China's price driven courier market can expect consolidation

2014-12-18

CHINA Express Consulting Network estimates that 50 per cent of SMEs in the domestic courier industry are losing money, and Citi Research expects large-scale merger and acquisition activity in the domestic market are on the horizon mainly due to intense price competition.

Low barriers to entry and soaring demand are stimulating fierce competition in China's domestic courier business, but for half the companies in the market it will be a race to the bottom.

"The market is still in the rapid growth stage and all players are fighting for volume and market share to support further expansion," Citi Research pointed out in a customer report on e-commerce.

"Given the price sensitivity of typical online shoppers, pricing is used by express companies to gain an edge on their competition.

"In addition, the better developed domestic infrastructure also helps to lower the transportation costs. As a result, unit prices of express mail have been decreasing recently. The average profit margin for domestic express mail companies is about five per cent."

But couriers in China's international express mail business, a sector dominated by Sinotrans-DHL, FedEx, UPS, TNT and China Post for years, have been enjoying an average profit margin of 15 per cent.

But even with the high levels of investment required to set up international networks, competition from China couriers is beginning to build.

"We have seen leading domestic players expand into the international express mail market in recent years," the Citi Research report noted.

"SF Express entered the Taiwan market in 2007 as its first international expansion, with South Korea and Singapore in 2010. Currently, SF Express has an overseas network covering the US, Australia, Southeast Asia and East Asia."

Another leading Chinese domestic player, Shentong Express, set up its Japan and US business last year and in February inaugurated its US service.

Rapid growth has led to the emergence of a multitude of small players in the express delivery market, with 10,000 domestic providers. However, Citi Research said the market was still dominated by a few large players.

Domestically, revenue of Express Mail Service under China Post (EMS), ShunFeng Express (SF), Shentong Express, Zhongtong Express, Yuantong Express and Yunda Express all exceeded US$1.6 billion in 2013. The market share of the top six players is 82 per cent in the domestic express mail market.

The international courier business is dominated by Sinotrans-DHL, EMS, FedEex, UPS and TNT, which collectively own a 90 per cent market share in China. Sinotrans-DHL alone has held on to a stable market share of 35 per cent of the international express mail market in China during the past several years.

The Citi Research report said China's express delivery industry has seen volumes growing at a compound annual growth rate (CAGR) of 40 per cent from 2007 through 2013. By the end of last year, the revenue of China's express mail industry reached $23 billion, second only to the US.

Source from : www.schednet.com

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