There’s a reason e-commerce sites like eBay and Amazon arose when they did. The internet had to first be invented, of course, and become a part of everyday life. But there’s another thing they needed: an efficient, reliable, nationwide system for delivering the stuff people ordered, in as little as a day if requested. And in the US, that existed in the form of FedEx, UPS and the U.S. Postal Service.
One of the challenges for Chinese e-commerce companies–Alibaba, being the largest–is that this isn’t yet the case in China. While there has been some consolidation lately, the Chinese shipping industry is still fragmented into lots of small companies that ferociously compete to undercut each other on price, and timeliness and package care often suffer.
Big international carriers like UPS and FedEx are niche players, hampered by government policies that limit their range. “It’s very, very competitive, very rate-driven, and on-time delivery until not that long ago was a problem for many of the shippers,” says Cathy Roberson, an analyst at Transport Intelligence. “You’ve got lots of mom-and-pop companies.”
Logistics challenges in China aren’t confined to the shipping companies. The infrastructure that the companies rely on to transport their goods is still uneven–the highway system isn’t nearly as extensive as in the U.S., and peters out in the country’s rural reaches, the rail system is still focused more on passengers than freight. Many rural residents don’t have formal addresses. And the country is woefully short on warehouse space. Those that it does have lack the sort of modern pick-and-pack systems and computer tracking that have been key to Amazon’s success (and, for that matter, Walmart’s). According to a recent Reuters article, there are more modern warehouses in Boston than in all of China.
China’s e-commerce companies are fully aware of the problem. JD.com, the country’s second-largest online retailer after Alibaba, created its own delivery service. Alibaba hasn’t done that, but a year ago launched the China Smart Logistics Network–Alibaba founder Jack Ma is its chairman–an initiative that aims over the next decade to upgrade the country’s shipping capabilities, partly by providing shipping services, and also by supplying warehouses and the sort of software and data analytics that can make the process much more efficient. Major international warehouse companies like GLP and Prologis are going hard into China.
Logistics analyst Roberson believes efforts like these are already paying off. “They’re getting there,” she says. “It’s improved greatly in the past six months.”
