Alibaba adds China Shipping to its e-commerce mix

China Shipping has entered into a cooperation agreement with Alibaba to establish a global e-commerce integrated logistics and information service platform. The deal between two of China Shipping’s subsidiaries, China Shipping Container Lines (CSCL) and China Shipping Network Technology (CSNT), and the e-commerce giant Alibaba outlines an online platform that could be used by any of the three parties for freight enquiries, order placement, payment and tracking. It also stipulates that CSCL, “Shall be responsible for ensuring the provision of freight space of quality routes guaranteeing worldwide coverage and investing in offline customer services corresponding with the online demand, and operational resources.”

While this is expressly only a framework agreement and none of the details of the transaction have yet been arranged, it is understood that China Shipping will provide international logistics services for Alibaba, including the necessary technology from CSNT.

The implications of such a deal for China Shipping are considerable and their positive nature is perhaps best illustrated by the soaring stock price of China Shipping following the announcement. The agreement represents a taste of salvation for a shipping company suffering from overcapacity, low rates and low volumes. Whether it will be China Shipping’s deliverance is less clear at this early stage.

Details of how China Shipping’s services will be integrated into Alibaba’s already fragmented last mile Cainiao solution, already comprising 14 separate companies, were not disclosed. It is likely that technology from CSNT would be used to integrate Alibaba’s global logistics operation into a more efficient solution, one that could compete with the incumbent powers of last mile delivery in China.

Bearing in mind the competitive nature of the market, and how Alibaba’s solution is struggling against the likes of China Post EMS, SF Express and STO Express, it is somewhat surprising that Alibaba hasn’t sought out a LSP well versed in supplying international end-to-end e-commerce solutions.

The particular eccentricities of the Chinese market go some way to explaining this decision. The well documented failure of DHL and TNT to compete in China may well have deterred Alibaba from working with a Western provider, a problem only compounded by the licensing restrictions currently inhibiting UPS and FedEx.

However, foreign influences looked likely to prevail in May when Alibaba signed a memorandum of understanding with Singapore Post to set up an international e-commerce solution; indeed this operation has taken hold in South East Asia. But, when it comes to China it seems only a Chinese company will do. This is perfectly rational given the circumstances, though Alibaba might be better served by a greater degree of continuity in its e-commerce solution.

Even so, the sheer weight of Alibaba’s market share is likely to ensure its dominance in China continues for the time being. However, this relative weakness may prove more problematic in the future and especially as Alibaba attempts to move into international markets.