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E-Commerce

Alibaba to Invest 1 Trillion RMB to up Its Logistics Game; to Focus on Same Day Delivery in China

Jun 10, 2018 by Chauncey Jung
Alibaba to Invest 1 Trillion RMB to up Its Logistics Game; to Focus on Same Day Delivery in China

As e-commerce has become increasing popular in China in recent years, the express delivery business has kept the top players on the hook. If the Logistics market falter, it could bring down the e-commerce industry. And hence e-commerce firms are now looking at automation in logistics and big data analytics.

Alibaba’s Executive Chairman Jack Ma announced his ambitious plan last week to invest 1 trillion RMB in Cainiao, the logistics arm of Alibaba Group, to ensure speedy delivery of goods within China and outside the country.

“Cainiao will be fully supporting the construction of China’s core smart logistic network. We have the vision to deliver items in 24 hours anywhere in China. And we have another vision to deliver items in 72 hours to anywhere in the world. We will invest 1 trillion RMB ($20 billion) to make this happen.” Ma said at the Global Smart Logistic Summit.

“If one trillion is not enough to get the jobs done, we will invest more. We believe that only with strong logistics will we have a future in manufacturing.” He added.

China’s logistic industry had experienced tremendous changes over the past 15 years. Businesses are teaming up to handle the expected increase in workload and shipments. For instance, JD.com partnered with Japanese courier Yamato Holdings to ship the products from Japan to China and then deliver into Chinese consumers' hands faster. Again, Alibaba partnered with Nippon Express to transports goods and handles customs clearance for exporters shipping to China.

The e-commerce business tycoon further noted that the industry needs to think infrastructures needs to prepare for the billions of parcels. Ma hinted at partnering globally to achieve success and stressed the importance on reducing inefficiency and cost, increased automation, penetration into rural areas.

“Logistics costs used to stand for 20% of the GDPs, and it is getting close to 15% these years. But the number in developed countries are merely 7% to 8%.” Ma added. “Only if we think bigger and collaborate with each other will we be able to handle 1 or 2 billion parcels in the future.”

The B2C parcels in China has increased from 1 million a year to 1 million a day in the past five years and it is expected further grow exponentially in the days to come. With the globalization and open market economy, the competition in the industry is growing by the day and technologies and innovation ideas will define the future of the company’s prospect.

Companies are now looking at using drones to deliver goods to customers. SF Express, the nation’s biggest logistics firm, a subsidiary of Fengyu Shuntu Technology, announced in March this year to deliver packages via unmanned aerial vehicles to rural and sparsely populated areas in China.

Ma too reiterated this point—to focus on quick delivery to remote locations. “I think fast logistics is easy to achieve in larger cities. Our task should be achieving fast logistics in more rural areas in further areas such as Tibet and Inner Mongolia. We want to have Norwegian salmon to be loaded in the morning and arriving to Hangzhou by the evening.” Ma said.

However, the industry is fraught with challenges. The rising real estate cost in prime cities is detrimental to having large wearhouses for quick deliveries.

Also, China, which ranked 8th in the Logistics Performance Index put out by World Bank in 2008, has moved a position down in a decade ending 2016. In contrast, US moved five positions up from being ranked 14th to 10th position now, indicating improvements in handling inefficiencies.

According to the State Postal Bureau statistics, about 95 percent of complaints from express-delivery customer complaints were related to delays, damage, loss, and unsatisfactory delivery quality. In China, the average empty running ratio in road transportation is about 40 percent, far higher than the 10 to 15 percent average in the United States and Germany, A Mckinsey report indicated.

The inefficiencies in the sector also shows the opportunities that exist to reshape value chains and boost productivity, with considerable benefits for customers, companies, and the economy where logistics market amounted to approximately 230 trillion yuan.

“With several years of hard work and smart solutions, we can reduce the logistic costs to 5% of the country’s GDP. We need to find smarter solutions for reduce the logistic costs for a larger margin of profits for everyone.” Ma added.

Chauncey Jung

Chauncey Jung works with a unicorn Internet firm based out of Beijing. In his earlier stint with Sohu, a lead online-news platform headquartered in Beijing, Chanucey wrote in English on various subjects, spanning from culture, politics to social changes. His professional experience pays him off an insider perspective over China's internet industry. Completed his bachelor and master education in Canada, Chauncey is obsessed with trending technologies and economic developments across Asia. He can be reached at chaunceyzhang@foxmail.com

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