E-shoppers drive change

E-commerce is undergoing spectacular growth in China. Michael Mackey looks at how the air freight sector is adapting to this huge challenge.

E-commerce, already booming in China, is moving to the next level, a move likely to reconfigure not just the air cargo industry but the way China, and indeed maybe the world, shops.

“We delivered another great quarter with 61% revenue growth as well as strong profit growth, excluding one-time items,” Maggie Wu, Chief Financial Officer of Alibaba Group, said when the company announced its June quarter results. Alibaba’s revenues were RMB80.92 billion (USD12.22 billion) for the quarter, Ms Wu said in an analysts call, against RMB50.184 billion for the same period last year.

Even more tellingly, Alibaba added another 24 million customers to its ecosystem to give it 576 million ‘transacting users’ with an average of 90 orders per year across 16 different product categories, Joe Tsai, Alibaba’s Executive Vice Chairman said in the same call.

Alibaba is not alone in such scale or growth. Nor is it confined to China.

Hacis, (Hong Kong Air Cargo Industry Services Limited) which gathers cargo from China for movement through Hong Kong Air Cargo Terminals Limited (Hactl) is directly involved, moving large quantities of mail containing e- commerce packages for postal authorities.

“This traffic has grown from 200 to 2,000 bags daily over recent years,” Vivien Lau, Executive Director of Hactl and MD of Hacis, told TIACA Times.

Another illustration of the sector dynamism came from Lori Chao, Director, international Corporate affairs, for JD.com who pointed out that transaction volume on JD.com reached a record high of USD24.7 billion this year during its 18-day June anniversary sale.

More instructive though, this is the first major ‘6.18’ anniversary sale in which the e-commerce giant combined online, offline, and virtual shopping for a ‘boundaryless retail’ experience.

Tens of millions of consumers visited JD pop-up stores and experience centers around China over the 18-day sales period, sampling snacks, testing home appliances, and trying on clothes, which were then ordered digitally and delivered locally. JD refers to this as Retail as a Service or RaaS; Alibaba refers to it simply as new Retail.

Whatever the label, shopping will increasingly require the movement of lots of individual things – including coffee cups as Alibaba’s recent deal to deliver Starbucks testifies – to people where they are rather than where those things are bought.

For air cargo companies, this has huge implications.

Air cargo looks set to boom and within China there will be the growth of secondary airports, some as cargo hubs such as Wuhan and Xi’an, with an increasing role for, and influence of, express companies. And, of course, there will be new infrastructure.

A better way to illustrate this is SF-Express, which as well as being a very significant player in the express market is China’s number two in terms of volumes. Chung Mak, aviation advisor to SF’s President, told a recent conference that SF-Express is building its own Aerotropolis at Ezhou in the central province of Hubei, some 70 km from Wuhan.

Not only will the 4E Class airport, with two independent but parallel runways, be a domestic cargo hub, but it will also be an international gateway. This will involve a sortation centre, distribution and bonded warehouses, as well as a Free Trade Zone.

The aim, according to Chung Mak, is to attract MRO, pharma, high-end manufacturing, logistics, and supply chain companies. Underpinning this is going to be an emphasis on multimodality that has never been seen before.

“We are planning to have the high-speed railway link directly into our airport,” Chung Mak told the conference. “We have been working with the rail bureau to test this.”

Ezhou was chosen as the location for two reasons. Not only is the mega-city of Wuhan with all its business talent and physical infrastructure nearby, but it is within two hours of 90% of China’s GDP.

SF Express currently serves this with a fleet of 56 all-Boeing aircraft spread over the 737, 757, and 767 models, as well as 127 warehouses, 301 sorting houses, 1,300 service stations, and some 410,000 employees. In the past it has grown annually by 24%-25%, a range the company is trying to stick to. “It is a nice number,” Chung Mak said.

Whilst the future looks rosy, there are some disruptors on the horizon. Most topical is the looming trade war with the US, although most companies are looking to take that comfortably in their stride.

As explained, e-commerce allows and facilitates direct commerce of the business-to-consumer type, which means companies such as Alibaba “are helping American farmers and small businesses sell their products to Chinese consumers,” said Joe Tsai.

It will be an interesting test of strength for e-commerce in China as to whether it can sidestep or maybe even beat a trade war, but even the worst-case scenarios have a considerable upside for the sector.

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