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TheStreet Open House

Are UPS, FedEx Tough Enough for China’s Competitive Courier Chaos?

Stock quotes in this article: UPS, FDX, JD, VIP, GM, BTU

The consultancy McKinsey & Co. predicts China online retail sales could more than triple from recent levels to US$ 650 billion by 2020. That’s a lot of package deliveries.

Indeed, enormous growth in the domestic logistics industry in China has been driven in recent years by what are now standard, warehouse-to-apartment door deliveries of consumer goods bought through online retailers such as JD.com (JD), Vipshop (VIP) and soon-to-list Alibaba.

More than a dozen major delivery companies currently compete for this booming business, which can be both cutthroat and chaotic. Packages arrive every day of the year, and often late into the night, since a courier’s earnings can be pegged to the number of items delivered. Couriers have strong incentive to work fast and dodge traffic jams by driving their electric vehicles on sidewalks.

READ MORE: 8 Stocks George Soros Is Buying in 2014

Some online companies such as JD.com operate their own delivery services. But retailers selling through Alibaba’s Tmall or Taobao rely on Chinese logistics providers such as SF, ZTO, Shentong and YTO, depending on the origin and destination.

Because of fierce competition, package delivery prices are relatively low, even for express service. If you work in Beijing’s software developer district, for example, SF will carry your 1-kilogram box to downtown Shanghai within one day, door to door, for only $24.

To date, the much more lucrative international air shipping business has been the bread-and-butter for UPS and FedEx in China.

FedEx’s subsidiary Federal Express (China) Ltd. is based near the Beijing airport. The company stepped into China for the first time near Hong Kong more than a decade ago, started the industry’s first China-Europe direct flights in 2006 and launched deliveries in 2007. Today one of its 12 global air hubs is in Guangzhou.

READ MORE: Yahoo! Remains the Best Way to Play Alibaba IPO

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