The strong double-digit growth seen in the Chinese international express market in recent years isslowing significantly at present due to weaker demand from the US and Europe for Chinese goods and
supplies, according to company executives and recent media reports.Although volumes are still rising and long-term forecasts remain very positive, major playerssuch as DHL, FedEx and UPS are reportedly being hit at present as growth falls short of planninglevels. Although business was impacted by operational restrictions surrounding the recent BeijingOlympics, the main factor appears to be the general slowdown in major world economic regions.
The trend comes as all three integrators gear up to open expensive new facilities withincreased capacity in China in the coming months. DHL will open its expanded Central Asia hub inHong Kong on September 8 and its new North Asia hub in Shanghai next year. UPS will open its newShanghai hub in November and its relocated intra-Asia hub in Shenzhen in 2010. FedEx will open itsrelocated Asia Pacific hub in Guangzhou in December this year.
DHL Express Asia Pacific CEO Dan McHugh told Reuters in an interview earlier this month thatrevenue growth in China had slowed to about 15% over the first seven months of the year compared toan average of over 20% over the last five years. The slowdown was due to fewer shipments to the USAand Europe, he said.
UPS board members, while not directly referring to China, said during their recent Q2 resultsconference call with analysts that the company might be forced to review its flight network andcapacity levels due to the slowdown in intercontinental flows and the resulting financial impact onthe higher fixed cost international flight operations.
CFO Kurt Kuehn commented that European companies appeared to be looking more to EasternEurope rather to “the Far East” due to high fuel prices. “Frankly, if flows between the continentscontinue to slow, then we will be looking very critically at perhaps reducing temporarily someselected flights between the continents,” he said. “That assessment is under way right now, lookingat how we can take some cost out.”
The Chinese express delivery market last year grew 25% to RMB 40 billion (€3.8 billion),according to the country’s statistics bureau and the State Post Bureau, the Beijing Daily reported.Over the first half of 2008, “large” express companies increased revenues by 23% to RMB 19.6billion (€1.8 billion), while volumes rose 26% to 690 million.
Meanwhile, all four integrators are attempting to extend their presence in China’s domesticexpress market. FedEx has recently extended its domestic product options significantly anddramatically reduced its rates to the levels of local Chinese companies to win market share despiteits higher cost base and the resulting impact on profitability.
According to the China Daily newspaper, local couriers are increasingly under pressure fromthe multinationals as well as from the dramatic rise in fuel costs and are seeing their profitsdecline as a result. “About 13 percent of the district level contractors have reported net lossesand said that they are unable to continue doing business,” said Zhu Genfu, Shanghai general managerof ZTO Express. The estimated 100,000 small private delivery companies are offering unbelievablylow prices to compete for business, he added.
