Boosted by a booming e-commerce industry, the courier sector has seen fast growth over the past few years, with the number of handled parcels increasing by 10 billion on average in each of the past three years, according to the State Post Bureau (SPB). Figures from the National Bureau of Statistics showed that the industry handled a total of 50.71 billion parcels in 2018, up 26.6 percent from the previous year, while total revenue grew 21.8 percent year on year to 603.84 billion yuan ($88.8 billion).

As it matures and its market concentration ratio grows, the sector has entered a period of reshuffling. Six publicly listed players, such as ZTO Express and YTO Express, now control 73 percent of the market, up from 64 percent in 2016. Meanwhile, small and medium-sized companies are scrambling for a piece of the rest of the pie, while some have already been sifted out of the market.

A standstill

Beijing-based Rufengda Express Delivery Co. Ltd., a midsize courier, was the latest victim in the consolidation process with its recent shutdown after companies like Quanfeng Express and Kuaijie Express ceased operations last year.

Rufengda used to serve more than 3,000 cities in 31 provincial-level regions on the Chinese mainland with a daily parcel volume of 300,000, but now it is more than 70 million yuan ($10.13 million) in debt.

At its peak, Quanfeng Express had more than 5,000 branches across China with a daily volume as high as 1 million parcels, but the latest news was that its last 44 transport vehicles were auctioned off in Beijing.

Financial pressure has been the major reason for failure in the courier sector. In the past few years, there has been a vicious price war, with the revenue per parcel delivered drastically declining. Chen Meng, chief market value analyst at China Securities Finance Holding Co. Ltd., said small and medium-sized couriers that fail to manage costs with less financial support are doomed to stagnate once they confront a broken chain of capital.

Most small and medium-sized players in the sector are based on franchise agreements. In the early stage of expansion, the advantages of quickly setting up a network, low costs and high efficiency lead to easy profits. However, according to Yang Mengke, a research fellow with the China Society of Logistics (CSL), the franchise model also leads to several problems. For example, since each franchisee is responsible for its own profits and losses, different levels of service quality can develop and the efficiency of delivery cannot be supervised by headquarters, damaging couriers' credibility.

Moreover, small and medium-sized players are restricted in their development to some extent by their insignificant scale effect. You Daozhu, an analyst with SWS Research, a securities research institute, told China Central Television that their volume of parcels delivered does not meet the requirement for automated sorting, which is essential to reducing costs. Thus, smaller companies have higher business costs, leading to a vicious cycle where prices cannot be lowered. Furthermore, some companies confronting rising labor costs and declining business choose to squeeze the salaries of delivery workers, which in turn, makes the situation worse since they cannot guarantee the quality of service.

In addition, some couriers, who rely too much on e-commerce platforms, are vulnerable to external shocks. Rufengda, for example, used to mainly provide parcel delivery service for VANCL, an online garment retailer. But when VANCL's sales shrank due to bad market performance, Rufengda failed to find other large e-commerce platforms to cooperate with, resulting in a sharp decline in business volume.

Ways to survive

Compared to developed economies like Japan and the United States, China's courier sector comprises a long list of smaller players, making industry consolidation inevitable to boost overall logistics efficiency, said Yang Daqing, another research fellow with the CSL.

As the market concentrates in the hands of a small number of major players in this sector, the living space for smaller enterprises is shrinking, which is a general trend. An accumulated advantage where the rich get richer and the poor get poorer, or the Matthew effect, will continue to influence the whole industry, he added.

Currently, most of the largest express delivery firms have gone public, giving them new funds to consolidate their market dominance at the expense of smaller cash-starved rivals. "For small and medium-sized couriers, it's already too late to try and set up a national network," Zhao Xiaomin, an industry expert, told National Business Daily. "They need to find their own niche to transform themselves."

Smaller courier companies can either serve as the main player in a subdivided field or affiliate themselves to leading enterprises, Yang Daqing told 21st Century Business Herald. "If a company does not possess the ability to grow bigger and stronger by itself, there is still room for it by counting on the development of big platforms or players," he added.

Ken Allen, CEO of Germany's DHL Express, once said that his company would like to take more of a share in subdivided fields such as healthcare and electronic products delivery in the Chinese market while continuing to focus on international express service.

Smart logistics

The development of China's courier market has entered a phase of digital and intelligent transformation.

Currently, about half of the couriers' e-commerce parcels come from Alibaba's online marketplaces, according to SPB statistics. Cainiao Network, Alibaba's logistics arm, is promoting a smart logistics system to enhance the use of data technologies in logistics service and improve delivery experiences that are perceived as vital to Alibaba's e-commerce business.

Last June, Alibaba bought a $1.38-billion stake in ZTO Express, accelerating the integration of New Retail business and logistics. It also joined YTO Express and China National Aviation Co. Ltd. in building a world-class logistics hub in Hong Kong with a total investment of about 10.4 billion yuan ($1.55 billion), and eventually bought a minority stake in YTO Express at the end of last year. In March, Alibaba also invested in STO Express as part of its efforts to expand its e-commerce footprint and boost online-to-offline sales through enhanced logistics capabilities.

"Capital injection gives Alibaba a bigger say in its cooperation with leading players in the express delivery sector, thus exerting a bigger influence on their resource allocation to the online Tmall and Taobao platforms," Yang Daqing added.

Unlike its major rivals that have been basically integrated into the Cainiao logistics network, SF Express, one of China's largest package carriers, chooses another model of independent development, making high-end business deliveries a core component of its business. The company is transforming itself into an integrated logistics solution provider, including warehousing management, sales forecasting, big data analysis and financial management, according to Chen.

In addition, e-commerce giants such as JD.com and Suning are also beefing up efforts to build intelligent logistics systems. JD.com already operates 20 large intelligent logistics centers across the country and is moving forward with the application of fully unstaffed intelligent warehouses. Suning has built Asia's largest intelligent logistics base, capable of handling 1.81 million parcels a day.

Copyedited by Rebeca Toledo

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