Behind Express Companies’ Rush To The Stock Markets Follows A Mass Elimination Within The Industry

摘要: Express companies’ craze for getting listed on a stock market has intensified the competition in the industry. Some small companies are accumulating scale through restructuring and merger so as to attract capital. At present, Chinese express companies usually adopts a membership mechanism that results in the overlap of customers and channels, as a local agent could be the member of multiple different express companies. That said, it’s incredibly hard for integration. But to gain the opportunity of survival in this industry, sacrifices will have to be made. And the clock is ticking.

(Chinese Version)

As ZTO Express official filed its prospectus to U.S. Securities and Exchange Commission and SF Express entered the stock market by using Dingtaixincai as a shell, the logistics industry has once again become the center of attention in the investment community.

As ZTO Express official filed its prospectus to U.S. Securities and Exchange Commission and SF Express entered the stock market by using Dingtaixincai as a shell, the logistics industry has once again become the center of attention in the investment community.

Why express companies are going public while their statistics are not satisfying

The logistics industry in China went through an incredible rise during 2007 and 2015, but the turning point also came subsequently.

The reality is, the rise of business orders is not bringing much of a profit growth, since the price per order is dropping every year. The average price per logistics order had slumped from ¥28.5 to ¥13.4, during 2007 to 2008. The space for profit has in fact dropped by 50%.

On the other hand, the logistics market growth is also slowing down alongside the decline of logistics fee. According to State Post Bureau’s estimates, the logistics industry in China will achieve a business order volume of 27.5 billion, a year-on-year growth of 34%, while the number last year was 48%. Compared with that, the industry used to have a more than 50% growth for four consecutive years.

However, the decline of profit is in fact the sign that shows the logistics industry is developing towards a more quality and digital level. China’s logistics industry is developing at a rocket speed but the quality hasn’t been keeping up with the development. A little known fact is that the percentage the logistics company accounts for in the total GDP is a crucial indicator that shows economic competence. In developed countries the number is around 8% while the number in China is 16%.

That said, the cost of logistics can still go down. Still, it’s a natural and inevitable tendency for the industry. So no need to panic.

Last year in October, premier Li stressed on the executive meeting of the State Council the importance of developing e-commerce in rural areas and that the government should drive new economies to boost consuming. It’s also important to implement means to improve the development of the logistics industry and bring about new drives for modern service sector.

In the future, the Chinese logistics market will be more open to the capital world as there will be more support for express companies’ restructuring and mergers. What really matters is that we have quality and competitive companies in the market. Whether it’s the industry development tendency or relevant policies, both of them have shown that a new round of rapid growth will surely follow. It’s a great time for Chinese express companies to go public.

What mindset the future logistics industry will have?

The express industry, though at the low end of the logistic industry, possesses potential that’s hard to come by. If we were to say the stock market can tell you the status of a country’s economy, then the express industry is an indicator that shows a country’s real economy, since the express industry is the most crucial part for the real economy to achieve value. The express business directly shows how active a country’s real economy is.

At present, the global logistics industry is facing a new round of opportunities to move further. The fast development of the e-commerce industry also puts improving logistics an important agenda for the industry.

New economy requires more diversity and fragmented business lines. The development of Vertical O2O platforms like Dingdang, Elema, and JD To Home is nurturing a new logistics model as current model fails to satisfy the diverse demand. Maintaining fast growth and high quality will be the direction the express industry will focus on in the future. In the Internet age, the express industry will be working to become more digital, intelligent. The industry will be open for sharing as well.

At present, the express industry deals with about 60 million packages from the e-commerce industry everyday, and the number will surge to over 300 million in ten years. Such great flow of packages will surpass man labor’s capacity. Therefore, we can expect a smart logistics system to come out and become the mainstream.

In this bigger picture where robotics technology is the main driving force of the express industry, intelligent robots will decrease the demand for man labor in this industry. And as the cost for manufacturing robots starts to decline and the industry gradually embraces this new form of labor force, the express industry will evolve into a technology intensive industry from a labor intensive industry.

Although there’s already a clear direction for many technologies to develop to, there are still many uncertainties regarding how the industry will apply them.

Nowadays there’s a craze for using drones to deliver packages, which can really boost the logistics efficiency. However, current technology is still far from mature and drones can’t really carry heavy packages. In this case, there is still a long way to go for drones to be massively adopted in the express industry. We need better technologies.

Some e-commerce and Internet tech companies have started to experiment on relevant technologies and their application. For example, Alibaba’s Cainiao has established an internal lab called E.T.Lab. The lab has developed a delivery robot model and package collecting robot model for warehouses. The lab is planning to put these robots into work this year. It’ fair to say that the express industry will only be more diverse and intelligent.

First-tier companies are marching towards the stock markets, as the competition in the industry heats up

In 2015, the package volume of the Chinese private express industry was 18.48 billion, with an income of ¥224.6 billion. The package volume and income respectively account for 89.4% and 81.1% of the market share.

The top eight companies in terms of profit in China account for 77.3% of the market share, while the top four account for 50.4%. The ones in the upstream are only getting stronger while companies in the second and third-tier will only lag farther behind once the top ones become listed on the stock market. It’s surely a race of life and death.

Once the top five companies in the first tier become listed on the stock market, they will further take over the growing space for second and tired-tier companies, leaving about only 30% of the market to the rest of the companies. In the future, companies that have successfully become listed on the stock market will have more fund to improve their infrastructure and facilitate increase in efficiency.

It’s reported that the three B737-300 jets YTO Express has imported will be put into use and production this year following SF Express’s steps. YTO plans to build a YTO Global Aviation Smart City next year in Jiaxing, Zhejiang province, accelerating its plan in aviation logistics.

After the mass entry of express companies into the stock market, the competition focus has turned to aviation logistics. Compared with foreign markets, the aviation logistics in China still has immense growing potential. International giant FedEx alone owns 647 planes, providing logistics service for over 200 countries.

In contrast to that, SF Express, the forerunner in this field in China, only has 28 planes. That said, the potential in the Chinese market is still huge. But aviation logistics requires mass amount of investment, which can only be achieved with the help of the capital market.

However, second and third-tier companies are not sitting around and waiting for their death. DEPPON for example has also applied for IPO. Top companies in the second tier such as TTKDEX and BEST Logistics are also planning their listing. Other companies in second and third-tier like ZJS and UC etc. are initiating new rounds of financing to compete in the capital war.

Express companies’ craze for getting listed on a stock market has intensified the competition in the industry. Some small companies are accumulating scale through restructuring and merger so as to attract capital.

At present, Chinese logistics usually adopts a membership mechanism that results in the overlap of customers and channels, as a local agent could be the member of multiple different express companies. That said, it’s incredibly hard for integration. But to gain the opportunity of survival in this industry, sacrifices will have to be made. And the clock is ticking.

Crowdsourcing logistics or independent operation?

The express companies in China can be divided into two groups: Crowdsourcing and independent operation. ZTO, STO, YTO, Yunda and SF are the representatives of these two groups.

The differences between the two models result in different outcomes. The prosperous development of Chinese e-commerce also brings up ZTO, STO, YTO and Yunda. In 2015, these four companies account for nearly 52% of the market share while SF only has 8.2%.

However, SF Express positions itself at the mid and high-end market and it’s more expensive. The rise of ZTO, STO, YTO and Yunda can be attributed to their cooperation with e-commerce platforms, which relies on quantities to boast profit. But it doesn’t necessarily mean their approach is better or worse than SF’s. They present two ways the express industry can go for.

These two modes are crucial to the e-commerce sector. But the line between the two is also growing thinner with the development of the industry.

In April this year, JD To Home announced to merge with DADA. JD acquired the company’s 47.4% shares with JD To Home and JD Group’s business resources, and $200 million cash.

JD’s move reflects the fact that O2O crowdsourcing logistics system is having trouble, which makes acquiring and merging with express companies a new option. On the other hand, express companies are also trying to use their resources to enter e-commerce business. For instance, now we have SF Best and ZT Best in the market. It’s apparent that no matter what direction express companies choose, they will have to work in different sectors.

As private express companies further march to stock markets, the industry will also undergo major change. Driven by the capital, companies will upgrade their talent pool and technologies, and improve their hardware, so as to lower their reliance on labor.

On the other hand, the express industry will also eliminate weak companies. Mergers and acquisitions will become common in the industry. In this case, it’s essential for companies to know about their customers’ demand, improve the service quality and enhance their technologies to make sure they survive in the fierce competition.

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[The article is published and edited with authorization from the author @TECH PRISMA, please note source and hyperlink when reproduce.]

Translated by Garrett Lee (Senior Translator at PAGE TO PAGE), working for TMTpost.

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