UPS: Late Express

The express business is the last mosaic of UPS in China. Which route will it take to catch up with its competitors?

At the moment, UPS's latest theme is "we love logistics" brand advertising is being broadcast repeatedly in the prime time of TV night.

But at the same time, a report on foreign electricity at the end of September 2010 revealed that UPS will enter China's domestic express (referring to the express service between cities and between provinces and City Express Service).

"Yes, we have submitted an application to the state post office."

UPS International President Daniel J Pluto (Daniel J. Brutto) said that this is the first time that UPS executives have personally acknowledged the matter to the Chinese media.

Scott said that he will not only visit China's management team and staff, but also meet with Ma Junsheng, director of the state post office.

For a foreign company wanting to qualify for domestic express delivery, the State Post Office's opinion as a regulator is crucial.

Sounds incredible.

As early as 1988, China entered the UPS of the Chinese market. It has been operating in the international express business in China's cities all the year round. The domestic express market, which has an annual average growth rate of 25%, has been "watching".

Although there have been several rumors that UPS acquired the domestic express company in the past, there was no fruit in the end.

The international express giant has been showing "ambivalence" in the last puzzle of the domestic express market for many years.

Now, is it a good time for the late arrival to bet?

Deliberately late?

On the face of it, this is by no means a good time.

Not only is the market competitive enough, but also that the express industry is an extremely sensitive area for policy environment and macroeconomic environment.

UPS, who has a 103 year history, seems to be too slow.

After its DHL acquisition, it began to look for its own M & A objects; it began to apply for licences after FedEx direct operation and caused all parties' vigilance against foreign express.

Compared with the opponent, it has lost the initiative, and the risk of public opinion is even more serious.

"I don't think it's too late for a big market to come in at any time," UPS said.

International Freight Forwarding Association international express delivery committee secretary general Liu Jianxin said.

He believes that from a macro point of view, next year is the year when the "12th Five-Year plan" opens, and the logistics industry will play an important role in the "12th Five-Year" plan.

And the attitude of the state to foreign capital utilization has been clear for several years. As long as the investment accords with industrial policy, the state will release it.

In addition, there is no denying the fact that the potential of China's express logistics market is huge. The market needs more participants to make the cake bigger.

On the other hand, the new postal law was adopted and implemented in 2009.

The biggest "policy uncertainty" has been eliminated, although the law is not conducive to foreign-funded enterprises.

Among the four major express companies in the world, TNT's business in China is concentrated in the field of road freight and has not really set foot in the domestic express business.

DHL and FedEx use the way of joint venture and self run respectively to manage the domestic express business. The implementation effect of these two paths is also a reference for UPS.

The express industry insiders pointed out that there are two key factors to enter the domestic express industry, one is the issue of licensing for the domestic express industry, and the other is the network layout.

According to the fifth provision of the postal law, "mail delivery service within the scope prescribed by the State Council shall be exclusively operated by postal enterprises."

For foreign express delivery, the regulation is clear: the domestic express business which prohibits investment in mail operation.

(Note: in the three tier business systems of air cargo parcel express mail express mail express is considered the most profitable Pyramid spire).

In early years, DHL established Sinop DHL in cooperation with Sinop, and then managed the domestic express business through the acquisition of all express. The main purpose was to get the operation license in the name of domestic enterprises.

However, in the construction of the network, people familiar with the matter said that the layout of the all express outlets in the industry is not outstanding. DHL's more reliance is on the basis of cooperation with Sinop.

When FedEx broke up with Datian logistics, he paid the high breakup fee to get the original express network and carried out self employment.

However, its price reduction during the financial crisis has aroused great controversy.

At the end of 2008, FedEx suddenly received two tickets issued by two local sub bureaus under the state post office because it had no right to operate the mail express service.

People in the industry are tacitly aware of the meaning behind the ticket.

In contrast, UPS has no resource advantages in licensing and networking.

There are no Chinese partners. Although the network can be found in 330 cities, the number of UPS employees in China, which has more than 5000 employees, is far less than that of FedEx (about 8000 employees) and DHL (about 13000 employees).

To this end, in early 2010, UPS China added 101 distribution centers to strengthen network layout.

People familiar with the matter said that UPS is also looking for suitable M & A targets. Some famous domestic express companies such as STO and home express are among the possible targets of UPS acquisition.

Daniel J Pluto said: "we have been looking for suitable companies, but we have no definite choice at this stage."

This reporter tried to verify this opinion with STO, but as of the publication of this issue, STO chairman Chen De Jun and his assistant did not reply.

However, UPS had close communication with the national policymakers before the two things were applied to the licensing and merger.

A domestic courier company executives believe that this is a lesson learned from colleagues, is a very robust approach.

"It must be on guard against the worst case. For instance, the merger is settled. There is still no license for you. Do you still pay the money?"

Liu Jianxin believes that UPS is not really "slow in action". Compared with UPS, FedEx is like a young lad and has momentum. UPS has more factors to consider and more stability.

It looks slow, but it can't go wrong. "

A private courier in China believes that every step behind UPS is supported by global strategy.

"People's layout is filling in the global strategy. Once the layout is completed, the global market can be linked together, and we are just trying to point to the point.

Even if we lay the whole of China, facing the world is still an isolated island.

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Turn to B2C?

In Scott's mind, logistics, service and customer needs are the key words of UPS, not just express delivery.

"We enter the domestic express, also because our current customers have such a demand."

Under his leadership, UPS has been emphasizing its role as an integrated logistics service provider in recent years. It is UPS with a large fleet and several banks, with senior technicians who repair computers and assemble electronic accessories for customers.

UPS now spares no effort to integrate the express business into a part of supply chain management.

However, customers who are willing to be interested in supply chain pformation must be corporate customers rather than individual customers.

Unlike the other competitors, UPS's customer base is characterized by the fact that for a long time, UPS customers are mostly engaged in B2B trade rather than B2C or C2C business, and only these customers can use a series of high-end services such as UPS's financial supply chain.

Later, the rise of e-commerce in the United States, especially the rise of the B2C model represented by Amazon, made UPS, which has obtained more than 70% of Amazon's logistics and distribution services, started to acquire a large number of B2C customers.

However, this development path can not be duplicated in China.

In the field of e-commerce in China, because the founder of Alibaba, Ma Yun, a leading company, once ignored B2C, the C2C mode is the mainstream of e-commerce. It also makes the composition of Express customers deriving from e-commerce in the Chinese market different from those in the US market.

On the other hand, both urban express and inter provincial express are the main consumers and are still growing.

Generally speaking, the local express industry in China is "small, scattered and chaotic", but behind it corresponds to a large number of individual users with a wide distribution and diverse needs.

In China, a real courier company founded on B2B business is home express. But the arrival of the economic crisis has made the demand for the car industry and consumer electronics industry of the original main engine drop sharply. It has to turn to a personal business - the pformation of Home Express. It is not a case during the financial crisis.

This difference actually means that once UPS decides to enter the domestic express market formally, it is necessary to consider how to face more personal customers.

UPS has been thinking about the way to adapt to the Chinese market.

Earlier, Scott pointed out that the rise of China's middle class will become the potential of the development of China's express delivery market.

On the other hand, the "all-around player" in the global logistics field must be accustomed to the "selective survival" in the Chinese market.

In response to whether the business focus shifted from B2B to B2C because of entering the domestic market, Scott said: "first of all, we need to ensure that we provide better services for thousands of customers in the Chinese market. These customers are already asking us to provide them with domestic express service."

Liu Jianxin also believes that UPS can enter the Chinese market. "It's impossible to grab those five or six dollar bills with you. These low-level jobs are not done by SF."

He believes that foreign investment will still be based on differentiated operation and take the high-end service route, and the so-called high-end logistics service business is precisely what UPS is positioned to provide supply chain solutions.

However, it may still be necessary to replace UPS with a completely different mentality in the US.

In the US express market, after the high market concentration, UPS and FedEx industry giants occupy a large part of the market share, and the other thousands of enterprises divide the remaining market share.

"But those small and medium-sized companies live very well, they do not seek the layout of the whole country, but do the high value special line."

Insiders say.

In the Chinese market, EMS with postal background is undoubtedly the most complete layout of the network, covering both the central city and the remote city.

But other successful private express companies are essentially private line models, such as Shentong who started in the Yangtze River Delta, and Shun Feng started in the Pearl River Delta.

Is it acceptable for UPS to do well in the development of key areas and key routes?

On the other hand, the rapid development of e-commerce may be a good cut for UPS.

"Whether UPS or domestic enterprises, everyone is looking for the feeling."

Perhaps two or three years later, there will be a more mature logistics service mode. But Liu Jianxin believes that one thing is certain: "the Chinese market is big enough, and the five UPS can do nothing."