China’s giant express market continues to restructure, with the latest development being Alibaba increasing its stake in YTO Express and possibly taking control of the company.
A number of reports have suggested that the internet retailing giant has been discussing taking a near-controlling stake in YTO with the express company’s founders, Yu Huijiao and Zhang Xiaojuan. A report in the South China Morning Post yesterday (September 2) said YTO Express had issued a statement confirming that Alibaba had increased its equity holding from “10.5% to 22.5%”. Earlier reports suggested that Alibaba could take as much as 30.0% of the equity of the company, however, the arrangement announced yesterday leaves Yu Huijiao and Zhang Xiaojuan as the leading shareholders with an estimated 40.0% holding. However, a private equity company associated with Jack Ma, Alibaba’s founder, holds a further 3.9%.
The transaction was valued at 6.6bn yuan ($966m), suggesting the worth of YTO Express as being in the region of $9.6bn.
The move is being seen as a response to the expansion of rival internet retailer JD.com which last month invested approximately $500m in another express company, Kuayue-Express Group but Alibaba, in particular, has been wrestling with the demands of logistics for years. As internet retailing’s growth has accelerated over the past six months the problem has become more pressing. Alibaba operations are heavily dependent on both national and regional providers such as YTO Express which are co-ordinated by Alibaba’s own logistics purchasing and planning organisation, Cainiao. It needs its suppliers to develop and improve their operations as their performance is the basis for Alibaba’s customer service.
Previously the giant e-retailer toyed with the idea of investing in its own physical logistics capabilities. Indeed, Alibaba made its first investment in YTO in 2015 combined with a plan to ‘build-out’ a network of depots and fulfilment facilities. But several years ago, it seemed to back off from this, possibly deterred by the size of the capital investment needed. This returned it to a reliance on China’s often fragmented express sector. Both Alibaba and, to a lesser extent, JD.com need to foster improvements in the sector, not just in terms of the efficiency of last-mile but also connecting the logistics operations in China to global supply chains through more efficient freight forwarding capabilities.
The logical extrapolation of this activity is heavy investment in logistics capabilities across China but also possibly acquisitions outside of China.
Source: Transport Intelligence, September 3, 2020
Author: Thomas Cullen
GLOBAL SUPPLY CHAIN INTELLIGENCE (GSCi)