Couriers' business soars with e-commerce's rise

A worker unloads packages from a Shenzhen-based SF Express (Group) Co cargo aircraft in Nantong, Jiangsu province. [Photo/CHINA DAILY]

Domestic express delivery services are getting a business boost from the explosive growth of e-commerce and using that revenue stream to expand their cargo fleets - but they're also looking over their shoulders as international logistics giants move further into the Chinese market.

Shenzhen-based SF Express (Group) Co, Shanghai-based YTO Express Co Ltd and State-owned China Postal Airlines are buying and leasing more aircraft, renting warehouse space at airports and expanding their delivery options to meet growing competition from global delivery services.

Li Sheng, president of SF Airlines, the air service branch of leading package service SF Express, said the group has found that increasingly affluent Chinese consumers want better services. For that reason, the company is buying and chartering more cargo freighters.

It acquired four cargo aircraft from Boeing Co last year, taking its fleet to 33 planes - 14 owned and 19 chartered. It plans to buy another 11 aircraft by the end of 2015.

"Our cargo planes do a lot of night flying to deliver packages on time. And we have to apply strict security procedures at all times," Li said.

SF Airlines is recruiting trainee pilots from domestic civil aviation institutes, as well as hiring Chinese and foreign captains. It's also recruiting more ground staff.

It already has 240,000 employees, more than 11,000 delivery vehicles and 7,600 service points around the world through which it serves domestic and international companies and individuals. It's mainly focused on China, including Hong Kong, Macao and Taiwan, as well as South Korea, Japan, Malaysia, Singapore, Thailand, Vietnam and the United States.

Hou Hanping, a professor of logistics management at Beijing Jiaotong University, noted that many factors are affecting the industry: an expanding economy, the use of information technology and the rising urbanization rate in China. Those factors mean more segmented and sophisticated markets for delivery services, Hou said.

Online sales in China rose 42 percent last year to 1.85 trillion yuan ($298 billion) in 2013. That surge lifted the nation's express shipping market by 37 percent to 144 billion yuan, according to the China e-Business Research Center based in Hangzhou, Zhejiang province.

Even as Chinese parcel carriers' business expands, US-based United Parcel Service Inc and FedEx Corp are pursuing licenses to offer more intercity express delivery services in China.

"Even though there's no indication that giant foreign carriers will dominate the domestic market in the near future, their huge fleets, diversified services and international recognition are exerting great pressure on us," said Zhou Ye, head of the information office at YTO Express.

Zhou noted another challenge: E-commerce companies such as Tmall.com and Gome Electrical Appliances Holding Ltd have established divisions to handle express shipping services and team up with existing express service carriers to grab market share.

"However, the future of this industry will no longer be decided by the number of vehicles or staff," Zhou said.

Technology, equipment and capital will enable capable carriers to rise to the next level of service by carrying more chemical goods, high-end foods, cosmetics and pharmaceutical products. These products usually require premium delivery services at high rates, and thus they're more profitable than most parcels.

To pursue this segment, YTO Express bought four cargo aircraft over the past two years and established a partnership with Air China Ltd and China Eastern Airlines Corp Ltd under which it will use their warehouse facilities.

It plans to put two more new airplanes into service in the first half of this year. Two years from now, it plans to have 15 owned or leased freighters.

YTO Express divides the domestic market into eight areas, 59 transit centers and more than 5,000 distribution outlets covering 1,500 cities. It offers air-express services in more than 70 first- and second-tier cities.

China Postal Airlines (which is jointly owned by the State Post and Telecommunication Bureau and China Southern Airlines) signed a contract with US-based PEMCO World Air Services Inc for five Boeing 737-300 converted freighters last September.