Sunday, September 9, 2012

China's ecommerce growth spurs private investments in logistics infrastructure

The recent announcement of Chinese ecommerce platform company, Alibaba, to invest in logistics infrastructure should come as a welcome economic boost to China. Long dependent on exports, China is showing signs of a marked slowdown as external demand for manufactured goods are on the decline. As such, the government and private companies are making investments in the country’s logistics infrastructure to spur domestic spending. Estimated at about 18% of its GDP, logistics costs remain high due to such issues as the lack of warehousing, the need for roads and rail to connect to all parts of China and the cost of delivery in general.
Despite the economic slowdown, ecommerce remains strong in the country. In fact, according to market research company, iResearch, for the second quarter, the value of online shopping transactions climbed almost 52% year-on-year to 268.4bn yuan or about $42.3bn. For 2012, it is expected ecommerce will represent 6% to 7% of China’s total retail sales. That’s about on par with the US.
However, it’s beginning to look a bit like a free for all as logistics providers - domestic and international - as well as retailers vie for a piece of the ecommerce logistics action. For example, in 2011, Alibaba announced it would invest a considerable amount to build a network of warehouses across China. So far, the company has acquired land in Tianjin, Shanghai and Guangzhou to build large warehouse complexes. The company plans to build six to eight regional warehouse hubs. 
Last week, Alibaba announced it was in talks with Chinese logistics companies – including a warehouse operator and a parcel-delivery company. The company plans to invest at least $100m in these logistics companies by the end of this year.
According to some reports, delivery charges have declined and package delivery speed has improved. Despite these supposed improvements, many e-retailers, such as VANCL, are developing their own express delivery departments (which include delivery service and warehouses) rather than depend on logistics and/or delivery providers.
For other ecommerce companies, such as Tencent, partnering up with logistics providers is another alternative solution. Tencent and TNT Express signed an agreement in August in which TNT Express would be the ecommerce company’s primary road delivery service provider in China.
Meanwhile, domestic express providers such as SF Express and YTO Express are buying and leasing additional aircraft to meet this growing demand. They are also leasing additional cargo storage at airports and adding more delivery options. All of this while international integrators such as UPS and FedEx wait for approval to operate in the domestic market.