Tomorrow, the world: Part II

Yesterday, we began 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 – particularly the development of a neutral “open logistics platform” – has changed the package-delivery industry in China, and will soon spread that change worldwide. You can read Part I here, and today we continue with Part II. (And you can click here to read Part III.)

Alibaba vs AmazonAs the chart at right shows, the demand for package delivery in China is huge. But despite the fast growth of express delivery companies like SF Express and YTO Express, China still has no equivalent of UPS or FedEx in the US – no single company that can deliver quickly to every address in the country. And Alibaba and its online platforms Taobao, Tmall, and have stayed true to their goal of not becoming involved in delivery themselves, leaving the logistics side of the e-commerce business to Cainiao.

So, what has Cainiao done to deal with the huge demand for package delivery generated by the e-commerce boom?

It started with logistics centers in the big three commercial regions – Beijing/Tianjin, the Yangtze River Delta, and the Pearl River Delta – but, two years into its existence, Cainiao has now expanded to twelve key cities, and has opened service centers in 1,200 villages and rural counties. This is an impressive start, but China has over 600,000 villages, so there is still a long way to go to realize Jack Ma’s dream of “the virtual urbanization of every village across China.”

But don’t let the idea that there is still a long way to go fool you into thinking the Cainiao-managed network is still small. In the twelve months from mid-2013 to mid-2014, Cainiao said it handled over 6.1 billion packages – an average of just under 17 million per day. But by mid-2015 the company said this volume had almost doubled to over 30 million packages per day. By comparison, UPS (the biggest independent package delivery company in the world) said its average daily volume in the second quarter of 2015 was 14.3 million domestic packages and 2.6 million international packages, a total of just under 17 million.

Of course, a relatively small percentage of the package deliveries generated on the Alibaba websites and carried out by the partners in the Cainiao network move by air. The vast majority move on the ground, carried either by one of the big Chinese express companies, like SF or YTO (in which Alibaba bought a minority stake in May of this year), or by any of the many small, local outfits that can tap into the network to provide regional or last-mile delivery to destinations the big companies don’t serve. (For a look at how those local delivery companies fit in to the Cainiao network, see our recent post “Delivering the Dragon.”)

But when you are looking at 30 million packages per day, “a small percentage” is a large number, and China’s domestic air express capacity is being stretched to the limit. Existing operators like China Postal Airlines and SF are adding aircraft as fast as they can, and formerly ground-only companies like YTO are launching airlines. SF Airlines, for example, now has ten 737 freighters and twelve 757-200Fs, but has many more of both types on order, as well as five 767-300 passenger-to-freighter conversions from Boeing, and a rumored order for twenty-five production 767-300Fs.

But all of this – the incredible (and continuing) package volume growth, the over-stretched air capacity, the expansion to thousands of villages – pales in comparison to what lies ahead. Jack Ma recently stepped down as CEO of Alibaba (although he remains Chairman), and his place is now held by Daniel Zhang. In his first public speech after taking on the job this year, Mr. Zhang did not dwell on the past but cut straight to the chase: “We must absolutely globalize. We will organize a global team and adopt global thinking to manage the business, and achieve the goal of ‘global buy and global sell.’”

Yes, wherever you live, Alibaba wants you as a customer.

Tomorrow, in Part III, we will look at Alibaba’s plan to take its Chinese success story worldwide.

You can read Part I here.

You can read Part III here.

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