China Eastern to fuel JD.com’s own-operated air freight network?

This week, China Eastern Airlines (CEA) and China’s number-two e-commerce player (after Alibaba’s Taobao), JD.com entered into a strategic partnership to “leverage each other’s resources” to strengthen their joint logistics capabilities. As would be expected, China Eastern Airlines’ key resource on offer is its airlift capacity, while JD’s is its e-commerce platform and last-mile delivery infrastructure. But the two parties will cooperate in other areas as well, including passenger services, procurement, and IT. CEA has long been eager to diversify its business, and has become something of an e-commerce retailer itself, while JD.com yearns for a greater share of the upstream e-commerce logistics business, which is currently dominated by its rival, Alibaba-affiliate Cainiao. Might this partnership be a prelude to the eventual launch of an own-operated air freight network operated by China Eastern Airlines?

The partnership has been in the making for some time. In May of this year, JD launched its “JD Logistics” division to focus on expanding last-mile and 3PL services. This model contrasts with that of China’s other leading retailer, Alibaba, whose logistics-affiliate Cainiao operates an asset-light platform which relies on a network of transportation partners for delivery services.

When JD launched its logistics division, we questioned whether or not we would soon see freighters in JD.com livery. After all, with 256 warehouses and 6,906 delivery stations and pickup stations across China, JD’s asset-heavy fulfillment model more closely resembles that of US-based e-tailer, Amazon. For its immediate domestic air freight needs however, belly space is playing an important role. During the signing ceremony for the partnership with JD, China Eastern Airlines revealed it had been “operating ten airliners for JD Logistics” from its bases in Shanghai and Beijing since May, and expects to add ten more by the end of the year. Of course, these are not freighters, but rather the bellyholds of passenger aircraft.

We suspect that, in the future, freighters could be in the cards. After all, China Eastern Airlines does not manage its own belly space. Last year, the company divested its logistics division, Eastern Air Logistics (which owns China Cargo Airlines, and manages the belly space on China Eastern’s passenger flights) and transferred the assets into a holding company, CEA Holdings.

As part of the Chinese government’s mixed-ownership reforms, CEA Holdings has since reduced its stake in the logistics company to just 45%. China-based Legend Holdings (Lenovo’s parent company) and Singapore-based Global Logistics Properties will hold 25% and 10%, respectively, while two other Chinese companies, Deppon and Greenland Financial will each hold a 5% stake. The remaining 10% will be divided among current employees of Eastern Air Logistics. Moving forward, the new entity said it plans to offer services which more closely resemble those of a global integrator, rather than a cargo-carrier with a freight forwarding arm.

This partnership with JD.com could certainly impart China Eastern Airline’s business model with a few more integrator-like features, even if the extent to which Eastern Air Logistics and China Cargo Airlines will be involved is unclear at this point. Sources close to the matter have told Cargo Facts that international air freight transportation is being considered as an extension of the partnership at a later time, and could include both belly space and space on China Cargo Airlines’ freighters.

Apart from airlift, the pair will share warehousing and transportation resources at key airport hubs, and jointly invest in the development of new infrastructure. JD will also play a role in delivering China Eastern tickets, invoices and frequent flier membership cards through its last-mile delivery services. JD will also assist the airline in negotiating better prices for some of the many items it procures, including food, office supplies and clothing.

On the e-commerce side, the pair will expand China Eastern’s dedicated sales channel on JD.com, and will begin offering a new “ticket + X” sales model, which attempts to sell complementary auxiliary services and products with the purchase of a China Eastern flight ticket.

Those interested in learning more about how leading companies in the air freight logistics space are benefiting from the e-commerce revolution are invited to join us at this year’s Cargo Facts Symposium, to be held 3-4 October, at the Ritz-Carlton on Miami’s South Beach. For more information, or to register, visit www.cargofactssymposium.com