Several Chinese companies are providing air-express services to compete with foreign counterparts. Provided to China Daily

With online sales growing, domestic shipping companies rolling out new sets of wings to meet demand

With their hands forced by China's red-hot e-commerce market and recent moves by foreign competitors to expand in the Middle Kingdom, Chinese express delivery carriers are hoping to meet the nation's soaring demands by taking to the air.

Chinese delivery companies such as Shanghai-based YTO Express Co Ltd and Shenzhen-based SF Express (Group) Co are buying and renting more aircraft, leasing cargo storage at airports and adding more delivery options in an attempt to stave off major moves by global shippers United Parcel Service Inc and FedEx Corp.

"We are getting a sense that Chinese consumers want better-quality products and services, so it is necessary to equip aircraft to compete with foreign and domestic rivals," says Yu Weijiao, chairman of YTO Express.

UPS and FedEx are currently applying for licenses to operate intercity services in China, though Zhou Ye, head of the information office of YTO Express, says there is no sign that either will be able to dominate the domestic market. Still, Chinese companies are finding it tough to compete on the global stage with the likes of UPS and FedEx because they lack a transport fleet, high-end services and international recognition.

"Foreign express companies haven't found effective means to have their share of the nation's e-commerce market of shipping goods," says Zhou, who adds that YTO Express delivers more than 2.6 million packages per day across China.

In the first half of 2012, online sales in China hit $80.4 billion (65.1 billion euros), about 46 percent more than the same period last year. As a result, revenue for China's express shipping market rose by 13 percent to $6 billion between January and June, according to the China e-Business Research Center based in Hangzhou, Zhejiang province.

To meet soaring shipping demands, YTO Express is renting two cargo aircraft to operate from Hangzhou to Beijing and Shenzhen this year in addition to renting cargo storage from Air China Ltd and China Eastern Airlines Corp Ltd. YTO Express' new aircraft will be based in Hangzhou Xiaoshan International Airport in East China's Zhejiang province. Yu says a third cargo aircraft will be put into service in October.

The company is planning to invest 5.5 billion yuan ($864 million, 700 million euros) to establish its own cargo airline in Xiaoshan over the next three years. The number of owned and contracted freighters will reach 38 by the end of 2022. With the aircraft purchase, YTO Express will be the third Chinese express shipping company to have its own cargo aircraft, after China Post's EMS and SF Express.

YTO Express divides the domestic market into eight areas, 59 transit centers and more than 5,000 distribution outlets throughout the country. With more than 80,000 employees, the company covers more than 1,500 cities and has air-express services in more than 70 first- and second-tier cities.

YTO Express' revenue reached 10 billion yuan last year. It has registered its trademark in 18 countries and regions and built a service network in Hong Kong to seek potential foreign clients.

"Chinese companies are becoming increasingly aware of the importance of the international shipping market and the surging popularity of foreign e-commerce websites has also pushed this industry to a breaking point," says Shao Zhonglin, deputy secretary-general of the China Express Association, a nonprofit organization for major express shipping companies based in Beijing.

YTO Express is not alone in its expansion plans. Twelve private Chinese express companies, such as ZJS Express Co Ltd and 800Best Co Ltd, have applied for international business licenses from the State Post Bureau of China last month.

SF Express is one of a handful of Chinese companies setting their sights overseas. In 2009, SF Express established SF Airlines Co Ltd, China's first private express delivery airline. Based at Shenzhen Baoan International Airport, the airline has bought seven Boeing cargo aircraft to operate domestically. Company officials say SF Express will soon undertake an international express service.

SF Express's sales revenue reached 12 billion yuan last year. Its service network covers all of China. By renting another 13 freighters and more than 530 cargo containers from a number of Chinese and foreign airlines, it can operate its express delivery services to Japan, South Korea, Malaysia and Singapore. The company will also operate two new cargo aircraft in Changzhou Benniu Airport in East China's Jiangsu province next month.

This year, SF Express began expanding into the United States with a new air route, though company reps said they have no plans of operating a US-based express service. It currently collects parcels and mail from Chinese clients to be delivered to different US locations.

Wang Wei, president of SF Express, says the future for China's express shipping industry will be intensive in labor, technology, equipment and capital.

"Under such circumstances, small and medium-sized companies will be integrated into larger ones and more focused on certain segments, such as chemical goods, frozen foods, cosmetics and pharmaceutical deliveries," Wang says.

"Our estimates, based on what we discovered in Europe and the US, were that only a number of major couriers exist."

To diversify its business, SF Express wants to attract more online shoppers.

"The booming e-commerce businesses and increasing number of people buying food online helps companies to broaden our consumer bases and increase brand awareness around the country," Wang says.

With a 10 million yuan investment, SF Express this year launched SF Best, an online food-retailing platform offering a variety of foods and a 24-hour delivery service. The service area, currently only in Beijing, has caused concern of an overlap between its express distribution network and the new network. Wang says the company is not in the hurry to make any money.

"We want to build a new brand and service mode first, because we have the advantage to manage the whole procedure from online sales to home delivery," Wang says.

"Express companies surely can gain more profits by sticking with the fast development of both international and domestic e-commerce businesses closely."

zhongnan@chinadaily.com.cn

(China Daily 08/24/2012 page15)