Part I: The Amazing Express Race – China to US

Just how do express companies without own-operated long-haul freighter operations execute point-to-point international deliveries?

Shanghai After last week’s Cargo Facts Asia symposium, the Cargo Facts team spent a day exploring the city. Along with the other conference attendees, we had heard about the astounding growth China’s express sector has experienced since 2016. But we wondered, with the increasing innovation in the express sector globally alongside growth in cross-border e-commerce, how fast and convenient is it, really, for an individual shipper to send a package from China to the United States? And, just as importantly, how do express companies without own-operated long-haul freighter operations actually execute point-to-point international deliveries?

We decided to find out.

To test out China’s express shipping experience, the Cargo Facts team assembled three identical packages weighing in at under 250 grams each and including typical tourist souvenirs a keychain, chopsticks, and a magnet. We were advised by Shanghai locals, including one express company employee, that the best way to ship internationally from China is still via UPS or DHL Express, thanks to the global networks of those integrators. Undoubtedly, FedEx, UPS, or DHL Express were all capable of handling the shipment. However, to illuminate how China’s express companies would rise to this challenge, we selected China Post, Shentong Express (STO Express), and SF Express as the participants in our express race from Shanghai to the Cargo Facts office in Seattle.

But first, a bit of background on the industry…

Last year, China’s total express delivery volume exceeded forty billion pieces for the first time, an increase of 28% y-o-y compared with 2016 volumes, to a staggering twenty-nine express parcels per capita. Although robust growth is expected to persist, the growth figure represents slight moderation after compound annual growth for the industry averaged 42% for the past decade.

Tempered demand growth, however, won’t necessarily slow the expansion of domestic freighter fleets operated by, or on behalf of China’s express companies. During a panel discussion about Asian Express Networks at Cargo Facts Asia 2018, David Su, Chairman, YTO Cargo Airlines Co., wowed the audience with statistics that YTO Express handled five billion parcels last year, despite operating just seven freighters. With ten firm orders and ten options for 737-800BCFs with Boeing, and a separate order for an undisclosed number of 757-200PCFs from Precision Aircraft Solutions, more narrowbody freighters are on the way.

The Cargo Facts staff found a selection of tourist-aimed merchandise to ship back to Seattle during our exploration of Shanghai.

Although in the near-term China’s domestic freighter networks are expected to continue expanding, pressure from China’s advanced high-speed rail network, improved trucking options, and drones may reduce the scale of the domestic air express network required to meet domestic demand. Su estimated that within six to ten years, competition from rail will become a formidable competitor to air freight for domestic shipments. “It is better to focus on cross-border business. Air will be competitive in the long-term for long-haul transportation,” he said.  

Luckily for express couriers with international ambitions, growing international express volumes into and out of China (including Hong Kong, Macau and Taiwan) continue to outpace domestic growth with an increase of 33.8% y-o-y in 2017 to 830 million pieces, according to the State Post Bureau’s “China Express Development Index Report for March 2018.”

And now, the contenders:

China Post 

Parcel hand-off:

Our first stop was an office operated by state-owned China Post Group, where we spent twenty-five minutes, making this the longest express shipping process of our day. China Post required a passport and a cash payment to ship to the US, and we were given a delivery window of two to three weeks by air.

China Post office in Shanghai.

The process in the China Post office was a bit daunting. The employee there had to look up the rate calculation in a notebook of handwritten notes, and all of the shipping information required manual entry into the computer. A seven-page waybill accompanied the shipment, with each page requiring four stamps, and three additional stamps required for the package itself. The shipping cost was 176 RMB (about US$28).

Expected Journey:
Just how might this package make it to the US? Not on China Postal Airlines metal. With 31 active freighters operating predominantly within a domestic rotation, China Postal Airlines does not currently operate long-haul freighter service between the US and China. Our best guess is that the parcel will move to the US in the belly of a combination carrier, before being injected into the United States Postal Service (USPS) network.

Here is a look at China Postal’s current freighter network. For more information, visit www.ECommerceAir.com.

Source: Alan Hedge, Senior Director, Cargo Facts Consulting, ch-aviation

STO Express

Parcel hand-off:

Next up was STO Express. While STO and other Chinese couriers offer local contractors the option to operate franchise locations within their networks, the Cargo Facts package was shipped from an STO-owned location, rather than a franchise. The STO experience was more tech-forward than China Postal, as the employee confirmed the shipping rate electronically using their computer system, but it was not automated and required manual searching through the computer system. The STO employee printed out a single waybill that was attached to the package, and informed us the shipment would reach its Seattle destination in about one week. We spent ten minutes there, and the shipment cost 150 RMB the lowest price and shortest wait among the three companies.

Expected Journey:

Unlike its peers, YTO Express and SF Express, Shanghai-based Shentong Express (STO) has not yet invested in a domestic freighter fleet of its own. Instead, STO has trialed using Hong Kong as an international consolidation hub for cross-border shipments. In recent years STO has chartered 747F flights from Azerbaijan-based Silk Way West Airlines’ Italian subsidiary, SW Italia for shipments between Europe and Asia.  

Less is known about the air partners STO uses to move shipments between Hong Kong and the US. STO Express did open its first warehouse in the United States back in 2015 in New York, and has since opened a second warehouse in California.

SF Express

Parcel hand-off:

SF Express courier met us at a Shanghai hotel.

The SF Express experience was the outlier in our race, because rather than finding an SF depot the Cargo Facts team used the SF Express App to bring a courier to our location for shipment pickup. We visited a Shanghai hotel to give the courier a destination, and were told by hotel staff that they could help us arrange domestic shipments directly, but could not help with our international shipment. The courier arrived at our location within only about three minutes of our own arrival.

The SF courier warned that our package (which included a wood product in the form of souvenir chopsticks) may not be allowed through US customs without a certificate for the wood type, but we elected to go ahead with the shipment regardless, and were told to expect a delivery time of about one week. Shipment to the US required a passport and a separate form than required for domestic shipments.The courier scanned the shipping form into the app and uploaded a photo of our goods to facilitate the customs process, and departed on his scooter about 13 minutes after his arrival at the hotel. At 220 RMB, this was our most expensive shipment.

Expected Journey:

Shenzhen-based SF Express operates the largest freighter fleet of any Chinese express company, with 41 freighters in its own-operated network. As can be seen from the network map below, none of these freighter flights connect China and the US. That could change, however, when the company introduces two 747-400ERFs it purchased in an auction last year on Taobao.

Source: Alan Hedge, Senior Director, Cargo Facts Consulting, ch-aviation

In October of last year, SF Express and UPS received regulatory approval for a joint-venture that would “leverage the assets of both companies to enhance, and provide a wider range of international delivery services.” Initially, the jv was said to focus on providing e-commerce merchants in China better access to the US market by focusing on deliveries moving from China to the United States. With the joint venture now operational, we would not be surprised if UPS played a role in handling the SF Express delivery.

Which package will be the first to arrive? Let us know what you think on Twitter or LinkedIn, and look for the next update in our Amazing Express Race series soon!

 

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