Monday, July 2, 2012

Rumors of Chinese domestic licenses being granted to FedEx and UPS prove false

Last week, several articles indicated that UPS and FedEx had been granted rights to operate in China’s domestic express market. However, according to the secretary of the express branch of the China Communications and Transportation Association, the licenses granted to FedEx and UPS are actually for international, not domestic services, for which applications are still being assessed.

This is indeed disappointing news for not only the integrators but for businesses that have expanded into China. Many integrators have waited several years for the opportunity to compete in this growing market.  According to Transport Intelligence estimates, China’s domestic express and parcel market is expected to grow over 33% between 2011 and 2015.

Among the anticipated growth areas for domestic service is that of ecommerce. Online retail generated $121bn in sales in China, up 66% from 2010, according to Barclays Capital. The size of China’s ecommerce market is expected to more than triple over the next three years, with sales reaching $420bn by 2015.

The integrators have built out infrastructure within the country for not only international operations but also in anticipation for the allowance to expand into domestic service. DHL went a step further and invested in three Chinese express companies. However, its efforts remained unsuccessful and the company suffered financial losses due price competitiveness and a strict regulation that banned international carriers from entering domestic markets. As a result, DHL backed out of its Chinese domestic presence by selling back these companies in 2011.

So, for the foreseeable future, the much fragmented domestic express and small parcel market will be dominated by the likes of Chinese state-owned China Post along with other Chinese express/parcel providers as SF Express, STO Express and SJS Express.

The need to open up the domestic market is great.  Indications are that due to the rising demand, customer dissatisfaction concerning existing service offerings is on the increase. Infrastructure continues to be a problem. For some businesses, in order to service customers throughout the country, there is a need to piece together delivery networks among several domestic providers and modes of transportation thus resulting in higher delivery costs.