U.S.-based logistics companies Federal Express (FedEx) and United Parcel Service (UPS) have been granted access to China’s domestic express delivery market in a move to fulfill China’s World Trade Organization (WTO) obligations, the State Postal Bureau (SPB), China’s official postal service, said.
FedEx won approval to conduct express delivery business, except letter delivery, into eight cities, including Shanghai and Zhengzhou, while UPS gained similar access to five cities, including Shanghai, Tianjin, and Guangzhou, the SPB said.
The approval signals the opening up of China’s domestic express delivery market, and is a step toward meeting the country’s WTO obligations, said the SPB.
Xu Yong, chief advisor of China Express Consulting Website, said that while FedEx and UPS will be able to expand into China’s express delivery market, their entry will not pose a threat to the domestic logistics companies in the short term.
“FedEx and UPS mainly operate medium- and high-end express delivery, but the market is likely to continue to be dominated by low-end firms, which have price advantages, for at least five to 10 years,” Xu told the Global Times.
In 2011, private delivery firms accounted for 67.6 percent of China’s delivery market, while foreign companies took a share of 3 percent, according to data from the SPB.
It is not the first foray of multinational logistics companies into China’s domestic express delivery market.
DHL started to provide express delivery service in China in 2009 by acquiring three domestic delivery firms, including Sinotrans and A Plus Express. However, it incurred losses of more than 9.9 million yuan (US$1.6 million) by the end of 2010 and exited the sector in July 2011 by selling all of them.
To avoid the experience of DHL, FedEx and UPS have to endure a long period of unprofitable domestic express delivery operation as they will face competition from SF Express and China Post, the dominant players in the sector, Xu said.
Zhu Qingyu, an expert at the China Air Transport Association (CATA), earlier expressed concerns that the two firms’ expansion into China’s domestic express delivery business will threaten the nation’s air cargo industry.
But Xu said that CATA’s concern is unnecessary because the foreign logistics companies are forbidden to be shareholders of the nation’s air cargo firms, and will have to rent aircraft from local firms to deliver cargo, “bringing profits to the domestic air cargo firms instead.”
