Economy

Logistics missing the boat

By Tuo Yannan (China Daily)
Updated: 2011-02-18 10:55

A package is being prepared for shipment. Logistics sales revenue in 2010 reached 60 billion yuan ($9.1 billion), a 20 percent year-on-year increase. However, delivery capacity could not accommodate the gigantic demand from the 370 percent growth rate in e-commerce over the same period. [Photo / China Daily]

BEIJING - Logistics have become the bottleneck in China's prosperous e-commerce industry, with online giants and venture capital (VC) investors seeing investment opportunities in the slower-developing shipping industry.

Yang Ling has an online shop and lists her products on Taobao.com, China's biggest online shopping website. She sends out more than 1,000 packages in China each day through private courier Shentong Ltd, but she finds that delivery times are getting longer and longer.

"I sent a package to one of my customers in the Xinjiang Uygur autonomous region. That was 20 days ago, and it still hasn't arrived," Yang complained. "I don't dare launch a Spring Festival promotion because the delivery can't keep up with my sales."

A few years ago, she said, when her online business wasn't doing well, delivery wasn't a problem. "But now, the logistics are a bigger headache than the sales," she said.

Yang isn't the only online shop owner with that problem. E-commerce is the fastest-growing Internet activity in China, a nation with the most netizens than anywhere in the world. The number of online shoppers increased by almost 50 percent to 160 million in 2010, the China Internet Network Information Center said last month.

The Chinese online-shopping market grew by more than 370 percent year-on-year in terms of sales, reaching 520 billion yuan ($79 billion) last year, according to research company Analysys International.

But logistics development in China lags far behind the e-commerce industry, said Chen Shousong, an analyst with Analysys International.

Amid the growth in online shopping, 2.4 billion packages were delivered in 2010, an increase of 30 percent year-on-year, according to statistics from the Chinese Logistics Association.

Logistics sales revenue in 2010 reached 60 billion yuan, a 20 percent year-on-year increase. However, delivery capacity could not accommodate the gigantic demand from the 370 percent growth rate in e-commerce.

Through online purchases at Taobao.com, a subsidiary of China's e-commerce giant Alibaba Group Holding Ltd, more than 3 million packages must be delivered every day. "E-commerce in China is growing too fast and exceeds the current logistics capacity," said Zeng Ming, chief strategy officer at Alibaba Group, in an earlier report of China Daily.

"Logistics is an important part of e-commerce so many e-commerce giants, including, Joyo Amazon, the Chinese subsidiary of US-based online retailer Amazon.com Inc, have started to build their own logistics network to contend with the increasing orders," said Chen from Analysys International.

The gap between e-commerce and logistics provides opportunities to e-commerce giants and VC investors.

Last month, Alibaba announced that it plans to cooperate with its financing partners to build a network of warehouses nationwide to improve logistics for its online trading business. The company is going to invest 20 to 30 billion yuan in the logistics project.

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"Hopefully, within 10 years, anyone placing an order online from anywhere in China will receive their goods within eight hours, allowing for the virtual urbanization of every village in the nation," said Jack Ma, chairman and chief executive officer of Alibaba Group.

Chinese VC investment company Legend Capital Ltd recently confirmed that it will invest in China's third-largest courier company Yunda Ltd.

"Stimulated by the rapid growth of e-commerce, now is a good time to invest in logistics in China," said Chen.