There’s no such thing as a free lunch

China’s express companies finally abandon “free” home delivery for online shoppers.

It is no secret that the explosive growth of online shopping in China has driven equally explosive growth in the package delivery business. According to data from the State Post Bureau, China’s express companies delivered 9.2 billion pieces of goods in 2013, up 61.5% from 2012. But this has been anything but a blessing for the companies involved. Convenience aside, one of the features keeping Chinese consumers in front of their computers rather than in stores has been ultra-low cost of delivery of whatever they buy online. While delivery companies weren’t donating their services, online shopping companies like Taobao and its competitors demanded to-the-door service, and forced prices down to the point that the express companies were losing money.

This was obviously an untenable arrangement, but it seemed that no one wanted to be the first to blink. Consumers were not willing to pay more for delivery, the online shopping firms were not prepared to absorb the cost, and the delivery companies were afraid of losing business. But, according to a report in the South China Morning Post, common sense has prevailed. Taobao, the consumer-to-consumer online trading arm of China’s e-commerce giant Alibaba has entered a deal with Chinese package delivery firms SF Express, ZTO Express and 4PX Express, as well as with Hong Kong Post and the 7-Eleven convenience store chain, to set up over 200 pick-up points in Hong Kong where customers can pick up their online purchases. Similar arrangements are also underway on the mainland.

This will allow shoppers to continue to pay very low shipping costs, with the caveat that they will have to deal with the last mile themselves. It will also allow the express companies to cut their delivery costs dramatically, while continuing to offer to-the-door service for those customers willing to pay a surcharge for the convenience.

The arrangement appears to be the first big move resulting from the launch last year of the China Smart Logistic Network, also known as Cainiao Network. This is an initiative led by Alibaba, and involving 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. The consortium intends to invest US$16.3 billionover the next 5 to 8 years to build an advanced package delivery network. Our report on the founding of the China Smart Logistics Network is available here .

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