FedEx and UPS continue to seek Chinese domestic licenses

Estimates may vary but one thing that each does agree with is that China’s online retail sales continue to climb and is one of the largest online markets in the world. With this massive growth comes the need for reliable delivery service. China does indeed have numerous delivery service providers – SF Express, YTO Express and China Postal Express & Logistics for example – however, there are still questions concerning how open the parcel delivery business really is towards foreign competition.

In 2012, China’s National Post Office granted licenses to FedEx and UPS to operate in China’s domestic express market, however, with a catch – each could only operate in select cities. FedEx was granted a license to operate in Shanghai, Guangzhou, Shenzhen, Hangzhou, Tianjin, Dalian, Zhengzhou and Chengdu while UPS was granted a license to operate in Guangzhou, Shenzhen, Tianjin, and Xi’an. A bit disappointing but still welcomed progress as both companies had invested heavily in its Chinese infrastructure. According to Bloomberg, FedEx had established 58 branches and UPS had 33 branches by 2009.

Beijing, according to Bloomberg, however, has remained elusive for each US-based company. According to a recent article, Beijing was “too sensitive” to allow either company to operate from. Instead, FedEx and UPS have been allowed to make deliveries between some other Chinese cities. Since 2012, both companies have remained persistent. In July 2013, FedEx received 29 more licenses and is still waiting for the remaining 21 to get back to serving 58 branches while UPS now has 19 out of its original 33.

This slowness of granting licenses to foreign companies appears to favor Chinese-based companies. While FedEx and UPS continue their battle to deliver to all points in China, these two companies are also eyeing other parts of Asia for growth opportunities such as Southeast Asia.

While China’s domestic express market is surely among the largest and greatest for growth potential, it remains a highly competitive market and one in which is difficult for many of these domestic players to make a profit. An interesting note to this story is the fact that at least twelve private Chinese express companies, including Shanghai-based YTO Express Co Ltd and Shenzhen-based SF Express, have applied for international business licenses from the State Post Bureau of China. These companies hope to take advantage of the growing cross-border online shopping. For example, STO Express recently announced plans to establish its first overseas logistics hub in Japan. It also plans to expand into Malaysia and Singapore later this year. As a result of these anticipated expansion plans it will be interesting to watch how these companies will compete against the likes of FedEx, DHL, TNT and UPS in the international sector.