Big four hope expansion will deliver the goods

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UPS is counting on information-related services to give the international delivery company an edge in China’s highly fragment domestic express market, a growing industry battleground.

“The data that’s wrapped around the shipment is becoming just as important as the goods themselves,” said Ken Torok, president of UPS Asia Pacific. “Our strategy is to add capability and a lot of that has been around the information piece.”

Services such as shipment tracking and guaranteed-time deliveries that are common in Europe and the US are still rare in China. FedEx, UPS’ US rival, will only begin offering its signature guaranteed next-day express service within China next week.

The push to provide value-added logistics services come largely from multi-national retailers such as Wal-Mart who are adopting a just-in-time model for sourcing from Chinese factories, says UPS. The vast scale and the complexity of supplying huge numbers of components to manufacturers on time is creating the need for advanced services.

“One of the things we are working on is the ability to intercept and re-route shipments in transit,” said Mr Torok. He said multinationals are interested in such a service, which the company introduced for US domestic shipments in March.

The ability to offer sophisticated logistics services is seen as a competitive advantage the “big four” international operators – UPS, FedEx, DHL and TNT – hold over domestic counterparts. “For the local players, [these services] are still relatively new,” said Edward Tse, greater China managing director for consultancy Booz Allen Hamilton.

China’s express market was valued at about $4.4bn in 2006, with $3.1bn of that accounted for by the domestic market, according to a report by Booz Allen.

It estimated that former monopoly China Post still holds about 40 per cent of the domestic express market but only about a 20 per cent share of deliveries in and out of China.

The report put the big four’s share of international China shipments at about 75 per cent, with DHL in the lead with nearly a third of the market and UPS and FedEx each matching China Post’s share. The overall market is expected to grow at an annual rate of about 30 per cent and reach $7.4bn by 2008.

The big four are all investing to expand their presence in China. FedEx’s guaranteed service will be run out of its new domestic hub in Hangzhou, a city near Shanghai. The company is also is building a $150m Asia hub in the south-eastern province of Guangzhou and last year paid $400m to take full control of its Chinese joint venture with Tianjin Datian W. Group.

UPS signed an agreement last month to invest $20m in a new international air hub in Shanghai. DHL is in the process of choosing between Shanghai and Seoul for a new hub.

China’s domestic market was liberalised only last year under the terms of the country’s World Trade Organisation accession agreement. It remains fragmented, with the big four holding about the same market share as thousands of small and mid-sized local companies.

The big four are also anxious about a proposed new postal law. A seventh draft of the bill, now in front of the State Council, is , believed to contain a clause that would restore China Post’s monopoly over the delivery of parcels weighing less than 150g.

“Right now the priority [for the Big Four] is still on the international market because it is still growing very fast,” said Mr Tse. “But they are all seriously looking at the domestic market.”

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