if Chinese consumers continue to prefer speed and price over all else. What is certain is that with e-commerce set to skyrocket, its sister industry of logistics must keep pace.
