Alibaba Group has made its next strategic move in the logistics sector by buying into fast-growing major Chinese carrier Shanghai YTO Express as it steps up its globalisation ambitions.
YTO, which already cooperates with Alibaba as one of 14 partners in the e-commerce giant’s Cainiao logistics network, competes with rivals such as S.F. Express, STO, ZTO and Yunda Express in the dynamic Chinese express delivery market.
Alibaba announced yesterday (May 14) that it will buy a minority stake in YTO but did not disclose the size of the stake or the price, although Chinese media referred to a 20% stake. The investment was portrayed as a ‘win-win’ deal enabling YTO to invest further in its operations and thus also benefitting Alibaba’s overall service offering.
The deal comes just days after Alibaba Group’s new CEO Daniel Zhang asked staff, referring to the role of the Cainiao network and of logistics in general: “How can we improve efficiency to help our businesses and help our logistics partners to better enhance efficiency, increase their customer service?” Financial investment appears to be one answer to this question.
Judy Tong, Senior Vice President of Alibaba Group and President of Cainiao explained: “The strategic investment in YTO Express reflects our commitment to improving quality and service standards in China’s logistics industry. As a platform, we look forward to working closely with partners who share our vision in developing an efficient logistics infrastructure and solutions that will drive development of China’s logistics sector in order to fully satisfy our customers’ needs.”
Alibaba emphasised that: “Both companies will cooperate in developing optimal logistics solutions for China in order to raise operational efficiency in the industry. Cainiao and YTO Express will work together to enhance the industry’s logistics management capabilities and international and rural delivery services. This will in turn raise the bar on service quality and user experience for merchants, consumers and logistics companies.”
Cainiao, founded by Alibaba Group in May 2013 in partnership with a consortium of logistics companies, aims to build a nationwide logistics platform that connects delivery companies, warehouses and distribution centres together in order to enable higher efficiency in China’s logistics industry and a better customer and merchant experience.
YTO eyes international expansion
YTO Express chairman Yu Wei Jiao commented: “As a leading player in China’s logistics industry, our collaboration with Alibaba Group and Cainiao will boost our strategic product and service offerings to catalyse a breakthrough in efficiency within China’s logistic sector.”
Established in 2000, YTO Express has grown rapidly into one of the largest express delivery companies in China, described as second only to China Post in size, and now has over 180,000 employees servicing more than 2,300 Chinese cities, and some 20,000 vehicles. The Shanghai-based company operates a nationwide network, including eight hubs, 72 regional trans-shipment centres and over 12,500 pick-up points. The company, which does not disclose revenues, reportedly delivered about 1.3 billion parcels in 2013 compared to just 156 million in 2009.
YTO is known to see international expansion as a major strategic priority, and already cooperates with various international partners, including CJ Korea Express and Japan’s Seino Transportation. Last year the company set up a cargo airline and launched B737F flights from Shanghai to Inchon, Qingdao and Hong Kong.
There have been media reports in recent years that the company, which has hired former UPS executives to develop its international business, is eying an IPO or that China Southern Airlines might acquire a stake. It is not clear how Alibaba’s stake might impact on any IPO or any investment by other companies.
Alibaba wants to ‘go global’
The deal with YTO recalls Alibaba’s investment in Singapore Post last year, and the related plans to set up a joint venture for e-commerce logistics in South-East Asia. It also fits with the e-commerce group’s ambition not only to maintain its dominance of the Chinese e-commerce market but also to step up international expansion following last year’s giant IPO in New York.
New CEO Daniel Zhang told staff earlier this week: “We must absolutely globalise. We will organise a global team and adopt global thinking to manage the business, and achieve the goal of ‘global buy and global sell’.” Zhang added that Alibaba would continue to invest heavily in new and existing overseas operations including AliExpress, the cross-border online marketplace positioned to sell Chinese goods to consumers all over the world, and Tmall Global, which helps foreign brands sell online directly to Chinese consumers.
Alibaba Group revenues soared by 45% to RMB 76.2 billion (US$12.3 billion) in the year ending March 2015. China, accounting of a dominant 83% of revenues, grew by 39% to RMB 62.9 billion (US$10.15 billion), while international commerce increased by 34% to RMB 6.5 billion (US$1.05 billion), driven mostly by AliExpress sales.
