Transportation Deployment Casebook/2018/Express Delivery in China

Introduction
After China's accession to the World Trade Organisation, market services have penetrated into more fields. The development of the Internet and e-commerce has accelerated the development of the express delivery industry. A lot of courier receipts every year makes express delivery springing up. In the view of the international market, the express delivery industry has become an indispensable part of the market economy, and it also brings many benefits to people. However, there are still a series of problems in the development of the express delivery industry in China, including the company itself and the external environment. In terms of the life-cycle of this transportation technology, it just underwent the birthing phase and now is experiencing the growth-development phase.

Express delivery
“Express service carriers provide time-guaranteed deliveries of parcels via a network consisting of nodes and hubs.” Packages are collected at the origin node and delivered from destination node, and between these nodes are some hubs where packages are consolidated. The line-haul network is designed associated with hubs and nodes and the schedule for vehicles to operate is created as well.

The whole express delivery industry could be divided into three parts. The upstream procurement includes transportation vehicles, fuel refined products, goods packaging supplies, containers, and stations. The midstream is the transportation methods include air transportation, road transportation, railway transportation and shipping. At downstream (main markets), the industries of customers are diverse and have a wide range, including retail, wholesale, personal, and corporate etc.

The time limit (fast) and security are the core of express service value, followed by an extensive service network, full-time monitoring and timely enquiry services. However, shipments have certain restrictions on packaging, size, weight, etc., and differential pricing is implemented. The express fee is generally higher than that of the ordinary mode of transportation because of the time-consuming nature that increases costs.

The scene prior to the advent of the mode
Traditional parcel post was available in 1913 and since then American famers could purchase goods, medicines and other things far away from home. Conversely, agricultural products could be directly delivered to consumers’ place. The establishment of parcel post bring the convenience to the customers and also expand the market. Afterwards, around 1918, trucks and ships were used to deliver different goods. Until 1948, the first air parcel post service was set in United States.

At the end of the 1960s, the first express delivery company was born. The monopolies of the major economic sectors such as the civil aviation industry and the postal industry in the entire world (including the United States, where the market economy system is relatively complete) are strong, and the development of the express delivery industry is greatly constrained. The U.S. government’s approach is to pave the way for the development of the express delivery industry by relaxing controls and adjusting franchise rights.

China's express delivery industry started in the 1980s. In 1980 and 1984, China's postal service launched a special express delivery service both internationally and domestically, setting a precedent for the express delivery business in mainland China. Similar to most other countries, the postal industry has once been a monopolised industry. The traditional postal markets, whether in developed countries or developing countries like China, have received highly regulated and supervised markets. The development of the express delivery industry has faced the problem of the relationship with the traditional postal system. The essence of this is the conflict between market innovation activities and government monopoly industries. Over the years, due to the great efforts made by governments and the international community in creating a favourable institutional environment for the express delivery industry, its environment has been continuously evolving.

The invention
In the 1970s, advanced management methods based on computers were introduced into China. In addition, the rapid development of highways and large-scale aerial vehicles led to a dramatical growth of the express delivery industry to national networks and even to global networks. During this process, two forms of express delivery were formed. One is the express which deliver documents, materials, drawings, trade documents, etc. The other is to handle these shipments of samples, high-end products, social activities, gifts, and high-end goods for the home.

Software
To achieve the door-to-door service of express items, we must receive customer information in a timely and accurate manner, quickly process the documents, achieve full-field tracking of the items, and answer customer inquiries at any time. In order to realise these functions, the express company must be equipped with advanced computer networks and advanced communication networks. With the help of these software, the efficiency of the logistics management could be greatly improved.

Hardware
The basic characteristics of courier services are speed and flexibility. Therefore, courier transportation must have fast transportation tools to complete long-distance transportation and small-scale transportation tools for distribution, distribution, and delivery. These transportation tools are aircraft and all kinds of vehicles. On the other hand, the expansion of road network and increase of the reachable distance also break geographical barriers.

In addition, the courier company must set up a special distribution, transfer and control centre, equipped with a large number of warehouses, computer centres, command and control centres, customer service centres, transportation tool storage centres and other facilities.

Early market development
Due to the monopoly of the government, China first started the international and domestic Express Mail Service (EMS) by China Post in 1980 and 1984 respectively. At present, it also has a certain scale. Its domestic service is all over the country and its international business cooperation with the postal union and the TNT Express. EMS express delivery can reach more than 200 countries around the world. Its advantage is that entry and exit customs operations can be handled directly at the offices of the postal system designated by the customs. Therefore, customs clearance can be quickly implemented, which can speed up delivery of time.

On the other hand, EMS has applied the Chinese general service policy to domestic EMS business that does not fully comply with the content of “general service”, resulting in monopoly on the market. These policies include: The postal vehicles are unimpeded in the cities; the weight of mail could exceed the "mail" requirement; EMS mails are equivalent to general mails enjoying the preferential shipping rights of railways and civil aviation. However, because EMS does not own all the express delivery vehicles, those aircraft and trains that do not belong to the postal service are not convenient for coordination and cooperation, which results in an excessively low speed of express delivery. In terms of international express, the world's major express companies, such as DHL, TNT, FedEx, etc., are optimistic about the Chinese market and gradually enter China. Their huge national network and excellent services quickly occupy the market share. However, due to the difficulty in coordinating domestic and international transportation tools, it is hard to achieve the standard express service of internationalised services. Therefore, China's express delivery industry can only continuously improve its technology, service, and logistics exploration, and truly meet market demands (speed and service) to break through.

The birthing phase
As mentioned above, since 1980s, EMS has applied the Chinese general service policy to domestic EMS business and the whole market was monopolized.

In 1993, a set of private express delivery companies sprouted. ShenTong Express (STO) and SF Express were established in Zhejiang and Guangdong respectively. The main mode of transportation was through “human transport”, but at the time private enterprises could not obtain business licenses. They were called "black courier" and had to face the pressure from the postal, industrial and commercial, transportation and other departments. From 1994 to 2002, Tiantian, Yunda, YuanTong and ZTO Express were established one after another.

In 2003, the private express company SF Express opened up the shipping market and rented three 737 cargo planes to carry express shipments. SFG has also become the first private enterprise in China to use the all-cargo plane. Since then, express delivery networks have been rapidly formed in the Jiangsu, Zhejiang, and Shanghai shipping areas headed by the Yangtze River Delta. In 2006, ShenTong formed 332 franchisees through joining and contracting, covering more than 600 towns and cities across the country.

The growth of the mode
During the growth phase, e-commerce in China has played a decisive role. The rapid development of e-commerce has brought Alibaba and JingDong into the express delivery industry. Since 2008, China's online retail sales have grown rapidly. In cooperation with e-commerce, the express delivery industry has also become a beneficiary.

In 2009, the new “Postal Law of the People's Republic of China” was promulgated, which for the first time clearly defined the legal status of private express delivery companies. It stipulates that, in the case of operating express delivery services, an express delivery business license shall be obtained in accordance with the provisions of this Law; no enterprise or individual may operate express delivery services without permission; foreign merchants may not invest in the domestic express delivery business of letters. This also encourage the whole express delivery services market.

On November 11th of the same year, Taobao launched the “Double Eleventh” online sales discount campaign. The sales of that day amounted to 52 million yuan, and many express delivery companies even did not have time to respond. The problem of serious explosions and slow delivery occurred. It took a few weeks to gradually process all shipments.

In 2013, Jack Ma, the founder of Alibaba Group, proposed to invest 300 billion yuan to establish the CaiNiao Network. Three years later, this network was based on data and had established a number of logistics networks such as express delivery, warehouse distribution, and terminal, and has formed an important strategic layout in cross-border logistics and rural logistics. External evaluation of it as "China's strongest logistics network".

After that, express delivery companies quickly developed air express delivery services so that more city routes were covered, and the speed of express delivery increased rapidly. In the past two decades, the policy has been liberalized and with the help of e-commerce development, express delivery has become an industry closely related to everyone's life. In 2016, major express companies have sought listing and upgrades, and capital and technology are involved in which has given the express industry a greater space of imagination.

Not only the express companies have been developed, the growth of the employment in this industry and technology improvement should also be focused. Compared with 2010, e-commerce practitioners have grown nearly 4 times. At present, the express delivery industry has already integrated into the community. There have been some electronic express delivery counters in the community, and direct pickup can be done offline through a code get from the personal mobile phone. In addition, the “E.T Logistics Laboratory” project being developed by Alibaba Group aims to put the lift robot and delivery robot into use. Similarly, JingDong has carried out several drone delivery experiments to solve the last-mile logistics.

Development during the mature phase
Since express delivery in China is an emerging industry, it only went through its first two phases. According to the data analysis below, it is predicted that the mature phase would probable starts from 2020, which means in next 5 to 10 years, the growth speed of express delivery industry might slow down. To face this issue, new technology or “re-invent” is required. As talked above, delivery robots or drones could be a new mode of delivery to solve not only the last-mile logistics but also efficiency problem or high cost of manpower issue in the future.

Quantitative analysis
The life-cycle of the express delivery industry in China could also be illustrated by a S-curve (status vs. time) which identify the periods of birthing growth, and maturity (shown in figure below). For status, the volume of express parcel in China is used and the S-curve is developed using the data collected. The table not only shows the real volume from 1988 to 2021 (predicted), but also show the predicted volumed by calculation. 1988 ; 2005-2006 ; 2007 ; 2008 ; 2009 ; 2010 ; 2011 ; 2012 ; 2013-2017 ; 2018-2021

These data are used to estimate a three-parameter logistic function:

S(t) = K/[1+exp(-b(t-t0)]

where:

·       S(t) is the amount of express volume at the given time (million),

·       t is time (year),

·       t0 is the inflection time (year),

·       K is saturation status level which is the maximum capacity of the express volume (million),

·        b is a coefficient which represent how fast the mode turns to mature.

A liner regression is used to determine the coefficient b and inflection point t0. The equation blow is used:

Y=Ln (S(t) / (K-S(t))) = bt – t0

Regression Results S-curve

The results are interpreted to the S-curve. As can be seen from the figure, the predicted value is quite close to the real data. Since the history of the express delivery industry in China is quite short and data are limited as well, the curve could only show two phases of the mode. The first birthing stages is starts from 1988 to 2008, which is quite flat. The second stage is growth period that might be finished in 2020 which the calculated RSQ used in regression is close to 1 (RSQ=0.9933). In this stage, the volume of express delivery increased dramatically. Additionally, the maturity stages of the life-cycle is predicted to be after 2020 the slop of which might tend to be small and reach peak (flat).