UPS, FedEx Drive Into Domestic Deliveries UPS和联邦快递或推动中国快递业洗牌

By newsdoug on May 29, 2012

UPS set to enter domestic delivery market - report There’s quite a bit of noise in the fast-growing package delivery space these last few days as companies large and small clamor for position in China’s booming e-commerce market, setting the stage for yet another bubble similar to the one now infecting the e-commerce space itself. Less than a month after the parcel delivery arm of China’s postal service announced plans for a domestic IPO to raise up to $1.6 billion (previous post), media are reporting that multinational giants UPS (NYSE: UPS) and FedEx (NYSE: FDX) are both set to receive the nod from Beijing to start offering domestic delivery services, adding 2 major new competitors to the already crowded market. (Chinese article) Both UPS and FedEx have been limited up until now to delivering packages to China from overseas, and each has been lobbying for years for rights to deliver packages domestically — an area that has seen explosive growth in the last 5 years with the rapid rise of e-commerce in China. It’s interesting that Beijing now may be finally preparing to allow them to operate domestically, just as China Postal Express gets set to make an IPO to fund its own expansion. I suspicion that Beijing wants to bring some order to the parcel delivery space, which has become quite unruly with the e-commerce boom. New reports about bombs, weapons and other illicit materials being delivered through smaller, unscrupulous courier services now appear regularly in the Chinese media, which looks like Beijing’s way of saying the sector needs to consolidate around a much smaller group of perhaps a dozen players who can run more efficient operations and controls to prevent such illegal activities. Bringing experienced veterans like UPS and FedEx into the picture could quickly help to clean up the industry, driving many of the smallest players either out of business or into mergers with larger rivals, creating a handful of large-scale, more efficient domestic players. Meantime, Alibaba’s TMall, China’s e-commerce leader, is also making its own moves in the package delivery space, with Chinese media reporting the company has partnered with 9 major courier services to improve delivery of goods sold on its platform. (Chinese article) While unrelated to the UPS and FedEx news, this step by Alibaba also looks directed at trying to improve efficiency in the package delivery space by focusing on a handful of the biggest services to improve customer satisfaction and cut down on less efficient and even illegal activity by some of the smaller players. From a broader industry perspective, look for more of these kinds of moves to occur in the next year, with other major e-commerce players forging their own similar ties with the bigger, stronger delivery services. That should bode well for both UPS and FedEx if they get domestic licenses, as well as China Postal Express, as all are big, experienced companies that can quickly offer quality and reliable services for most major Chinese cities. The losers in the equation will be the smaller delivery companies, though some of the better run operations could benefit as they will be become attractive acquisition targets for big names looking to quickly expand their coverage networks.

Bottom line: The arrival of UPS and FedEx to China’s domestic parcel delivery market reflects Beijing’s desire to clean up the unruly sector, which has boomed with the rapid rise of e-commerce.

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