Bottom line: A major altercation between a customer and deliveryman from STO Express underscores the intense competition in the sector, which puts huge pressure on couriers and companies in general.
An incident making the rounds in Chinese media is highlighting just how brutally competitive the parcel delivery business has become — literally. The incident is quite appalling but not really too surprising, with reports that courier STO Express (Shenzhen: 002468) has fired a deliveryman who seriously beat a customer who filed a complaint about him.
This particular incident comes just a day after I wrote about the latest IPO by a parcel delivery firm, Best Inc, which is hoping to raise up to $750 million in New York. (previous post) That IPO is noteworthy because Best is still losing massive money, unlike most of the other courier companies that have made listings, even though the industry’s brutal competition makes it hard for me to believe the others are as profitable as they say.
The brutally competitive situation was also highlighted a few weeks ago when SF Express (Shenzhen: 002352), the largest player, got into a high-profile spat with Alibaba’s (NYSE: BABA) Cainiao logistics unit over data sharing. (previous post) Again, all of this shows just how brutally competitive the delivery industry has become, like many newly emerging sectors in China, and how that competitiveness can sometimes lead to real-world violence.
In this particular case, the victim wrote up a very detailed account on his microblog, so anyone who wants all the details can look at the actual story. But the gist is that the issue began when the customer was traveling for work and a deliveryman tried to delivery a package to his or her home in Beijing. A war of words ultimately broke out between the pair, and the customer filed a complaint about the deliveryman to STO, which fined him 200 yuan ($29).
The whole incident finally erupted into a rather nasty physical altercation, where the deliveryman went to the person’s home and attacked him with a rock. The person’s account of the incident includes some photos showing bloodied clothes as evidence. STO issued its own statement saying it has fired the employee and is looking into legal options related to the incident. (Chinese article)
There’s not much else to say about specifics in this particular incident. Instead, the broader significance is how it represents the overheated situation in China’s e-commerce and parcel delivery sector. E-commerce is already relatively consolidated, with Alibaba and JD.com (Nasdaq: JD) controlling the lion’s share of the market. By comparison, the parcel delivery sector still seems quite fragmented, with around 10 relatively large players.
I got a good taste of the pricing pressure these companies must be under when I went to send a package to the US a few months ago. UPS (NYSE: UPS) and FedEx (NYSE: FDX), my first choices, were willing to do the job for prices starting at $60 and up. By comparison, one of the Chinese couriers, I think it was STO, was willing to do the job for less than $20.
That huge differential underscores the incredible pressure the deliverymen for STO and the other couriers are under. I don’t know the specifics, but I expect that each courier has to deliver more than 100 packages a day, often to homes where the recipient is absent. Thus nerves are always on edge, and when this kind of tussle happens it can not only throw off a person’s schedule, causing him to miss his quota, but also result in a fine that probably represents more than a day’s wages.
The only real answer to all of this is consolidation, which always seems to come painfully slowly in many of these emerging industries. Smartphones is one space that sorely needs such consolidation, and so does take-out delivery, online video and now bike sharing services. Unfortunately, many of these companies are backed by investors with deep pockets, who are often willing to lose money for several years before throwing in the towel.
I expect that this particular case involving violence isn’t that common, though altercations between deliverymen and customers are probably frequent occurrences. That’s hardly very pleasant for either side, and makes me realize why many people who are less price-sensitive may prefer to use the UPS and FedEx services, despite their sharply higher fees.