China Logistics stretched by exponential growth in e-Commerce
Asia Supply Chain Insights by Mark Millar -Hot on the heels of the Alibaba multi-billion dollar IPO frenzy in New York, let’s explore how the exponential growth of e-commerce is stretching the capabilities of China’s logistics sector.
China’s direct-to-consumer e-commerce sales grew to USD 305.5 billion in 2013, registering a forty two per cent increase over the 2012 total of USD 214.8 billion, according to iResearch.
Driven by an upwardly mobile middle class with a taste for Western brands coupled with massively expanding rates of internet access, China's e-commerce market is experiencing exponential growth that McKinsey forecast could generate online sales of USD 650 billion by 2020
And research from Alibaba reported that consumers in remote areas with no large shopping malls and consumers in small cities spend a larger proportion of their disposable income via e-commerce than those in the large cities where brand-name stores are plentiful.
This massive growth in online sales in turn drives the need for comprehensive nationwide B2B and B2C logistics networks, stretching China’s express logistics sector capabilities like never before.
China's express delivery industry has over eight thousand companies, some offering nationwide deliveries and many others offering a one-man delivery service to a city area. In total, the express delivery providers delivered 9 billion pieces in 2013, up 61.6 percent year-on-year.
In their recent report, Deloitte project that by 2015 this will become a RMB 280 billion industry, with average annual compound growth rate of 39.4 percent. Their report said the total operating income generated by China's express enterprises reached RMB 144.22 billion in 2013, up 36.6 percent year-on-year.
By business volume, the market was dominated by private express companies, which accounted for 78.9 percent of market share in 2013, versus 19.9 percent for state-owned companies and 1.2 percent for foreign enterprises. With their respective strengths and weaknesses, this broad mix of service providers is complementing each other to support the healthy growth of the express market.
In such a crowded market, the fierce competition amongst express delivery service providers is resulting in volumes growing faster than revenues, reflecting price pressure that is reducing revenue per piece. This is impacting profitability for the service providers with expectations amongst market watchers of some impending consolidation.
For Logistics in China we can expect continuing exciting developments, embracing both challenges and opportunities in this rapidly growing sector of e-commerce and logistics solutions – which is one of the featured Seminars at the forthcoming 9th China (Shenzhen) International Logistics and Transportation Fair (CILF 2014) taking place in Shenzhen, China during 14-16 October 2014.