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Old 08-01-2008, 06:57 PM   #1  
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Default Chinese Courier Companies Struggle to Deliver

Chinese courier companies struggle to deliver
By Qian Yanfeng (China Daily)
Updated: 2008-07-30 14:38

Chinese courier companies struggle to deliver

With fuel costs continually on the rise, China's private delivery companies are among the hardest-hit sectors reporting declining profit margins and witnessing increasing pressure from major international couriers as they increase efforts to make inroads into China's domestic markets.

Pushed by the dismal outlook in the delivery industry - costs have been driven up by 16 percent since fuel prices were raised in late June - private couriers in China are struggling to swallow the losses before any price hike becomes possible.

"It's difficult to raise the charge while other competitors are offering lower prices," said Zhu Genfu, general manager of the ZTO Express in the Shanghai region. The private express company operates a nationwide network through running franchise chains.

"About 13 percent of the district level contractors have reported net losses and said that they are unable to continue doing business." Zhu said, adding that small private delivery companies in the country, estimated at 100,000 or so, were offering unbelievably low prices to compete for business opportunities in one of the world's largest markets.

For Liu Zhongyan who is in charge of Shanghai's Hongkou district under ZTO Express, rising oil prices keeps eating into his profits and has rendered all the motorcycles at his chain worthless. "We have resorted to electric bikes instead to cut down on fuel consumption."

Wei Hongbing from Nanjing shares similar woes. He works for SF Express, one of the largest private couriers in China. The sharp increase in costs in recent months means now he has to spend a hard time persuading his customers that he could no longer afford discounts.

"We used to provide impressive discounts to attract customers, who were always making comparisons between different local competitors for lower prices. But we can't do that now under the rising costs."

While domestic private couriers have to bear the brunt of shrinking profit margins amid the tens of thousands of local competitors who are driving the prices down despite cost increases, competition from major international express companies have dealt another blow to domestic players with their pronounced ambition of grabbing a share of the fast developing Chinese delivery market, which has enjoyed an annual growth rate of around 30 percent over the past few years.

FedEx Corp, the second-largest US package-shipping company, has readjusted its delivery rate scheme in China since June. The charge for overnight express delivery has been cut from 34 to 18 yuan per kg from Shanghai to Beijing, which is much lower than the 30 yuan offered by local players such as SF Express.

The price cut, which is unusual given foreign courier's higher operational costs compared with domestic competitors, is indicative of FedEx's determination to compete in China's express delivery market, said An Jianghong, an analyst from Anbound Group, a consulting firm headquartered in Beijing.

"FedEx's decision on the price cut can hopefully offset its losses back in the United States in the long run by making greater expansion in China." An said.

Earlier last month, FedEx reported a loss of $0.78 per diluted share for the fourth quarter ended May 31 compared to earnings of $1.96 per diluted share a year ago.

Shanghai-based China Business News also reported last June that FedEx chief financial officer Alan B. Graf had said that FedEx's launch of its mail express service in China would have a "negative impact" on the company's 2008 fiscal revenue.

"We'd be squeezed even further if they (foreign couriers) offered lower prices but a better service," said Liu. "Obviously they're targeting a greater integration into China's delivery market."

In another bid to try to tap into China's delivery business, FedEx is to open its Asia-Pacific hub in Guangzhou in December this year. The company said in a public announcement earlier that the relocation of the hub from the Philippines to China is based on the estimates on the growing demands for air express in the region.

Other rivals are also keeping up. Following last year's acquisition of Tiandi Hoau, a Heilongjiang-based private express company, Holland's TNT is now set to build an extensive road transportation network in China with the launch of its new Asia road network, which is a new service route that connects China and Southeast nations via road transportation.

This network is expected to be extended into China's hinterland as the company continues its investment in Tiandi Hoau to upgrade its operational infrastructure and delivery capabilities, analysts say, which will help the foreign courier strengthen its networks within China and expand into second and third-tier cities within the country.

Under such circumstances, Chinese couriers still have their competitive edge in that they have the access to the more remote areas within the country with stronger networks, said Chu Xuejian, professor at the Modern Logistics Research Center, Shanghai University.

His view is echoed by An. "Domestic delivery service providers are surely more competitive on the city level delivery business, while foreign couriers are much stronger in cross-border service."

But analysts say it is still important for domestic private couriers in China to learn from their western counterparts by improving their service and technology and expand the scale in order to sustain the challenge.
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Old 08-01-2008, 07:00 PM   #2  
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Sounds like the Chinese market is ultra competitive and "protecting the freight" is/will be a priority.

Given all that, has our HKG A300 domicile "officially" opened?

Has the clock started ticking on the time period when the company can use STV in HKG??

Last edited by DLax85; 08-01-2008 at 09:20 PM. Reason: grammar
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Old 08-02-2008, 10:24 AM   #3  
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How long can management keep Subic FOs in place and give them standby lines for HKG flying?

I know of no limit.
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Old 08-02-2008, 09:54 PM   #4  
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Quote:
Originally Posted by Gunter View Post
How long can management keep Subic FOs in place and give them standby lines for HKG flying?

I know of no limit.

Not just Subic F/O's. There are Subic Captains that aren't scheduled for MD training until March 09 and beyond.
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