Chua Sock Koong Ignites the "First Spark"

Author | Zhang Chao Editor | Zhang Xiaoling

Just 8 days after announcing that he would take over as Chairman of Alibaba Group, Cai Chongxin fired the first shot of his business sprint.

On June 28th, at the headquarters of Cainiao in Hangzhou, the conference hall of the 2023 Global Smart Logistics Summit was packed, with many people even squeezed into the aisles just to see one person - Cai Chongxin.

However, Cai Chongxin was unable to attend the event due to a business trip that day. He only appeared in a video as the Chairman of Cainiao Group, announcing the new direction for Cainiao's development.

Cainiao has finally decided to launch its own express delivery business, Cainiao Express, stepping out of its position as a logistics infrastructure digital technology platform. This is also the domestic logistics business that Cainiao is focusing on building this year.

Interestingly, Cainiao Express has avoided the economic express delivery market mainly covered by the Tongda system, and instead focuses on the mid-to-high-end service market. This inevitably puts it in competition with SF Holding and JD.com for a piece of the "cake".

Led by Cai Chongxin and CEO Wan Lin, Cainiao is no longer content with staying in a corner. It wants to "strengthen" itself and fly higher and farther. Whether Cainiao can further advance in its self-operated business and compete with SF Holding and JD.com will not only affect its performance in the stock market, but may also change the landscape of China's logistics and express delivery industry.

A new round of battles is brewing in the express delivery market.

Self-operated Express Delivery

This year marks the tenth anniversary of Cainiao, and the consumer environment and competitive landscape it faces have undergone earth-shaking changes.

Cainiao was born at the rise of e-commerce, and its initial goal was to connect the backbone and capillaries of domestic logistics, build a well-connected logistics network, and focus more on Taobao's e-commerce business.

This is a "light" development model that is different from JD.com and SF Holding, which quickly allowed Cainiao to establish a foothold. In order to solve the problem of the "last mile," Cainiao also built infrastructure such as Cainiao Post Stations and express cabinets.

However, over the past decade, China's e-commerce and logistics express delivery industry have developed rapidly, and the environment that Cainiao has experienced has also evolved: the number of players has increased significantly, the scope of business has continued to expand, and logistics facilities have gradually improved. The market has shifted from being dominated by merchants and platforms to being consumer-centric. This requires Cainiao to adapt to the new trend and come up with new strategies, and self-operated express delivery has become inevitable.

In the domestic market, the self-operated business product that Cainiao is focusing on building this year is Cainiao Express.

According to Wan Lin, Cainiao Express is a product that meets market demand. "More and more merchants hope that Cainiao can open up its self-operated logistics capabilities. With Cainiao's nationwide trunk transportation and transfer network, we will comprehensively upgrade the last-mile delivery network to a nationwide express delivery network that covers cross-regional distribution and collection and delivery integration. Cainiao Express is officially launched."

According to All-Weather Technology, this business has been polished for six years and has evolved from serving Tmall Supermarket's delivery business. The initial business was established to solve the delivery problem of Alibaba's self-operated orders. With the rapid development of e-commerce and the improvement of Cainiao's logistics network, Cainiao Express has now become an independent and mature business. According to reports, Longbridge Dolphin Express is led by Sun Jian, the logistics commander of Double 11, as the general manager. It focuses on the high-quality logistics and express service market, advocating the slogan of "Longbridge self-operated, quality express, affordable and easy to use". It promises to provide five services in nearly 300 cities nationwide, including compensation for late delivery and damage, as well as compensation for non-doorstep delivery, interception and destination change during transit.

Longbridge provides services that combine speed and quality, clearly indicating its intention to open up its last-mile delivery capabilities (i.e., delivery capacity after the express package arrives at the destination city) to more merchants.

Launching self-operation and gradually expanding its services is a path that Longbridge must take.

In today's era of rational consumption, in order to win back consumers, Longbridge must return to its commitment to delivery timeliness, service quality, and other soft power attributes. This is something that cannot be achieved by relying on the express delivery companies within the Cainiao network; it requires direct involvement.

Furthermore, in the past, Longbridge was heavily dependent on Alibaba's e-commerce business. However, under the demand for spin-off listing, Longbridge must break free from Alibaba's circle and expand its imagination in the entire logistics market and supply chain.

Will a battle begin?

Although Longbridge Express currently serves B2B merchants, its positioning as a high-end quality provider and its self-operated business model have led many to associate it with SF Holding and JD.com in terms of service quality. They believe that the leading players in the express delivery market will ignite a new round of competition.

Data from the State Post Bureau shows that the concentration index (CR8) of the express delivery and parcel service brands in 2022 is 84.5%, an increase from 80.5% in 2021.

Among them, ZTO Express, Yunda Express, and YTO Express are the three largest express delivery companies in terms of shipment volume, with a combined market share of over 50%. Shentong Express and SF Holding closely follow. However, in terms of profitability, SF Holding, which has a smaller shipment volume, clearly surpasses other express delivery and logistics companies and ranks first.

Looking at the entire express delivery industry, SF Holding has established its own unique position and has been irreplaceable in the high-end market and time-sensitive delivery for a long time. With its recent partnership with Jitu Alliance, SF Holding has also made significant progress in the low-cost e-commerce delivery segment, further expanding its business scope.

It is worth noting that after JD Logistics went public, it no longer operates in a closed-loop manner and has started to open up its logistics and delivery capabilities to more third parties. Especially after completing the acquisition of Deppon Logistics in 2022, JD Logistics has not only enhanced its less-than-truckload logistics capabilities but also expanded its external customer base. According to financial reports, JD Logistics achieved a revenue of 137.4 billion yuan last year, with nearly 70% contributed by external customers.

Before Longbridge Express revealed its ambition to seize a share of the high-end express delivery market "cake", SF Holding only had JD Logistics as its competitor. Now, the emergence of Longbridge Express has brought new changes to the market.

The entire express delivery industry is bidding farewell to the era of warlords and forming a situation where JD Logistics + Deppon Logistics, SF Holding + Jitu Alliance, and Longbridge Express + Cainiao network are in confrontation.

All parties are also preparing for this potential battle and accumulating "ammunition" frantically. Jitu Alliance has returned from overseas markets to China, not only partnering with SF Holding but also submitting an IPO application to prepare for public fundraising. On the other hand, in May of this year, SF Holding was also reported to have plans for a secondary listing in Hong Kong, with a planned fundraising of 2-3 billion US dollars.

According to the information previously disclosed by Alibaba Group, the board of directors has approved the launch of the IPO plan for Cainiao Group, and has provided a timetable to complete it within 12-18 months. "Strengthening" itself and developing direct sales business is a way for Cainiao to turn defense into offense in the domestic market, and it also creates new imaginative space for investors.

However, under the current downward pressure on corporate costs, there is very limited room for competition in terms of express delivery prices. The competition has shifted to the end-service experience, product variety, and other aspects. In the long run, the competition will expand from the domestic market to the international market. This poses higher requirements for the company's basic network construction capabilities, warehouse and distribution system efficiency, and capital flow capabilities.

In this new battle, Cainiao has no way to retreat.

With Daniel Zhang's return to Alibaba, taking over the highest authority, guiding Cainiao to accelerate its transformation, whether it can further excel in self-operated business and make a breakthrough in the fiercely competitive logistics field, still remains to be tested by time.