ZTO Express Focuses on Volume Growth Not Market Share


In its third quarter results, Chinese last mile delivery giant ZTO Express’s leadership has revealed that it is no longer looking for increased market share but will continue to focus on volume growth. CFO Huiping Yan said, “We can no longer justify the 1.5 points annual market share gain given the senseless low-price trade-off that is eroding industry earnings.”

Earnings before depreciation and amortisation grew 14.7% y-o-y to US $472,790 in the quarter, on revenue that grew 1.5% to $1,244m. The industry is still seeing double digit volume growth. Meisong Lai, Founder and CEO of ZTO Express said, “China’s express delivery industry showed relative resilience and grew 16.7% in volumes for the quarter.”

The company exceeded market volume average growth in Q3, seeing an 18.1% y-o-y increase in volumes to 7.5bn pieces. Q-o-q however, this was still a 2.0% decrease and revenues from the Express Delivery division were down 7.9% q-o-q, suggesting pricing pressures.

Competition is fierce in the Chinese parcels market, but profitability remains the focus of the organisation. Lai continued, “Facing intensifying price competition, ZTO remained focused on improving quality of service and adhered to our commitment to profitable growth.”

As the CFO indicated, profitability is still a core focus of the company, achieving an EBITDA margin of 38%, though again this was down 1.86 basis points on Q2, 2023. Maintaining such margins may well be to the exclusion of all opportunities to add to volumes, as lower margin deliveries are left to rivals.

There were cost increases in the delivery system, but marginal gains in efficiencies were gained at key links in the network. Unit costs for sortation fell by 3 US cents per unit (10.4%) and transportation costs decreased by 6 cents per unit (11.4%). At the sorting facilities, $8.6m labour cost increases combined with $11m depreciation and amortisation costs for automation equipment still resulted in an overall fall in sorting costs. Line-haul costs savings were made in economies of scale, and added to the efficiency gains in the sorting facilities.

The Founder and CEO concluded, “Our work at hand is geared towards long-term competitive strength including differentiated product and services, best-in-class operational efficiencies, largest share of contribution to industry earnings, the most stable and profitable partner network, and above all, the highest brand recognition and customer satisfaction. Achievement of these goals will drive further bifurcation in the industry dynamics where ZTO would shine at the top.”

Author: Richard Shrubb

Source: Ti Insights

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