Courier Sector Revs Up for Consolidation 中国快递业进入整合期

The crowded field of couriers that deliver millions of packages each year from China’s booming e-tailers to online buyers is gearing up for a much needed consolidation, which will improve both safety and reliability for a key link in the process of moving merchandise from online stores to consumers. Recent months have seen a steady stream of reports on a wide range of problems with the courier sector, which has grown at a breakneck pace to service an e-commerce industry that generated 588 billion yuan ($92.23 billion) in sales last year, with the number expected to grow another 30 percent in 2012, according to the Commerce Ministry. Most of the sector’s current problems center on reliability, with cutthroat competition and little government oversight meaning that many smaller companies are tottering on the brink of bankruptcy as they struggle to efficiently deliver thousands of packages. Safety is also a concern, as many smaller couriers lack the resources to properly police the products they deliver. Facing this unruly market with the potential to undermine consumer confidence, many of the country’s top e-commerce firms have moved to forge their own delivery networks. Leading e-commerce companies Alibaba and Jingdong Mall, also called 360Buy, have both taken recent steps to build up their own courier services and ensure the reliability of third-party couriers they use. In one of the newest steps in that direction, reports emerged last week that Suning.com (Shenzhen: 002024), the website of one of China’s top electronics retailers, would launch a plan to make products purchased on its website available for pick-up at any of Suning’s 1,800 real-world shops throughout China. (previous post) The next 12 months are likely to see the launch of similar innovative plans, as major e-commerce players look to distinguish themselves from their rivals and parlay their traditional retailing strengths to ensure their deliveries are convenient and reliable. Meantime, a number of major delivery firms are also boosting their presence to act as consolidators. One of the largest of those is China Postal Express, the package delivery arm of China’s post office, which last month announced plans for a Shanghai initial public offering to raise up to $1.6 billion. (previous post) Such an IPO is an important step in the commercialization of this package delivery giant, giving it a big new round of funding to expand and improve its operations to assist in the e-commerce boom while also divorcing it from its slower-moving State-owned parent. These kinds of development are sorely needed in this dynamic industry to boost consumer confidence, as China moves to leapfrog the US and become the world’s largest e-commerce market in the coming years. While most of the process will be market driven, the government can also step in and assist by taking measured steps to regulate the market and quickly approving mergers and acquisitions.

Bottom line: China’s parcel delivery sector has entered a period of consolidation likely to result in the emergence of about a dozen major players to serve the booming e-commerce sector.

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