According to Reuters, FedEx and UPS have received additional licenses to operate within China’s huge domestic express package market. In May, FedEx received 21 for a total of 58 licenses while UPS received 14 for a total of 33 licenses. Each license allows the providers, and their joint-venture partners, to operate B2C domestic express package service within a single city and between cities for which a license is also held.
This is a long awaited move from the Chinese government. While eagerly anticipated, it will also be quite a challenge for the international express providers. Reuters notes Deutsche Post AG’s DHL courier service pulled out of its money-losing China domestic delivery business in 2011 citing a lack of cost advantage. Indeed, the domestic market has been characterized as one in which fierce rate competition reigns. But, as e-commerce continues to grow and expand throughout China, consumer expectations are growing beyond just rates and now include such options as alternative delivery locations, track and trace capabilities and value-added solutions such as returns management and white-glove services.
Indeed, as noted in the Reuters article, UPS President of Global Public Affairs Laura Lane stated, “With greater competition there’s always the beneficial effect of raising the professionalism and quality of services that consumers come to expect.” Although the two integrators may not be able to compete on rates, what the two can compete on is – professionalism and quality of service – along with the possibility of customizing successful products that are already available within Europe and North America and introducing them to the Chinese domestic market.
Will the additional licenses benefit FedEx and UPS in regards to each one’s relationship with Alibaba? This is possible particularly as Alibaba gets set to launch its IPO in the US this year. Alibaba already partners with several Chinese domestic express providers such as SF Express and YTO Express and is now eyeing Tier 2 and Tier 3 cities, what the company describes as part of the “underdeveloped retail sector” and as such has also teamed up with the China Post to meet the needs of these cities.
The additional licenses can be considered a success for both FedEx and UPS to add to their other capabilities within China. The licenses can also be considered a stepping stone to other countries within Asia and elsewhere particularly as cross-border movement increases.
GLOBAL SUPPLY CHAIN INTELLIGENCE (GSCi)