Foreign Firms Covert New Express Market

The foreign express companies plan to make another round of expansion in the express industry of China by gradually invading the e-commerce related express market which is taken by the Chinese private express companies.

The foreign express and the private express companies in China, which are not in the same level of power, are shifting their differentiated competition into “homogeneous” competition.

Agitated by the fast growing e-commerce express business, the foreign express companies finally decided to have a finger in the pie which previously belonged to the private express companies.

An Attractive Pie

In the Second Internet Goods Trade Fair held by the famous e-commerce online trade website Alibaba (china.alibaba.com), FedEx from the USA got an eye-catching booth in the express area, showing its new express service related with e-commerce.

In the “First E-commerce and Express Logistics Conference” held by Alibaba on September 12, Wang Yuci, Deputy Director of the State Post Bureau of China, gave out such a group of data: in 2008, there were 500 million parcels from e-commerce in China; one third of the express businesses in China were related with the e-commerce. Zhang Yong, CFO of the Asian largest online trade platform Taobao (www.taobao.com), published the data about Taobao’s logistics. From the data we can see that Taobao has sent 300 million parcels through express in the first half of 2009. Wang Yuci pointed out that e-commerce, with large space for development, has become an important element for the modern logistics industry.

The fast development of e-commerce promoted the growth of Chinese private express companies. Shanghai-based Shentong Express could only send 100 thousand parcels every day before 2007. But at the beginning of 2009, the company can get 600 thousand pieces of express businesses from Taobao in a single day. Another Shanghai-based express company – Yuantong Express – can also get 500 thousand pieces of express businesses from Taobao every day. The private companies take the dominant place of the new express market coming with the explosive development of e-commerce all the while. Seldom foreign express companies put their fingers in this attractive pie.

Advantages in Systems and Planes

In spite of the fast development, the Chinese private express companies are always scolded for the quality of their services. According to a source knowing the Chinese express industry, these private companies lower the price as much as possible in order to get more businesses; however, the quality of their services are quite bad, causing the dissatisfactions of people buying or selling things through Internet and the increasing number of complaints from the customers.

It is known that most of the private express companies in China adopted the franchise pattern in order to extend their businesses into new cities more rapidly. The franchisees are responsible for the delivery taking and consignment of where they are located through the networks of the company’s headquarters. However, the headquarters don’t exert strict management over these franchisees, resulting in the bad performance of them in the service quality. “When a package is delivered to the customer, it is often seriously damaged or becomes something the customer doesn’t expect,” said the source mentioned above. In some small cities, the employees of the express companies hold bad attitudes towards their customers.

“Some online sellers pay more and more attention to the quality of express service. The foreign express companies, like UPS and FedEx, are just famous for this,” said Huang Tao, general manager of a Beijing-based makeup company. His company also sells its products via Internet and sends them to the buyers through express. Huang previously wanted to entrust the express business to a foreign express company. But the foreign company usually transports their parcels through planes, which the cosmetics are forbidden to get into for safety. So he gave up this idea, but he believed that the companies attaching importance to the service quality will also choose the foreign express companies.

“Compared with those private express companies in China, the foreign express companies have two core advantages: the first one is the Enterprise Resource Planning system; the second one is the plane,” said Zou Jianjun, professor from Civil Aviation Management Institute of China. The foreign companies’ EPR is so powerful that the private express companies’ management system can’t compete with. In UPS and FedEx, every courier has a handset terminal through which they can upload the information of the parcels they are delivering into the company’s network system. The customers can check out where the parcels are at any time. The foreign companies’ information system connecting the couriers, branch companies and headquarters make the efficiency and transparency of their delivery services unparalleled for the private express companies.

In addition, the foreign express companies have planes as their transportation tools, which is another advantage.

Disadvantages in Business Coverage

“In a short while, the foreign companies possess no obvious threat to the private express companies in the express businesses related with e-commerce,” said Xia Zubin, Marketing Director of Shentong Express. The biggest shortcoming for the foreign express companies is their small business coverage. According to the logistics data of Taobao, its logistics network has covered 90% of the cities, towns and counties of China. That means the coverage of express business brought about by e-commerce has far reached beyond the cities to the small towns or counties.

“Though FedEx and the other foreign express companies are actively increasing their business coverage. But their superiority is still reflected in the international express businesses and big cities,” said Xia Zubin. For a foreign express company, to expand its business coverage in China is much more expensive than the domestic private companies. For example, to extend their businesses into the counties or small cities without airports, the foreign companies have to spend a lot of money in buying vehicles, engaging and training new employees, etc. Therefore, the foreign express companies’ businesses in China are mainly centralized in the big cities, which will not be changed in a short term. Zou Jianjun also thought that presently the foreign express companies can’t extend their businesses to the counties, small cities or the other less developed areas in China.

In addition, the customers like buying things from the online stores are sensitive to the price of express. In this aspect, the foreign companies have no advantages either. For example, it will cost 8 yuan (USD 1.17) to ask FedEx to deliver a parcel from Shanghai to Beijing when it is promoting business through cutting price. However, the regular price a Chinese private express company offer is also 8 yuan or even cheaper.

In Xia Zubin’s opinion, owning planes is a necessary condition for the foreign express companies in the international businesses. But in the domestic express businesses, especially the e-commerce express market, such an advantage doesn’t exist. For example, to transport a kilogram of goods in plane costs 4 yuan (58.6 US cents), but to transport the same goods in truck only costs one yuan (14.6 US cents). Presently, to transport goods via trucks in the e-commerce express businesses is more efficiency than via planes. The so-called timely logistics can also be realized.

However, most of the private express companies in China are not competent for the standardized service the foreign express companies advocate. According to Xia Zubin, FedEx is featured with its standardized service. Apart from the standardization of packages, the couriers working for it wear the same uniform and even use the uniformed ways of taking parcels, delivering parcels and communicating with the customers. The whole express service process was divided into several processes and each of them has their own standards.

In China, the e-commerce is still in the initial stage of development. So is the related express industry. The customers pay more attention to the price than to the speed. Therefore, it will take some time for the foreign express companies to get into the e-commerce express market.

Zou Jianjun said: “For the foreign express companies, the main express businesses brought about by the e-commerce are centralized in the delivery services of the products with high added value, like the jewelry and fragile goods. Besides, their businesses are still conducted among the big cities.”