Harder for foreign couriers to deliver the goods in China
Domestic delivery sector ruled by local boys; price a key factor
By Peh Shing Huei 19 July 2011
China is the world’s third-largest express delivery market and growing, but it has yet to deliver the goods for global giants such as DHL Express.
While DHL, FedEx and United Parcel Service (UPS) are major players in the country’s outbound express delivery sector, they have struggled to compete with the local boys - small set-ups with unfamiliar names like Shentong, Shunfeng or Yuantong - for a piece of the domestic delivery action.
After a year of continued losses, DHL pulled out of the domestic delivery market about two weeks ago by selling its operations to a tiny Chinese logistics company, to focus on the outbound delivery sector. Said the company in a statement: ‘Because of overly fierce competition in the domestic courier service sector, foreign companies lack cost advantage.’
The problems run deeper. While many foreign companies and brands have been wildly successful in China, those in sectors such as courier service and the Internet have found it particularly difficult to penetrate the country.
In express delivery, the big boys have been overwhelmed by the sheer size of the country, as well as government regulations and the local culture.
A former DHL senior executive, who spoke on condition of anonymity, told The Straits Times: ‘You realise very quickly that you do not have control over the quality of service in China.
‘The network is very fragmented because the country is just too big. Even if you can control your main contractor, there is no way you can stay on top of the many tiny subcontractors,’ he added.
‘For major foreign players, we provide guarantee of delivery or your money back. It is very difficult to do that in China.’
A key problem is pricing. Express delivery is very cheap in China. Local companies charge just 10 yuan (S$1.90) to ship a package from Shanghai to Beijing in three days, compared with the 25 yuan charged by foreign companies.
Said Mr. Liu Jianxin, vice-general secretary of the China Communications and Transportation Association: ‘Foreign courier firms have higher costs, investing quite a bit on staff training. They have no advantage in China.’
The likes of DHL and FedEx suit their delivery men in uniforms and provide company vans and hand-held devices.
Workers in Chinese companies do not wear uniforms, make deliveries via a scooter, bicycle or subway, and scribble receipts on paper.
Untrained workers also mean delivery service is often poor, prompting frequent complaints of late, damaged or lost packages.
During the Chinese New Year period, delivery almost comes to a standstill because local companies are overwhelmed with orders.
Poor service notwithstanding, cost-conscious Chinese still prefer to give business to the local boys.
While the likes of FedEx and UPS have deep pockets, they cannot slash their charges as readily as their local rivals.
Said the former DHL executive: ‘They have to maintain their brand value. If they start to go really cheap, it would affect their global brand name.’
DHL’s local venture, which started in 2009, lost 99.2 million yuan as of the end of last year.
Foreign companies may have strong networks in coastal cities, but they lose out to the local boys once they move inland. Chinese companies rely on franchising with low barriers to entry, which allows their networks to expand across the vast country quickly.
Foreign companies are also disadvantaged by government regulations. In 2009, for instance, they were banned from delivering documents within China - a sizeable chunk of the business.
All this means that the global giants are missing out on a market that is now ranked third in the world, with 10 million domestic express deliveries a day. The United States has 30 million, followed by Japan with 13 million.
With a per capita delivery of fewer than two parcels a day, compared with the international average of 4.1, China has great potential to become the world’s biggest market by 2020, with a value of about €60 billion (S$103 billion).
Still, some analysts do not think it is the end of the road for foreign courier companies.
Said Professor Hong Tao from the Beijing Technology and Business University: ‘They are more modern and a bit ahead of their time for China, where the market is still young and messy. Give it a few years, and China will be more ready for DHL and FedEx.’
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Harder for foreign couriers to deliver the goods in China
Domestic delivery sector ruled by local boys; price a key factor
By Peh Shing Huei
19 July 2011
China is the world’s third-largest express delivery market and growing, but it has yet to deliver the goods for global giants such as DHL Express.
While DHL, FedEx and United Parcel Service (UPS) are major players in the country’s outbound express delivery sector, they have struggled to compete with the local boys - small set-ups with unfamiliar names like Shentong, Shunfeng or Yuantong - for a piece of the domestic delivery action.
After a year of continued losses, DHL pulled out of the domestic delivery market about two weeks ago by selling its operations to a tiny Chinese logistics company, to focus on the outbound delivery sector. Said the company in a statement: ‘Because of overly fierce competition in the domestic courier service sector, foreign companies lack cost advantage.’
The problems run deeper. While many foreign companies and brands have been wildly successful in China, those in sectors such as courier service and the Internet have found it particularly difficult to penetrate the country.
In express delivery, the big boys have been overwhelmed by the sheer size of the country, as well as government regulations and the local culture.
A former DHL senior executive, who spoke on condition of anonymity, told The Straits Times: ‘You realise very quickly that you do not have control over the quality of service in China.
‘The network is very fragmented because the country is just too big. Even if you can control your main contractor, there is no way you can stay on top of the many tiny subcontractors,’ he added.
‘For major foreign players, we provide guarantee of delivery or your money back. It is very difficult to do that in China.’
A key problem is pricing. Express delivery is very cheap in China. Local companies charge just 10 yuan (S$1.90) to ship a package from Shanghai to Beijing in three days, compared with the 25 yuan charged by foreign companies.
Said Mr. Liu Jianxin, vice-general secretary of the China Communications and Transportation Association: ‘Foreign courier firms have higher costs, investing quite a bit on staff training. They have no advantage in China.’
The likes of DHL and FedEx suit their delivery men in uniforms and provide company vans and hand-held devices.
Workers in Chinese companies do not wear uniforms, make deliveries via a scooter, bicycle or subway, and scribble receipts on paper.
Untrained workers also mean delivery service is often poor, prompting frequent complaints of late, damaged or lost packages.
During the Chinese New Year period, delivery almost comes to a standstill because local companies are overwhelmed with orders.
Poor service notwithstanding, cost-conscious Chinese still prefer to give business to the local boys.
While the likes of FedEx and UPS have deep pockets, they cannot slash their charges as readily as their local rivals.
Said the former DHL executive: ‘They have to maintain their brand value. If they start to go really cheap, it would affect their global brand name.’
DHL’s local venture, which started in 2009, lost 99.2 million yuan as of the end of last year.
Foreign companies may have strong networks in coastal cities, but they lose out to the local boys once they move inland. Chinese companies rely on franchising with low barriers to entry, which allows their networks to expand across the vast country quickly.
Foreign companies are also disadvantaged by government regulations. In 2009, for instance, they were banned from delivering documents within China - a sizeable chunk of the business.
All this means that the global giants are missing out on a market that is now ranked third in the world, with 10 million domestic express deliveries a day. The United States has 30 million, followed by Japan with 13 million.
With a per capita delivery of fewer than two parcels a day, compared with the international average of 4.1, China has great potential to become the world’s biggest market by 2020, with a value of about €60 billion (S$103 billion).
Still, some analysts do not think it is the end of the road for foreign courier companies.
Said Professor Hong Tao from the Beijing Technology and Business University: ‘They are more modern and a bit ahead of their time for China, where the market is still young and messy. Give it a few years, and China will be more ready for DHL and FedEx.’
I’ll be sure to visit again and will spread the word to my friends.
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