Chinese Courier Companies Face Fierce Competition Amid Intrusion Into Southeast Asia

In the past two years, Chinese shipping and logistics companies have actively been expanding into overseas markets, with the most intense competition being into Southeast Asia.

YTO Express, a leading private courier in China, recently announced plans for further expansion abroad at the recent China International Import Expo (CIIE), an annual trade fair held in Shanghai. The event was held from Nov. 5 to 10 this year.

The company plans to increase its route density in order to cover major cities in Japan, South Korea, ASEAN, and South Asia, while expanding international logistics. In late April, YTO Express launched new routes to the Philippines. Shortly before that, the company established a branch in Vietnam.

On Oct. 10, SF Express, one of the top logistics companies in China, announced that it has officially added Singapore, Malaysia, and Thailand to its delivery destinations.

In September last year, SF Express also acquired a 51.8 percent stake in Kerry Logistics, a Hong Kong-based international third-party logistics provider, for about $2.2 billion.

In May last year, Chinese shipping giant ZTO Express launched a direct all-cargo route from Kunming, a city in China’s southern Yunnan Province, to Yangon, the largest city in Myanmar. Presently, ZTO has local express services in six major countries in Southeast Asia.

Cainiao, a courier and logistics company owned by Chinese e-commerce giant Alibaba, and JD Logistics, a subsidiary of China’s largest retail group JD.com, have also established warehouses and special aviation routes in Southeast Asia.

According to Chinese statistics, since 2017, at least 11 Chinese shipping and logistics companies have established warehouses outside China and business branches in Southeast Asia, with a total investment of more than $10 billion.

Cargo containers and gantry cranes at Yantian port in Shenzhen, Guangdong Province, on July 13, 2022. (Jade Gao/AFP via Getty Images)

Dogfights in Southeast Asia

As Chinese shipping companies rush into Southeast Asia, fierce competitions ensues.

Not only do the Chinese companies face competition among themselves, but also from the local and international companies. These countries generally have locally-established express services, and international giants like DHL, UPS, and FedEx also have a strong foothold in Southeast Asia.

In addition, investment firms are active in the express delivery market in Southeast Asia. At least three Hong Kong-based investment firms—Creo Capital, Choco Up, and Sun Hung Kai & Co—have invested in logistics-related companies in the region.

Chinese e-commerce giant Alibaba is also an investor in Singaporean logistics company Ninja Van.

On the other hand, a price war broke out in Thailand’s express delivery industry when Chinese shipping companies entered its market. On July 30, the country’s state-owned Thailand Post called on the government to issue regulations to prevent “predatory pricing” and ensure operators provide quality service.

Likewise, the Indonesian logistics industry went through a brutal price war in 2020.

There are many other challenges facing express services in the Southeast Asian market.

According to TMT Post, Chinese financial news media, the logistics infrastructure in Southeast Asia is relatively backward, relies on a large number of people, and the overall efficiency is low. The cash-on-delivery method accounts for a high proportion of transactions, and the difficult terrain hinders express transportation, making the deliveries less efficient.

The article said mountains and hills dominate the terrain of Southeast Asia.

The Indochinese Peninsula, the continental portion of Southeast Asia, is interspersed with mountains and rivers that are distributed in columns, while the terrain of the Malay Archipelago between mainland Indochina and Australia, is rugged and steep, the report stated.

Terrain affects the cost of express transportation in Southeast Asia, which is much higher than that of other regions, and makes it difficult for companies to achieve rapid profitability.

A villager rides his motorcycle down a straight, narrow road surrounded by hills and dense jungle at Wang Kelian in the northern  Malaysian state of Perlis, which borders Thailand, on May 27, 2015. (Mohd Rasfan/AFP via Getty Images)

Saturated Domestic Market

There are several reasons for Chinese shipping and logistics companies to rush into outside markets, one of which is the fierce competition at home.

According to data from Tianyancha, a Chinese company information database, about 65,000 logistics-related companies in China were closed down or de-registered in 2019, 73,000 in 2020, and 128,000 in 2021. Cancellations of logistics companies in China appear to be increasing year by year.

In 2020, a price war broke out in China’s express delivery industry. The instigator was J&T Express, an express delivery company headquartered in Jakarta, Indonesia.

Although J&T Express is based in Indonesia, the company’s backers are Chinese. In early 2020, the company entered China amid the highly saturated business environment. To stand out from the hordes of local competitors, J&T employed a low-pricing strategy as the company had strong financial backing at the time and was not afraid to burn cash in the short term.

J&T significantly undercut its competition in all cities, which disrupted the express delivery market in China.

In March 2020, the company broke a record by charging rates as low as “80 cents” in Chinese yuan (about $0.11) per package for nationwide delivery from Yiwu, China’s largest small commodities market.

The move shocked and disrupted the express delivery market as there was simply no profit margin for the couriers at that price point. But it forced other express delivery companies to take on the pricing challenge so they wouldn’t lose  their market share.

Just before the Double 11 shopping festival that year, four mainstream express delivery companies jointly issued a “courier boycott” on J&T.

As Chinese couriers often work for multiple delivery services at the same time, the four major domestic companies instructed the couriers to not pick up or deliver packages associated with J&T Express.

The chain reaction brought about by the vicious competition included the backlog of express shipments, the closure of distribution outlets, frequent incidents of couriers quitting their job, and a continuous decline in the consumer experience. The price war was only called to a halt in April last year after regulators intervened.

Rapidly-Growing Southeast Asian Market

On Oct. 27, internet giant Google, Singapore-based investment firm Temasek Holdings, and U.S. consulting firm Bain & Company released a joint report on the top economies in Southeast Asia.

The report projects the total transaction volume in the six major Southeast Asian economies—Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam—will reach $200 billion in 2022, an increase of 20 percent over the previous year, of which the growing e-commerce market is the main driving force.

The report added that the internet economy of the six major economies is expected to reach $330 billion by 2025, with the e-commerce sector growing at a compound annual growth rate of 17 percent.

E-commerce and express logistics are inseparable and mutually dependent. The growth of e-commerce means the demand for express logistics will increase.

Workers from Chinese e-commerce giant JD.com prepare parcels for delivery at the company’s main logistics hub during an organized tour for Singles Day on Nov. 11, 2020, in Beijing, China. (Kevin Frayer/Getty Images)

Overseas Expansion Backed By The CCP

Most Southeast Asian countries have signed onto Beijing’s Belt and Road Initiative (BRI), an international infrastructure development project for China and the emerging economies that trade with or border China.

Through massive loans and investments in foreign state infrastructures, the Chinese Communist Party (CCP) has gained access to critical ports around the globe.

In 2018, China’s State Post Bureau put forward the “express delivery to the sea” project to guide express delivery enterprises to develop services and broaden shipping routes to key neighboring countries and regions. The CCP has actively promoted the project, encouraging domestic shipping and logistics companies to expand abroad.

In December 2021, the Chinese State Council issued a notice regarding the “14th Five-Year Plan” that called for acceleration in all areas of economic, social, and industrial development. Among them, the development of international express logistics is listed as one of the priorities.

The plan calls for expanding the overseas service layout to better serve the BRI, building an overseas postal hub, and forming a network of nodes to gain regional advantages. Meanwhile, it encourages the development of international delivery services.

The BRI is one of Beijing’s critical efforts to expand its overseas influence through geopolitics.

In addition, the current reach of China’s express delivery industry is not limited to Southeast Asia. South America and the Middle East are also among the popular markets.