Tomorrow, the World: Part III

Today we publish Part III of our three-part look at Alibaba, the world’s biggest e-commerce company. We are examining 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 for an insight into the history of Alibaba, and Part II here, to see how Alibaba and Cainiao (which manages the open logistics network) changed things in China. Today, in Part III, we look at how Alibaba plans to become a worldwide player.

As we pointed out yesterday, Alibaba is moving forward quickly toward its goal of one-day delivery to everywhere in China. But if you, who live in some small town in Germany, or the US, or Brazil, order your next pair of shoes from the Tmall website, how will Alibaba get them to you? And how long will it take?

Alibaba’s answer: Three days. Maximum.

But how? Sure, if you pay enough to DHL, or FedEx, or UPS, they will be happy to get your shoes from pretty much anywhere to pretty much anywhere else. But, not to put too fine a point on it, who is going to pay what the big integrators would charge to get a pair of shoes delivered from the other side of the world in two or three days?

At this point, the details of Alibaba’s plan to serve the world are still mostly hidden, but there are plenty of clues available.

First, immediately following Daniel Zhang’s appointment as CEO, Alibaba announced the appointment of Michael Evans as President. Mr. Evans was a Vice Chairman of Goldman Sachs, helped develop Goldman Sachs’ China business, and served as Chairman of the investment bank’s Asia operations for nearly a decade. Commenting on the appointment, Alibaba founder and Chairman Jack Ma said: “As we connect Alibaba and the rest of the world, we are turning to a proven international leader, who has been connecting China and the rest of the world most of his career.”

Second, last year Alibaba took office space in Seattle, almost next door to the massive new 4 million square foot headquarters Amazon is in the process of building (and, coincidentally, almost next door to Cargo Facts World Headquarters). It has also announced the opening of a cloud-computing data center in Silicon Valley, to be run by Aliyun, Alibaba’s competitor to Amazon’s cloud-computing operation. Further, Alibaba already owns 11 Main, an online shopping site catering to fashion shoppers in the US, and recently bought a stake in Seattle-based children’s products website Zulily.

Third, consider the recent sale of a “ghost airport” in central Spain. Over several years in the first decade of this century, Spanish bank Caja Castilla La Mancha funded the construction of what became known as Ciudad Real Central Airport (CQM), 175 km south of Madrid. It was one of many projects undertaken during a Spanish spending frenzy and construction boom that came to an abrupt end with the financial crisis of 2008, but the airport quickly went bankrupt because no airline would fly to it. After years of sitting empty, the Ciudad Real Airport, which cost close to US$1.2 billion to build, was sold at auction for $11,000 (plus the assumption of some debt) to Tazeen International, a Chinese consortium that was the only bidder.

What does this have to do with Alibaba and its plan for world e-commerce domination? According to reports in the Chinese media, the ghost airport at Ciudad Real will be Alibaba’s beachhead in Europe. “The purchase would be the first step toward creating a hub in the Ciudad Real area, specializing in transport, storage and distribution of cargo from various parts of the world, with special attention to the Chinese market,” the consortium said. This has been confirmed to Cargo Facts by one independent source, which said the focus would be on moving goods purchased by Europeans on Chinese e-commerce websites from China to Spain, where they would be moved onward to their final destination. That is, the airport would serve as a first forward distribution center for Europe, likely functioning very similarly to the numerous regional warehouse facilities Amazon maintains near airports in the United States.

Which brings us to perhaps the most interesting question of all: If Alibaba succeeds in its vision of having consumers from all over the globe shopping at its online portals, who is going to carry these international packages? If Ciudad Real is Alibaba’s gateway to Europe, who will be operating the freighters that land there? Likewise, how will Alibaba manage its e-commerce logistics within the US? And will it achieve its goal of connecting US shoppers with Chinese suppliers and vice versa? It will be interesting to see if it adopts something similar to the Cainiao-managed open logistics platform it uses in China.

Regarding connecting China with the rest of the e-commerce world, the big three Chinese carriers all operate long-haul freighters, as do the much smaller Yangtze River Express and Uni-top Airlines. And plenty of big European, Middle Eastern, and American carriers offer main-deck and belly space to and from China. But can we also expect to see companies like SF Express and YTO buying A330 and 777 freighters? And beyond that, who will operate the air and trucking services necessary to reach the industrial and population heartlands of Europe from Ciudad Real, and of the US from whatever hub Alibaba chooses?

Read Part I here.

Read Part II here.

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