Alibaba and China's Shipping Problem
Photograph by Imaginechina via AP Photo
Chinese workers sort parcels, most of which come from online shopping, at a transshipment center in Nantong city, east Chinas Jiangsu province in 2013
E-commerce sites such as eBay (EBAY) and Amazon.com (AMZN) arose when they did for a reason. The Internet first had to be invented, of course, and become a part of everyday life. They needed another thing, however: an efficient, reliable, nationwide system for delivering the stuff people ordered, in as little as a day, if requested. And in the U.S., that existed in the form of FedEx (FDX), United Parcel Service (UPS), and the U.S. Postal Service.
One of the challenges for Chinese e-commerce companies—Alibaba being the largest—is that this isn’t yet the case in China. While some consolidation has come lately, the Chinese shipping industry is still fragmented into lots of small companies that ferociously compete to undercut each other on price, and timeliness and package care often suffer.
Big international carriers such as UPS and FedEx are niche players, hampered by government policies that limit their range. “It’s very, very competitive, very rate-driven, and on-time delivery, until not that long ago, was a problem for many of the shippers,” says Cathy Roberson, an analyst at Transport Intelligence. “You’ve got lots of mom-and-pop companies.”
Difficulties of logistics in China aren’t confined to the shipping companies. The infrastructure the companies rely on to transport their goods is still uneven—the highway system isn’t nearly as extensive as in the U.S., and it peters out in the country’s rural reaches, while the rail system still focuses more on passengers than on freight. Many rural residents don’t have formal addresses. And the country is woefully short of warehouse space. Warehouses it does have lack the sort of modern pick-and-pack systems and computer tracking that have been key to Amazon’s success (and, for that matter, to Wal-Mart’s (WMT)). According to a recent Reuters article, Boston has more modern warehouses than all of China.
China’s e-commerce companies are fully aware of the problem. JD.com (JD), the country’s second-largest online retailer (after Alibaba) created its own delivery service. Alibaba hasn’t done that, but a year ago it launched the China Smart Logistics Network—Alibaba founder Jack Ma is its chairman—an initiative that aims over the next decade to upgrade the country’s shipping capabilities, partly by providing shipping services but also by supplying warehouses and the sort of software and data analytics that can make the process more efficient. Major international warehouse companies such as Global Logistic Properties (GLP:SP) and Prologis (PLD) are going hard into China.
One of the challenges for Chinese e-commerce companies—Alibaba being the largest—is that this isn’t yet the case in China. While some consolidation has come lately, the Chinese shipping industry is still fragmented into lots of small companies that ferociously compete to undercut each other on price, and timeliness and package care often suffer.
Big international carriers such as UPS and FedEx are niche players, hampered by government policies that limit their range. “It’s very, very competitive, very rate-driven, and on-time delivery, until not that long ago, was a problem for many of the shippers,” says Cathy Roberson, an analyst at Transport Intelligence. “You’ve got lots of mom-and-pop companies.”
Difficulties of logistics in China aren’t confined to the shipping companies. The infrastructure the companies rely on to transport their goods is still uneven—the highway system isn’t nearly as extensive as in the U.S., and it peters out in the country’s rural reaches, while the rail system still focuses more on passengers than on freight. Many rural residents don’t have formal addresses. And the country is woefully short of warehouse space. Warehouses it does have lack the sort of modern pick-and-pack systems and computer tracking that have been key to Amazon’s success (and, for that matter, to Wal-Mart’s (WMT)). According to a recent Reuters article, Boston has more modern warehouses than all of China.
China’s e-commerce companies are fully aware of the problem. JD.com (JD), the country’s second-largest online retailer (after Alibaba) created its own delivery service. Alibaba hasn’t done that, but a year ago it launched the China Smart Logistics Network—Alibaba founder Jack Ma is its chairman—an initiative that aims over the next decade to upgrade the country’s shipping capabilities, partly by providing shipping services but also by supplying warehouses and the sort of software and data analytics that can make the process more efficient. Major international warehouse companies such as Global Logistic Properties (GLP:SP) and Prologis (PLD) are going hard into China.
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