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Delivering The Goods(HKTDC Enterprise, Vol 08,2007)


The forthcoming battle royal between the world's leading express delivery companies for the lion's share of the Chinese mainland market will mean lower costs for buyers and suppliers

The stage is set for an enthralling struggle as China opens its express delivery market to foreign investors as part of its ongoing commitment to the World Trade Organization.

The world's four express delivery giants - UPS, DHL, FedEx and TNT - have already upgraded their strategy in China, shifting the competition from transport network layout to retail sales channels and consequently raising the competition threshold.

UPS, for example, has begun to offer services catering to small- and medium-sized enterprises in China and has enhanced its presence in commercial districts by opening its first two UPS Express stores.

Meanwhile, TNT recently purchased China's leading freight and parcels transportation operator, Hoau Logistics Group, to enter the country's less-than-carload lot market.

Not to be outdone, DHL has invested US$200m in the mainland's spare-parts logistics market and express delivery market, and has published a new plan to upgrade its express delivery management tools - including DHL Connect and the DHLXML-PI solution plan.

FedEx has also entered China in a big way by establishing a transhipment centre, and has announced that it will forge an alliance with Kodak to open "self-service counters" in Kodak quick colour stores that will allow consumers to send and receive international express mail via FedEx.

UPS' business volume has grown at an annual rate of 35% for several years; while the annual growth of DHL's business has reached 40%.

However, the world's express giants aren't seeking short-term profit but long-term return, thus the "big four" all list expanding market share as their near-term development target.

Increasingly frequent flights between China and the US and the opening of direct air routes from China to Europe have enabled them to expand their air networks, while they have established a preliminary transport network in the country by upgrading their hardware.

Their main customers remain multinational companies and hi-tech firms, which are not sensitive to price but have a high demand for timely and highly-efficient service.

Meanwhile, non-governmental express delivery enterprises in China, which used to be stifled by the State Postal Service, are also finally becoming more competitive.

Although lagging behind foreign express delivery giants in management concept, service level and network structure, they provide flexible services distinguished by cheap prices, bicycles and staff dressed in red jackets.

These non-governmental express delivery enterprises are concentrated in the Yangtze River Delta, the Pearl River Delta, the Shandong peninsula and Beijing-Tianjin district.

There are currently more than 6,000 such enterprises in Shanghai according to statistics automatically compiled by 42 non-governmental express delivery enterprises in Shanghai, although the National Bureau of Statistics cites double that figure.

These enterprises employ more than 100,000 staff - 10 times the number employed in the State-owned postal service sector in Shanghai - and have grabbed 95% of the intra-city express delivery service market and 70% of the inter-city service.

In addition, most large and medium-sized non-governmental express delivery enterprises have grown strong, with each holding assets in excess of RMB100m.

They are also venturing into fresh fields that will bring them into competition with their foreign counterparts, with Guangzhou Shunfeng Express Delivery Co Ltd becoming the first and only mainland company to offer charter-flight freight transport services in early 2003.

The company now plans to invest US$10m in two cargo planes, the first time a non-governmental express delivery enterprise has purchased aircraft of its own.

These various developments have seen non-governmental express delivery enterprises gradually rise from providing low-end service, while the State Postal Service and some State-owned express delivery enterprises have lost their strategic impetus and are struggling to compete.

For example, China Post has lost its market share at a striking rate in recent years - despite its monopoly of the express delivery business and having the largest network in the early 1990s - due primarily to system restraints and competition from foreign and non-governmental express delivery enterprises.

Left with no alternative, China Post launched the largest network adjustment of its postal express delivery service in 2006, reducing the number of national distribution centres from 324 to 168, increasing the number of express delivery vehicles by more than 10,000 and introducing real-time consultation services.

Despite these measures China Post has not improved in terms of price, flexibility and business hours and still lags behind non-governmental express delivery enterprises in speed of service.

It was even beaten to the punch in terms of a real-time consultation information system, which foreign and some Chinese non-governmental express delivery enterprises adopted three years ago.

Express delivery is clearly an industry promising fast market growth, with the annual operating turnover of domestic express delivery services offered by non-postal enterprises in Shanghai alone standing at around RMB2bn.

Express delivery among all modes of transportation demands the highest charge. For example, the ordinary freight charge between Shanghai and Beijing is RMB0.6-0.8/km, while the charge for express delivery is RMB10-25/km, with the gross profit reaching 40%-70%.

China's express delivery market currently exceeds RMB10bn in value and is growing at an annual rate of 30%, which will lead to fierce competition as the market gradually opens to sole foreign capital enterprises, the global distribution sector booms and China's demand for express delivery service continues to expand briskly.


Still the best

Hong Kong Air Cargo Terminals Ltd (HACTL) continues to win industry plaudits as one of the world's most efficient air cargo handling facilities.

HACTL scooped the "Air Cargo Handling Agent of the year 2007" award bestowed by the UK magazine Air Cargo Week during the four-day Transport Logistic 2007 exhibition in Munich recently.

Citations for the prestigious award included HACTL's computer logistics applications, which enable the Hong Kong airport to support the flow of air cargo through the city - a vital link in the international trade world's dealings with the Chinese mainland.

"We recently started a Business Partner Integration Programme, which makes it very easy to interconnect our IT systems with those of our customers," explained HACTL general manager, marketing and customer services Lilian Chan.

The Air Cargo Week award is also seen as an endorsement of Hong Kong's multi-modal approach to logistics, which is becoming particularly important as air traffic continues to grow through the territory.

It followed hot on the heels of HACTL's recent "Best Air Cargo Terminal - Asia" Award at the 2007 Asian Freight & Supply Chain Awards (AFSCAs), which the company won for the third time.

HACTL was crowned for its outstanding performance in:

  • clear setting of performance standards
  • clear communication of these standards to customers
  • satisfactory and timely resolution of problems
  • timely and adequate investment in new terminal infrastructure
  • efficient and easy use of IT systems

Organised by logistics publication Cargonews Asia, the AFSCAs is held annually to give due recognition to industry players that demonstrate unrivalled leadership, consistent high quality service, inspiring innovation, excellent customer relationship management and high level of reliability.

"The Award recognises not only HACTL's service excellence, but also reaffirms Hong Kong's position as Asia's premier air cargo logistics hub," said HACTL managing director Anthony Wong.