Deloitte report highlights e-commerce, economic growth and government policies as key drivers for China's express industry

Published: 23 May 2014

The rise of e-commerce and internet shopping, robust economic growth and supportive government policies are driving the rapid expansion of China's express industry, which completed the second largest business volume of 9.2 billion pieces in 2013, up 61.6 percent year-on-year, according to the joint report by Deloitte and the Development & Research Centre of the State Post Bureau. At this momentum, it is expected to become an industry of RMB 280 billion by 2015, with an average annual compound growth rate of 39.4 percent.

The report said the total operation income generated by China's express enterprises reached RMB 144.22 billion in 2013, up 36.6 percent year-on-year. By business volume, the market was dominated by private express companies, which accounted for 78.9 percent of market share in 2013, versus 19.9 percent for state-owned companies and 1.2 percent for foreign enterprises. With their own strengths and weaknesses, they are complementing each other to support the healthy growth of the express market.

"New technologies have enhanced the service efficiency and accelerated the development of the express service sector. The industry is also backed by a combination of positive political, social, economic and factors. For instance, a series of policy measures have been introduced to support and regulate the development of express delivery market. Urbanization has opened new business opportunities for express industry in central and western China. Changes in consumer behaviors, which promote the development of internet retailing, have generated ample demand for express delivery services," said Paul Vogel, USA Director, Global Postal Community, Deloitte, citing that China's internet shopping volume registered a compounded annual growth rate of 70 percent in the past five years to RMB 1.84 trillion in 2013.

Based on historical data, the report also studied the mergers and acquisitions (M&A) trend of the express sector, which roughly resembles the pattern of the broader transportation industry. In 2014, two M&A cases took place within the express sector during the first three months of 2014, with the transaction amount (US$50 million) exceeding the average of the past six years (US$37 million). Positive outlook is likely to pull investors and business outsiders into the transportation industry, helping to energize M&A activities in logistic and express sector.

"Successful M&A and restructuring can help enterprises not only achieve low-cost expansion and leap-frog development, but also step into a new business within a short period of time. We have seen an upcoming trend of industrial capital entering into the express sector. External investors can always leverage their capital advantages and benefit from the high growth of the express sector," said Karon Wan, Managing Partner of Deloitte China Public Sector.

"When it comes to IPO, there has not been strong enthusiasm for Chinese express companies to go public, possibly discouraged by stock market downturn and IPO related barriers in recent years. Some Chinese private express companies do have their IPO plans, but none of them has submitted their IPO applications. So far, there is not any listed domestic express company in China. But, we remain optimistic that some leading express companies will eventually embark their IPO journey given the growing vitality of this industry sector," said David Lung, Managing Partner of Deloitte China Consumer Business Industry.

As a conclusion, the report cited the three major catalysts that will drive continuously the immense growth in China's express sector, including macroeconomic growth, development in the central and western regions and a sustained growth in E-commerce. M&A and integration are also expected to influence the development of the express industry, which currently have nearly 8,000 enterprises. Cost pressure and margin squeeze will speed up integration in the express sector.