JD.com’s logistics business, JD Logistics, saw considerable expansion in the last year according to its recently reported results. Net service revenues for its ‘Logistics and Other Services’ division rose by 142% to RMB 12.4bn in 2018 ($1.8bn) and in the first quarter 2019 to RMB 4.3bn ($630m), a year on year rise of 91%.
It wasn’t just revenues which saw strong growth. Sidney Huang, JD’s Chief Financial Officer commented: ‘JD Logistics’ third-party business achieved a significant gross margin improvement through better scale and capacity utilization that we promised a year ago, which explains the remainder of the group level gross margin expansion and restored our normal margin trend.’
Huang explained that it had built out its external logistics business for the Chinese Singles Day (‘Double 11’) promotion last year which had resulted in high infrastructure costs. That, combined with promotional rates for new customers, proved to be a drag on margins. This has now unwound which has positively affected the operation’s financial position. ‘We are in a very good shape in terms of capacity utilisation and we are back to a more normalised rates that are paid by our happy customers,’ he commented.
JD Logistics now has fulfilment centres in seven cities; what it calls ‘Front Distribution Centres’ in 28 cities and 550+ warehouses all of which has a total capacity of 12m sq m. It claims to cover almost all counties and districts in China.
In February 2018, JD.com said that it had raised $2.5bn to invest in its JD Logistics subsidiary, leaving it with just over 80% of the equity. Investors included Hillhouse Capital and Tencent.
Source: Transport Intelligence, May 14, 2019
Author: John Manners-Bell
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