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On May 28, a source close to the Market Regulation Department of the National Postal Office confirmed that FedEx and UPS have already submitted the application of operating the domestic express business in China. Now the application for the approval has already been developed to the last step, i.e. the public declaration process. The two foreign giants are very likely to have the license if nothing unexpected happens.
This means that the two foreign giants can be officially engaged in domestic express industry in China. The size, power and strength of the two companies undoubtedly pose a great threat against domestic participants. Li Guojie, general manager of the Ecommerce Department of the Guangdong Xinbang Logistics Co., Ltd even called it a plan of “raising wolves” in China’s express industry.
Putting the wolves into the sheep herds obviously can force the herds to run faster. “A new round of integration will begin and here comes the game that the fittest survives,” said Zhou Da, Party secretary of the Freighting Department at the Southern Airlines. The express industry is going to be reshuffled.
Return to Domestic Express
If you think FedEx and UPS just start their domestic express in China from now on, you are apparently wrong.
Liu Jianxin, deputy secretarygeneral of the China Communications and Transportation Association, said that the two U.S. express companies was already engaged in the domestic express business in China long ago. At that time the express business was administrated by the Ministry of Commerce which had no restriction over the qualification of foreign companies. But with the separation of the postal services from the administration and the issuance of the Chinese Post Law, the foreign companies were gradually deprived of their qualification of getting engaged in the domestic express business unless they get the license from the State Post Bureau.
The four major international giants(UPS, FedEx, TNT and DHL) slowed their development pace in the domestic express business in China due to this restriction. DHL even gave up its domestic express business in China in 2011 after transferring the stocks of the express company it ran in China to others.
Now FedEx and UPS are given the license back. Does this mean that the two companies will adjust their development strategies in China? Though UPS and FedEx have not given official response yet, experts believe that corresponding changes are inevitable when they have the license.
According to the data revealed by the State Post Bureau, FedEx and UPS are respectively headquartered in Shunyi District, Beijing and Baiyun District, Guangzhou for running the domestic express business (letter delivery exclud- ed). FedEx applies for the approval of running domestic express business in Shanghai, Shenzhen, Guangzhou, Hangzhou, Tianjin, Dalian, Zhengzhou and Chengdu while UPS’ domestic express map only covers Shanghai, Shenzhen, Guangzhou, Tianjin and Xi’an.
Though their business core only lies within the major cities of China, Liu Jianxin believes that FedEx and UPS will change the distribution of their express network in China to extend their business scope within one year out of their ambition.
Wolves in the Herds?
“This is the ‘plan of raising wolves’in China’s express industry,” said Li Guojie when he talked about giving the license to UPS and FedEx.
Li Guojie’s peers in express industry have the same concern about the “invasion” of UPS and FedEx into their own domain. An anonymous senior executive from a domestic express company said that the Chinese state-owned and private express companies welcomed a “short spring” after the State Post Bureau issued the restrictive policies about foreign companies’ involvement in domestic express business.
On May 25, the State Post Bureau published the statistical data of the postal services in China in 2011, which showed that the domestic private express enterprises had developed fast last year. Presently, private companies take 67.6% of China’s domestic express market. In comparison, state-owned companies take 29.4% of this market while foreign companies only account for 3%. Private companies also have a bigger proportion in the revenue of this market with the 49.4% rate, higher than the 35.9% proportion of state-owned enterprises and the 14.8% proportion of foreign companies.
However, the senior executive mentioned above said that private express companies had a weaker foundation in spite of their advantageous positions in the domestic express market. For exam- ple, though private companies delivered 2.48 billion packs in total in 2011, their income only amounted to 37.45 billion yuan. In comparison, state-owned enterprises can earn 27.11 billion yuan by delivering 1.08 packs while foreign express companies could earn 11.25 billion yuan by delivering only 110 million packs. The profit margins of the latter two are obviously higher than the one of private companies’.
“Once multinationals strike back, domestic express enterprises, especially the private companies, might not withstand their aggression with such a poor profit margin,” said this senior executive.
According to the financial data of UPS, its consolidated income in the first quarter of 2012 increased by 4.4% to 13.1 billion U.S. dollars and its profits amounted to 1.57 billion U.S. dollars. Its international express business saw the revenue of 2.97 billion U.S. dollars with the operating profit of 408 million U.S. dollars and the profit margin of 13.8%.
In comparison, domestic express enterprises’ profit margins are much poorer. The IPO data of China Courier Service Co., Ltd (EMS) showed that this company’s profit margin was only 4.71% in 2011 even though it is the only express enterprise that is given the qualification of delivering business letters and government letters, which has the largest operating profits, in China.
Zhou Da from the Southern Airlines believes that this signifies the reshuffle of the domestic express market in China.
Domestic Companies Pretend to Remain Calm
Not all domestic express companies panicked over the “invasion” of UPS and FedEx. “We will not be greatly influenced,” said Lu Xiong, board chairman of Quancheng Express. Nie Tengyun, board chairman of Yunda Express did not give any response when asked about the question.
An anonymous senior executive from China’s largest private express company SF Express said that the two U.S. giants also needed to follow the market rules after getting into the domestic express business and SF Express did not worry about the threat from their participation.
In Liu Jianxin’s opinion, the five major private express companies in China earned their profits mainly through online shopping and ecommerce. And the Chinese consumers are very sensitive towards the express cost of online shopping. Private express companies offer low-price services to take this market. Therefore, it is very unlikely for these private companies to have face-toface competition with FedEx and UPS. Maybe the middle- and high-end users who play a large part of EMS’s business might be taken by UPS and FedEx.
But the senior Executive from SF Express thinks that FedEx and UPS may not have enough competitive power in China. Firstly they do not have enough coverage in China since their business only covers the major cities of China. It will cost them three to four years to extend their arms to less important cities.
A source knowing well about the private express companies said that FedEx and UPS were definitely now allowed to be involved in letter delivery business in China, which is the most lucrative section among the whole post service industry. Without this section, the profit level of their domestic delivery business might be greatly influenced. According to the source, FedEx and UPS never got rid of losses though they have run express business in China for years. FedEx’s loss is even greater. Therefore, they are likely to lack power to turn loss into profit in China as they have no proprietary operating rights of letter delivery and are trapped in the price war of the express industry. If they are haunted by losses for long, they might not have enough power to maintain their presence in China.
Therefore, Cui Fuzhong, secretarygeneral of the China Federation of Logistics & Purchasing, believes that the domestic express companies in China have growing anti-pressure ability as their business keeps enlarging. Though the two international mammoths’ involvement in the domestic express section will bring negative influence upon local companies in a short while, for the long term, their experiences in operation and management will eventually benefit local companies. He also believes that SF Express and EMS have already prepared for such challenges and can resist the impact.
Is the outlook of local express companies so bright? As Liu Jianxin said, though domestic companies seem to be calm and ready for the challenge, they all secretly watch the distribution of UPS and FedEx. Even DHL which has already left might return one day with a bigger ambition and presence. By then, the competition in China’s domestic express industry will be much more furious.
This means that the two foreign giants can be officially engaged in domestic express industry in China. The size, power and strength of the two companies undoubtedly pose a great threat against domestic participants. Li Guojie, general manager of the Ecommerce Department of the Guangdong Xinbang Logistics Co., Ltd even called it a plan of “raising wolves” in China’s express industry.
Putting the wolves into the sheep herds obviously can force the herds to run faster. “A new round of integration will begin and here comes the game that the fittest survives,” said Zhou Da, Party secretary of the Freighting Department at the Southern Airlines. The express industry is going to be reshuffled.
Return to Domestic Express
If you think FedEx and UPS just start their domestic express in China from now on, you are apparently wrong.
Liu Jianxin, deputy secretarygeneral of the China Communications and Transportation Association, said that the two U.S. express companies was already engaged in the domestic express business in China long ago. At that time the express business was administrated by the Ministry of Commerce which had no restriction over the qualification of foreign companies. But with the separation of the postal services from the administration and the issuance of the Chinese Post Law, the foreign companies were gradually deprived of their qualification of getting engaged in the domestic express business unless they get the license from the State Post Bureau.
The four major international giants(UPS, FedEx, TNT and DHL) slowed their development pace in the domestic express business in China due to this restriction. DHL even gave up its domestic express business in China in 2011 after transferring the stocks of the express company it ran in China to others.
Now FedEx and UPS are given the license back. Does this mean that the two companies will adjust their development strategies in China? Though UPS and FedEx have not given official response yet, experts believe that corresponding changes are inevitable when they have the license.
According to the data revealed by the State Post Bureau, FedEx and UPS are respectively headquartered in Shunyi District, Beijing and Baiyun District, Guangzhou for running the domestic express business (letter delivery exclud- ed). FedEx applies for the approval of running domestic express business in Shanghai, Shenzhen, Guangzhou, Hangzhou, Tianjin, Dalian, Zhengzhou and Chengdu while UPS’ domestic express map only covers Shanghai, Shenzhen, Guangzhou, Tianjin and Xi’an.
Though their business core only lies within the major cities of China, Liu Jianxin believes that FedEx and UPS will change the distribution of their express network in China to extend their business scope within one year out of their ambition.
Wolves in the Herds?
“This is the ‘plan of raising wolves’in China’s express industry,” said Li Guojie when he talked about giving the license to UPS and FedEx.
Li Guojie’s peers in express industry have the same concern about the “invasion” of UPS and FedEx into their own domain. An anonymous senior executive from a domestic express company said that the Chinese state-owned and private express companies welcomed a “short spring” after the State Post Bureau issued the restrictive policies about foreign companies’ involvement in domestic express business.
On May 25, the State Post Bureau published the statistical data of the postal services in China in 2011, which showed that the domestic private express enterprises had developed fast last year. Presently, private companies take 67.6% of China’s domestic express market. In comparison, state-owned companies take 29.4% of this market while foreign companies only account for 3%. Private companies also have a bigger proportion in the revenue of this market with the 49.4% rate, higher than the 35.9% proportion of state-owned enterprises and the 14.8% proportion of foreign companies.
However, the senior executive mentioned above said that private express companies had a weaker foundation in spite of their advantageous positions in the domestic express market. For exam- ple, though private companies delivered 2.48 billion packs in total in 2011, their income only amounted to 37.45 billion yuan. In comparison, state-owned enterprises can earn 27.11 billion yuan by delivering 1.08 packs while foreign express companies could earn 11.25 billion yuan by delivering only 110 million packs. The profit margins of the latter two are obviously higher than the one of private companies’.
“Once multinationals strike back, domestic express enterprises, especially the private companies, might not withstand their aggression with such a poor profit margin,” said this senior executive.
According to the financial data of UPS, its consolidated income in the first quarter of 2012 increased by 4.4% to 13.1 billion U.S. dollars and its profits amounted to 1.57 billion U.S. dollars. Its international express business saw the revenue of 2.97 billion U.S. dollars with the operating profit of 408 million U.S. dollars and the profit margin of 13.8%.
In comparison, domestic express enterprises’ profit margins are much poorer. The IPO data of China Courier Service Co., Ltd (EMS) showed that this company’s profit margin was only 4.71% in 2011 even though it is the only express enterprise that is given the qualification of delivering business letters and government letters, which has the largest operating profits, in China.
Zhou Da from the Southern Airlines believes that this signifies the reshuffle of the domestic express market in China.
Domestic Companies Pretend to Remain Calm
Not all domestic express companies panicked over the “invasion” of UPS and FedEx. “We will not be greatly influenced,” said Lu Xiong, board chairman of Quancheng Express. Nie Tengyun, board chairman of Yunda Express did not give any response when asked about the question.
An anonymous senior executive from China’s largest private express company SF Express said that the two U.S. giants also needed to follow the market rules after getting into the domestic express business and SF Express did not worry about the threat from their participation.
In Liu Jianxin’s opinion, the five major private express companies in China earned their profits mainly through online shopping and ecommerce. And the Chinese consumers are very sensitive towards the express cost of online shopping. Private express companies offer low-price services to take this market. Therefore, it is very unlikely for these private companies to have face-toface competition with FedEx and UPS. Maybe the middle- and high-end users who play a large part of EMS’s business might be taken by UPS and FedEx.
But the senior Executive from SF Express thinks that FedEx and UPS may not have enough competitive power in China. Firstly they do not have enough coverage in China since their business only covers the major cities of China. It will cost them three to four years to extend their arms to less important cities.
A source knowing well about the private express companies said that FedEx and UPS were definitely now allowed to be involved in letter delivery business in China, which is the most lucrative section among the whole post service industry. Without this section, the profit level of their domestic delivery business might be greatly influenced. According to the source, FedEx and UPS never got rid of losses though they have run express business in China for years. FedEx’s loss is even greater. Therefore, they are likely to lack power to turn loss into profit in China as they have no proprietary operating rights of letter delivery and are trapped in the price war of the express industry. If they are haunted by losses for long, they might not have enough power to maintain their presence in China.
Therefore, Cui Fuzhong, secretarygeneral of the China Federation of Logistics & Purchasing, believes that the domestic express companies in China have growing anti-pressure ability as their business keeps enlarging. Though the two international mammoths’ involvement in the domestic express section will bring negative influence upon local companies in a short while, for the long term, their experiences in operation and management will eventually benefit local companies. He also believes that SF Express and EMS have already prepared for such challenges and can resist the impact.
Is the outlook of local express companies so bright? As Liu Jianxin said, though domestic companies seem to be calm and ready for the challenge, they all secretly watch the distribution of UPS and FedEx. Even DHL which has already left might return one day with a bigger ambition and presence. By then, the competition in China’s domestic express industry will be much more furious.