Chinese express delivery industry set to focus more on profitability

Wang Wei founded SF Express in Shunde, South China's Guangdong Province in 1993. The company now has 37 cargo planes. (Photo from the official website of SF Express)

Boosted by the leapfrog development of China's digital economy, the express delivery industry has witnessed explosive growth in recent years. But analysts said that the industry is set to embrace a new era of slower growth but focusing more on profitability.

Industry insiders said that the recent listing of Chinese delivery giant SF Express could be a tipping point.

As Wang Wei, chairman and founder of SF Express, rang the bell at the Shenzhen Stock Exchange with his staff on Friday, the company officially went public through a reverse merger, also known as a backdoor listing.

The company's capitalization was $33.7 billion based on the closing price of its first trading day. The 46-year-old founder, who holds about 65 percent of the shares, saw his personal net worth swell to nearly $20 billion. The listing also made Wang the wealthiest person in China's delivery industry.

China's courier services have grown rapidly along with the booming e-commerce sector. The nation's delivery industry has maintained explosive growth of more than 50 percent for six consecutive years.

The number of packages delivered increased 51.7 percent year-on-year in 2016 to 31.35 billion. Industry revenue hit nearly $58.3 billion, up 44.6 percent. More than 2 million people in China work for the industry.

The State Post Bureau of China, in an industry development plan released earlier this month, forecast that by 2020, the country is expected to handle 70 billion express parcels, and industry revenue will reach $116.5 billion.

Analysts said that as the traditional business models now encounter more challenges such as rising labor costs, resources and environment constraints, the industry is at a turning point.

They added that some companies that only serve the e-commerce sector face the dilemma of rising orders but falling revenues. Many companies offer homogeneous service, and they are experiencing lower profits and more complaints from consumers.

As industry giants including SF Express get listed, the sector will take a new shape, and it will focus more on profitability rather than size, the insiders said.

Some companies are seeking new advantages through technological innovation.

"It is still changing very fast," John Song, who leads Deloitte China's logistics and transportation practice, was quoted as saying in the Financial Times on January 31.

"At least some of them call themselves tech companies, which means they invest big amounts of money in IT systems, big data, automation and also in last-mile delivery, using, say, drone deliveries and driverless vehicles," Song told the newspaper.