Alibaba and Cainiao: Tomorrow, the world!

Move over, Amazon. Out of the way, FedEx and UPS. Alibaba is coming to your home town.

Over the last few years, we have posted occasionally about the impact of e-commerce on the air freight and express industry. Today we embark on a three-part look at Alibaba, the world’s biggest e-commerce company, and the way in which its approach to the logistics of online shopping is changing the package-delivery industry worldwide.

Almost five years ago, at the beginning of 2011, Alibaba Group hosted a conference in Beijing. E-commerce was exploding across China, and Alibaba was the parent of the nation’s top online platforms for business-to-consumer (B2C) and consumer-to-consumer (C2C) sales. Like other online shopping companies, Alibaba had a problem: online sales were growing so quickly that China’s express logistics infrastructure was getting swamped. Managing ever-increasing inventories taxed the online sales companies beyond their ability to cope, and delivery companies could not keep up with demand.

The solution? For most of the big online sales platforms, the answer was to try to develop their own warehousing and logistics centers, but Alibaba boss Jack Ma saw things differently. “It’s clear that logistics is a crucial link in the e-commerce ecosystem and in order for Chinese entrepreneurs to reach their future growth goals, this sector needs to develop rapidly,” he said at the time. But rather than have Alibaba try to solve the problem on its own, he added: “It’s also clear that everyone involved in this sector needs to work together to accomplish this.”

Yes, Alibaba would have to invest in some of its own warehouses, but it would also spearhead an initiative that Ma hoped would encourage players from all parts of the e-commerce chain to work together to develop what he called an “open logistics platform.” A platform that all in the industry could use, and which would allow his vision to be realized: “Hopefully within ten years’ time, anyone placing an order online from anywhere in China will receive their goods within eight hours, allowing for the virtual urbanization of every village across China.”

It took two years to form a consortium and put a plan in place, but 2013 saw the launch of a new company, Cainiao Network Technology Co. Ltd, to oversee the creation of a nationwide express logistics platform, known as the China Smart Logistics Network. In addition to Alibaba, shareholders in Cainiao included express operator SF Express; courier companies Shentong Express, Zhontong Courier, Yuantong Express, and Shanghai Yunda express; as well as retailer Yintai Group and conglomerate Fosun International.

In a statement, the consortium said Cainiao (which means “rookie” in Mandarin) would receive financial support from two strategic partnerships. One, led by China Life Insurance, included Alibaba Group and Yintai Group; the other was led by China Citic Bank. Together, the Cainiao shareholders and the financial backers said they planned to invest a total of US$16.3 billion, over the following five to eight years, to build an open logistics network. “We will build an information-sharing platform for all logistics players in China.”

Two years later, it seems like a good time to ask how the project is coming along – not just in big cities where there have long been well-developed delivery networks, but all over the country, as Ma hoped. As we approach the final quarter of 2015, can a consumer in a small town in China order something through Alibaba’s Taobao or Tmall websites and expect to have it delivered in a reasonable time? Has Cainiao lived up to its promise?

In our next two posts we will look at how package delivery in China has changed, how it will continue to change, and at Alibaba’s plan to expand from China to the rest of the world.

Read Part II here.

Read Part III here.

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