After years of waiting, FedEx and UPS received notice from
China’s National Post Office that they had been granted licenses to operate in
China’s domestic express market – with a catch – the two integrators could only
operate only in select cities and mail handling will still be done by Chinese
domestic express providers.
FedEx was granted a license to operate in Shanghai,
Guangzhou, Shenzhen, Hangzhou, Tianjin, Dalian, Zhengzhou and Chengdu while UPS
was granted a license to operate in Guangzhou, Shenzhen, Tianjin, and Xi’an.
A bit disappointing, but a start in a market that is growing
at an estimated 20% per year based on China Post’s current IPO filing. The
domestic market is heavily fragmented with close to 7,000 licensed express
operators. State-owned China Post is estimated to have a 30% market share while
private operators SF Express, YTO Express and ZJ Express follow with considerable
less market share.
Currently, FedEx already provides services to more than 400
Chinese cities through joint ventures whereas UPS does not have any such
partnerships. This, as well as a license to operate in 8 cities versus UPS’
license for 5 cities, will benefit FedEx. However, UPS’ pending acquisition of
TNT will prove beneficial for day-definite road transport. In fact, TNT's Day-Definite
ground service consists of around 500 road routes and covers over 200 large and
middle-sized cities.
So, where’s DHL? DHL Express sold its domestic express
business, a joint venture with Sinotrans, to the Chinese company Unitop
Industry, Shenzhen, in the third quarter of 2011. Although no official reason
was provided, it was suggested it was due to the restrictive postal law and
also that it was not profitable.
A Chinese air transport association expressed opposition to
the entry FedEx and UPS into China's domestic express delivery business, saying
the entry would amount to an infringement of China's airspace and will impact
the nation's air cargo industry. But an official with the National Post office
noted that foreign logistics companies are forbidden to be shareholders of
China’s air cargo firms and will instead have to rent aircraft from local firms
to deliver cargo. This will present an additional cost to operating in the
domestic market for both FedEx and UPS as they invest in domestic networks and
connect these to existing networks already established.
Despite this, it remains a welcome start to a lucrative
market. While competition is expected to be fierce in the cities in which they
operate, businesses and consumers alike will reap the benefits of lower rates
and reliable delivery service. For many international companies that utilize
FedEx or UPS for international services, the benefits are that shipments now
will stay within one network and tracked easily. Finally, as mentioned in
previous blog posts, the growth of ecommerce will also be an added plus for
these two companies.
