E-commerce has been a huge boon to China’s logistics industry.
But today’s Singles Day presents an enormous challenge to the country’s delivery firms.
With low barriers to entry, express couriers proliferated rapidly over the past decade to more than 8,000 firms, squeezing profit margins to about 5 percent, down from 30 percent 10 years ago.
Their resources have been stretched so thin that they are now looking for tie-ups, listings and new investors to cope with the cut-throat competition and rising labor costs, Reuters reported.
The internet shopping festival, held every Nov. 11, is run by e-commerce giant Alibaba Group Holding Ltd.
It overtook the United States’ Cyber Monday as the world’s biggest shopping event in 2012, and generated sales of US$9.3 billion last year.
Parcel deliveries are expected to rise 42 percent to 760 million this week, creating a logistical headache for the army of companies that will bring them to the customer’s door.
The planning began three months ago for Shanghai-based Zhongtong (ZTO) Express, one of China’s largest couriers, which saw parcel volumes jump fourfold during last year’s event.
The firm, which currently employs a quarter of a million people and has 28,000 delivery vehicles, said it decided to add 40,000 temporary and permanent workers, buy an extra 7,000 vehicles and open dozens of sorting centers, at a cost of tens of millions of dollars.
“We don’t treat Singles Day like business; it’s our responsibility,” said Zheng Chao, its marketing director.
In order to ease the burden and meet the cost of such investment, delivery companies are considering stock market listings and mergers and opening up to outside funding.
“The industry’s restructuring is not wholly driven by Singles Day, but Singles Day may make the competitive pressures more evident,” said Yan Shujun, analyst at China Logistic Information Center.
ZTO’s Zheng said his company is targeting a 2017 listing.
Rival Shentong Express said in September it would merge its assets with that of another large courier, Tiantian Express.
It is also pursuing a back-door listing through a Shenzhen valve-maker, it told Reuters last month.
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