China's online retail giants competing in logistics industry

The opening of China's e-commerce giants JD's logistic center in the city of Guiyang, Guizhou province this month has exposed the increase in competition in the logistic business, with e-commerce giants like the Alibaba Group and Amazon scrambling to develop their own logistics, instead of using another supplier.

The Guiyang center combines storage, package sorting, processing, and distribution that will give China's second largest online retailer an edge with immediate deliveries to the city's online shoppers. JD’s founder and CEO, Richard Liu Qiangdong, explains their plan calls for building seven logistic centers and 196 warehouses to serve more than 2,000 counties, and "JD has spent eight years on its logistics development, which puts it at least five years ahead of its competitors."

A senior executive says they plan to increase warehouse construction in mid-to-large-size cities over the next 1-2 years, and that new warehouses in the city of Guangzhou, Guangdong province and Wuhan, in Hubei province have already added to the logistics chain.

Alibaba, on the other hand, has adopted a different strategy from JD's to improve customer satisfaction by developing a logistics system that gathers together third-party logistics providers instead of building warehouses nationwide. For example, Cainiao logistics, with HQ in the mega-city of Shenzhen, which started in 2013 and gained a lot of attention after Jack Ma, Alibaba's chairman announced that they would work jointly with the logistics provider.

Or, as Wang Wenbin, GM of Cainiao's express shipping department, puts it, "Cainiao is a smart network driven by data," to which the company’s COO, Tong Wenhong, adds that since this past September, logistics have gotten involved in big data and their company is already providing data studies for 15 leading logistics providers.

Ma pointed out that, "Today's logistics business has already turned to smart logistics because, without data analysis, it could not possibly deliver thousands of express packages."

Cainiao's Tong says that the idea of providing data is to help partners adjust their transport capacity and that the costs of managing China's logistics is eight times that of the United States.

To this, Xie Xiaolin, global VP for Amazon, in commenting on their logistics says, "Amazon has advantages in this sector."

In describing Amazon's share of the logistics business, Scot Wingo, CEO of Channel Advisor, a global e-commerce channel provider, says that Amazon is considering getting into the traditional logistics industry.

In commenting on the situation all over China, said Guo Jianhu, the head of transportation for Zhejiang province, where logistics is flourishing, said, "China's Internet logistics have gotten a lot of attention from the capital market just as e-commerce did in the beginning, back in 2000," with which Hu Zhiliang, head of CIC consulting's industry and policy research center, agrees and says that logistics providers are gradually turning to the capital market since China's logistics giants STO Express, accounting largest share of logistics business listed in the third board market recently in China.