Alibaba continues major investments in logistics


There has been another turn in the complex attempt by Chinese internet retailing giant Alibaba’s attempts to construct a pan-Chinese logistics capability.

It has agreed to invest the equivalent of US$1.38bn in ZTO Express, one of China’s largest logistics companies. In exchange, Alibaba will receive 10% of the equity of ZTO Express.

The purpose of the move appears to be to complement the capacity of Cainiao, Alibaba’s now wholly owned last-mile delivery subsidiary. ZTO Express said that the aim of the move was to “deepen their collaboration in the transformation of China’s logistics industry amid the growth of New Retail, a concept developed by Alibaba that promotes seamless integration between online and offline commerce.”

In discussing their plans for collaboration, ZTO emphasised the focus on “first and last-mile pickup and delivery capabilities, warehouse management, cross-border logistics and technology-driven smart solutions.”

The investment in ZTO Express follows a similar move in April to invest in ‘Ele.me’, a last-mile food delivery service.

A large part of the logic behind both expansions is to build on Alibaba’s ‘new retail concept’, which is a combination of both physical shops and internet retail presence.

However, the ambition for an all China presence alongside a product offering from fresh food to consumer durables demands a vast logistics capacity. In addition, Alibaba needs to integrate an inbound freight forwarding operation in order to manage the flow of non-Chinese consumer goods that are in such demand from Chinese consumers. The company has said that it intends to spend many billions, possibly as much as US$15bn, in the coming years on capabilities outside China.  

The e-retail sector in China is now the focus for intense competition, between Alibaba, JD.com and Tencent. Essentially what these big players are in the process of doing is restructuring the whole retail sector in China. In such a huge but fragmented market, this is difficult, with the scale of the task all the more demanding in light of the uneven quality of consumer-orientated logistics. Creating such a capability from scratch costs a fortune and it is far from certain that it will be economically feasible for any of the players in the long-run.

Source: Transport Intelligence, May 31, 2018

Author: Thomas Cullen

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