Long but fascinating

Cargo Facts:

The goals remain much the same. Alibaba co-founder and chairman, Jack Ma has a steadfast vision for global e-commerce logistics that aims to make parcel shipments significantly cheaper, while boosting the speed of point-to-point deliveries so that a delivery between any two city pairs within China or between any two global cities can be completed in less than 24 hours, or 72 hours respectively.

What is changing, however, is the path the e-tailer is taking to achieve this goal. Alibaba’s Cainiao network’s previously asset-light model is evolving to integrate physical assets alongside its data-driven logistics platform. Previously, Cainiao was focused primarily on linking together the services of fragmented logistics providers in order to complete deliveries. Today at the 2018 Global Smart Logistics Summit in Hangzhou, Ma announced a series of significant investments in physical infrastructure, the continuation of a recent trend.

Perhaps most notable are Cainiao’s plans to open five global hubs in Asia, Europe and the Middle East. Although details of the facilities are slim, the stated purpose, according to a Cainiao release, is to “provide enhanced logistics infrastructure on a larger scale, so as to facilitate more inclusive trade for small businesses worldwide.” Based on the company’s current operations, such facilities will likely look much like the sortation facilities currently in operation by many of the world’s integrators where outbound parcels will be consolidated, and inbound shipments will be sorted for last-mile delivery. Two notable omissions are plans for global hubs in India or North America where competition from competitors like Amazon and Flipkart (soon to be owned by Walmart) is fierce.

If three-day delivery is the goal, the limitations of forward stocking necessitate that a large number of parcels moving between most regions of the world will require air lift. With the exception of Hangzhou and Kuala Lumpur, the other cities “being considered” for global hubs – Dubai, Liege, and Moscow – already house major global air freight hubs. There are signs that the other two cities could see a boost in international air cargo activity as well. Last year Alibaba established a “digital free trade zone” in Kuala Lumpur, and has been directing resources to transform the city into a regional commercial and logistics hub. Similarly, Hangzhou is already home to YTO Cargo Airlines, in which Alibaba owns a minority stake. At present, YTO’s freighter fleet consists of narrowbody aircraft which fly mostly within China. Over the next few years, the airline expects to boost service to international destinations, likely from Hangzhou.

In a separate deal, Cainiao this week announced it was investing $1.4 billion for a ten percent stake in ZTO Express. The Shanghai-based firm has long cooperated with Cainiao, and in fact, the majority of ZTO’s express volumes are generated from Alibaba’s e-tail sites. This collaboration is expected to deepen. “This investment will enable Cainiao and ZTO to supercharge joint innovation and development to accelerate digitalization of the industry,” said Lin Wan, Cainiao’s President. Cathy Roberson of Logistics Trends & Insights points out that the real prize for Cainiao of a closer relationship with ZTO may be its freight forwarding capabilities. Last year, ZTO acquired China Oriental Express’ freight forwarding and customs brokerage services.

Both of these deals could equate to progress in reducing transit times for parcel shipments. Here is a look at some of the other achievements Cainiao has made during the five-year period since it was established:

– Reduced cross-border shipping time from an average of 70 days to less than 10 days for some countries.
– Boosted the number of parcels processed each day by Cainiao’s logistic platform to 100 million
– Expanded same-day delivery to 1,500 counties and districts in China.

Looking ahead, Ma expects daily averages could one day be on par with current peak handling days, which in China occurs after the 11.11 shopping holiday. “We want to build this network to help the industry to meet the future needs,” said Ma. “Today, the industry can process 100 million packages a day. In the future, we will need to process 1 billion packages a day. The logistics industry need to get prepared for that with a robust infrastructure.”

How much air freight capacity will be needed to accommodate these deliveries, and where the market might find it, however, is another issue entirely. Also of interest, while progress towards the 72-hour global delivery goal is being made, it remains to be seen how the company plans to meet a second major initiative of pushing “logistics costs down to less than 5% of China’s gross domestic product, from around 15% at present.” The industry is eager to accommodate e-commerce demand for lift, but it comes at a cost.

More: “supply chains are fluid and open to revision. Over the next few years, exotic Persian tapestries and other commodities may soon find their way to Western China’s rising air cargo gateways.” Fascinating, at least to us.

Jack Ma, Jeff Bezos, and apparently now Walmart are reshaping global retail.

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