Delivery battle looms

US firms set to extend express services to more Chinese cities

With the news that the Chinese government has permitted some foreign delivery companies to extend their services to more Chinese cities, industry watchers expect the country's domestic express delivery firms to raise their quality of services and improve their management.

Two US companies, FedEx Corporation and United Parcel Service Inc (UPS), were reported Thursday to have received licenses from Chinese authorities to extend their express package services to more cities in the Chinese mainland including Beijing.

According to a postal law enacted in 2009, foreign firms were restricted to offering courier services independently in China and were thus forced to reapply for licenses to offer express delivery services.

Foreign firms started to reapply in 2009, and in 2012, UPS and FedEx were granted their first five and eight new licenses respectively. FedEx was able to continue offering separate services by entering into joint ventures with local peers, according to a Reuters report.

"Since China's new postal law came into effect in October 2009 with the institution of a permit system for the express business, we have been working closely with the relevant authorities to obtain the express delivery services permits for our business," said a notice by FedEx e-mailed to the Global Times Monday.

FedEx received its latest batch of 21 licenses in May, bringing its total to 58, the same amount it had held before the 2009 law came into effect. Each license permits the holder to operate B2C domestic express package services within a single city and between cities for which it holds licenses, a spokesman of FedEx was quoted by Reuters as saying Thursday.

UPS has 33 licenses so far, with the last batch of 14 licenses being approved by the government in May, Laura Lane, UPS president of global public affairs, was quoted by Reuters as saying Thursday.

UPS could not be reached by the Global Times by press time.

Advanced management

Industry watchers expect greater competition in China now due to the expansion of foreign delivery firms, which have decades of advanced management experience overseas.

"Their [UPS and FedEx] management and standards for services are advanced," Pang Shiming, a senior manager at Beijing-based China Merchants Logistics, told the Global Times Monday.

Pang cited the management system of FedEx in China as an example.

"All FedEx cargo drivers wear rings, which have been installed with GPS equipment, in case of unexpected accidents or events," said Pang.

FedEx has also developed its own high-tech information system, which is widely used in the US and could improve its management efficiency, Pang said.

UPS and FedEx will also "threaten the country's air cargo industry, as the pair is strong [in that sector]," Xu Shouzhen, secretary-general of the China Logistics Association, told the Global Times on Monday.

Battle for prices

Despite their competitive management expertise, the foreign delivery companies will be confronted with challenges from domestic market players in China, including private rivals such as SF Express and Shentong Express, and State-backed China Post.

"Generally the labor cost and operation cost for foreign companies in China are higher than those for domestic rivals," Xu said.

The price war among domestic players is ferocious. To grab customers from the e-commerce websites, some domestic delivery firms have cut prices from 8 yuan ($1.30) in 2012 to 2.9 yuan per unit of package delivered from Hefei, the capital of East China's Anhui Province, to nearby provinces including Zhejiang Province, Hefei-based Xin'an Evening Post reported in May.

In the face of competition from domestic rivals, some foreign players, such as DHL, "who was not good at the price war and was not very familiar with the local market," were forced to leave the Chinese market, Pang noted.

DHL began providing express delivery services in China in 2009 after acquiring three domestic delivery firms, including Sinotrans and A Plus Express.

However, it incurred losses of more than 9.9 million yuan by the end of 2010 and exited the sector in July 2011 by selling all three firms.

To avoid suffering the same experience as DHL, FedEx and UPS may have to give up pursuing profits in the short term. Instead, the two companies have to prepare to endure a long period of unprofitable domestic express delivery operation and eventually set up a comprehensive delivery network nationwide, according to Pang.

Competition

The competition is obviously daunting for all players.

However, competition is good for both domestic and foreign enterprises, industry watchers said.

Laura Lane, UPS' president of global public affairs, was quoted by Reuters as saying that "with greater competition there's always the beneficial effect of raising the professionalism and quality of services that consumers come to expect."

Xu of China Logistics Association said competition would help improve service standards in the country's logistics industry.

A lack of standardized management and advanced technology are major issues that affect small private firms, China Merchants Logistics's Pang noted, adding that the companies will be forced to transform their business and upgrade their service standards.

Currently, it is very common to see couriers driving electric tricycles or motorcycles on the streets in Beijing, sometimes even neglecting traffic rules.

Some leading domestic players, such as SF Express, have already tried hard to raise the quality of their services.

Besides having existing advantages over domestic competitors such as owning its own cargo planes, SF Express has focused on high-tech research and development to improve its efficiency.

In 2013, it initiated a pilot program called "unmanned aerial vehicles (UAV) Express Delivery," which will be applied predominantly in remote areas that staff find difficult to reach.

"Detailed and high-tech management is what SF Express has always focused on," Chen Huan, public relations manager of SF Express, told the Global Times Monday.