US integrators FedEx and UPS continue to await news on their applications for full domesticexpress licences in China, despite various conflicting reports as to whether the decisions have
already been taken by China’s State Postal Bureau.On 21 June, the bureau’s website released a list of businesses, including FedEx and UPS, thathad been granted business licences for domestic or international express services for this year,creating confusion about whether the authority had given the green light to the two USoperators.
However, a State Postal Bureau spokesman said that the organisation was still going through thenecessary procedures with the applications for full domestic express licences, and declined tocomment further.
The issue has been hotly debated in recent weeks, with the China Air Transport Association(CATA) publishing two articles warning government departments and the parcel delivery industry ofthe potential risks posed by the licensing, including to national security. CATA also claimed thatgiving UPS and FedEx domestic licences, including the right to operate their own aircraft in China,would give the US companies advantages that Chinese companies are not offered in the US, in termsof aviation traffic rights.
FedEx has been operating a domestic express delivery business in China since May 2007, afterhaving received an investment certificate from China’s Ministry of Commerce and a business licencefor domestic services from the State Administration of Industry and Commerce in December 2006.
However, a new postal law came into effect in China in October 2009, creating a new permitsystem for the express industry through the State Postal Bureau (SPB). FedEx applied for a domesticexpress permit, but in the meantime has been able to continue providing domestic services under itsexisting licence, which is reviewed annually.
“The 21 June notice on the SPB’s website referred to the annual inspection of FedEx’s existingpermit to conduct international express operations,” explained a FedEx spokeswoman. “FedEx hasapplied for a domestic express permit and we will continue to work closely with the authorities asthey process that application for our existing business.”
FedEx operates as a wholly foreign-owned enterprise in China and has direct custodial control ofoperations. Its domestic network reaches more than 400 cities, through air services provided byChinese airline Yangtze River Express, centred around FedEx’s China Regional Hub at HangzhouXiaoshan International Airport. Domestic ground trucking services are operated by FedEx incooperation with local agents.
FedEx declined to give details of its plans to expand and offer domestic express services inChina, assuming its licence application is eventually approved.
“FedEx is conducting business as usual at this time,” the spokeswoman told CEP-Research. “It isour policy not to speculate on future corporate business developments.”
A UPS spokesman told CEP-Research that the company was reviewing a recent notice posted byChina’s State Postal Bureau on its website concerning UPS’s domestic express licence application,but said that it was UPS’s policy not to comment on going government approval processes.
However, he stressed that it was in the interests of all parties to see a strong express sectorin China: “UPS believes that maintaining an open and competitive domestic express market in Chinais best for our Chinese and international customers, as well as for the development of China’seconomy and its domestic express industry,” he said. “UPS looks forward to expanding its service tocustomers in China’s domestic express market, and connecting those customers to the world throughUPS’s global network.”
According to the China Express Delivery Industry Report 2011, revenue from China’s expresssector surged 30% year on year in 2011 to more than CNY53 billion (€6.8 billion), with volumesgrowing by more than 50% to around 2.53 billion packages, boosted by China’s surging e-commercemarket.
However, China’s express and logistics sector still trails developed markets in terms of cost,quality and reliability of service providers due to regulatory restrictions and a high level offragmentation.
Although FedEx and UPS currently hold substantial market positions in China’s internationalsegment, with market shares of around 20% and 19% respectively, the domestic express business inChina remains dominated by local state-owned and private players. China Post’s EMS businesscontinues to be the market leader in the domestic arena, with other significant operators includingChina Rail Express, China Air Express, ZJS Express, SF Express and STO Express.
In 2009, DHL Express made an attempt to enter the domestic market, but subsequently withdrew dueto a combination of factors, including regulation limiting the potential for international carriersto participate in the domestic market. Deutche Post DHL CEO Frank Appel this week told CEP-Researchthat the company currently had no plans to re-enter the Chinese, or any other, domestic expressmarket.
