Alibaba aims to deliver with $16bn courier venture
After the first hour of its annual Singles’ Day shopping event on Monday, Alibaba had 184m orders to ferry to shoppers. By the end of the day it had 1.292bn, nearly one for every person in China.
The November 11 extravaganza, which began as a way for single Chinese to console themselves through shopping, is now the world’s largest splurge, with deals that keep coming well into the night.
Afterwards, Chinese shoppers, like their counterparts in the west, want their purchases to arrive fast. Alibaba has said that within the next three years, it will have spent more than Rmb100bn ($15.7bn) to be able to deliver to anywhere in China within 24 hours. It hopes to be able to reach anywhere in the world in three days.
The latest step towards that goal came last Friday when Alibaba said it would spend $3.3bn on building its stake in its Cainiao logistics arm from 51 per cent to 63 per cent.
When it set up Cainiao six years ago, Alibaba was an asset-light company, spending only Rmb2.5bn that year. The logistics arm was a joint venture alongside a group of Chinese courier firms, a retailer, and a property company. In 2016, a group of private investors poured in a further Rmb10bn.
The original plan was to use Alibaba’s data in partnership with the networks of the courier companies. “We established Cainiao because we hope to use the power of our infrastructure, and the power of our data, to help these delivery companies, to provide better service to consumers,” said Jiang Fan, president of Tmall and Taobao.
But today, Alibaba is moving, like Amazon, to build out its own delivery platform, acquiring stakes in delivery companies, running a network of warehouses and installing 40,000 lockers across China so that customers can pick up their parcels.
In part, it has been forced to improve delivery by its rival JD.com, which has offered same day delivery in some Chinese cities for years. By contrast, shoppers have complained that items bought from Alibaba’s Tmall and Taobao platforms could be stuck in transit for days and battered by the time they arrived at your door.
“Starting in the last two years, you no longer have people protesting delivery times are too long,” said Mr Jiang. “We’ve made enormous strides.”
Fast ferrying of Chinese goods to south-east Asia, Russia, and Europe is also crucial for Alibaba’s push into the areas and Cainiao ships roughly 75 per cent of those packages. Last week, Cainiao said it will begin to operate daily China-Russia cargo flights to three cities.
“A global logistics network is very important for cross-border business so luckily we have Cainiao,” said Alvin Liu, head of Alibaba’s Tmall Global Import and Export, adding: “We’ve already built up very solid cross-border facilities”.
Within China the ecommerce giant has taken minority stakes and expanded its say at four main couriers that run the trucking and three-wheeled delivery vans on city streets.
Alibaba paid $1.38bn last year for 10 per cent of ZTO Express, a courier listed in New York, installing Wan Lin, the president of Cainiao who it recruited from Amazon, on to the board.
It also has a board seat at Shanghai-listed YTO Express, another at New York listed Best Inc, where it controls 46 per cent of the voting power, and one more to come at STO Express, after buying nearly 15 per cent in March for just shy of $700m.
Alibaba realised it needed to upgrade the delivery experience for shoppers and to do that it had to take more control over delivery, said Cui Ruomeng, an ecommerce expert at Emory’s Goizueta Business School.
“The idea is to have full control over delivery companies,” said Ms Cui. “They need to have full information from the delivery companies in order to optimise delivery.”
But logistics is a tough business. Quanfeng Express, which Jack Ma’s YF Capital put funds into, sold off its three-wheeled delivery vehicles and other assets as it sank under a mountain of debt this year.
Cainiao has racked up losses every year since it was set up. During Alibaba’s 2018 fiscal year, Cainiao’s revenue jumped to Rmb6.8bn while costs increased Rmb11.8bn during the period. Alibaba did not break out Cainiao’s cost of revenue last year.