China ecommerce boom fires up logistics sector
Key operators jostle for prime warehousing spots to slash delivery times
China’s ecommerce giants are fighting it out over everything from customer data to exclusive contracts with retailers.
Now that rivalry is spilling offline into logistics networks and warehousing, with key operators spending millions of dollars to secure prime warehouse locations to shave precious hours off delivery times.
“The warehousing and logistics sector is really following growth in consumption,” said Stuart Ross, head of industrial at JLL in China. “Chinese consumers have taken online consumption to the greatest level in the world.”
The battle over logistics and warehousing has paralleled the broad competition among Alibaba, Tencent and JD.com to dominate China’s ecommerce market, which churned out revenue of Rmb7.18tn ($1tn) last year, according to the commerce ministry.
That competition has fuelled heated demand for premium warehousing space, one of the few links in the logistics chain not handled in-house by the ecommerce companies given the high upfront capital costs of owning property.
China is projected to have 52m square metres of high-quality warehousing space by the end of this year, according to JLL — though a fraction of the US’s nearly 900m sq m, that was entirely built up in just 15 years, according to Mr Ross. Efficient networks around warehousing hubs were crucial to processing the 40bn parcels the state postal service said were delivered in China last year.
At the heart of the logistics battle is the race by ecommerce giants to capture the best warehousing spots by anticipating pockets of consumer demand before competitors.
“It’s all about getting closer to the consumer. From a long-term point of view, this is a very crucial time for any of the players who try to play in the new retail field,” said Tianbing Zhang, head of Deloitte China’s consumer practice.
The warehousing demand has enriched third-party logistics operators such as Best Logistics, one of Alibaba’s key partners, and courier delivery company SF Express. Revenue for third-party logistics providers was $159bn in 2015, three times that in 2007, according to JLL. In 2016, local businesses spent Rmb11.1tn ($1.6tn) on logistics, with a third of that going to storage alone.
Transport accounts for 40-50 per cent of the cost of logistics, so reducing the distance from warehouse to consumer is crucial, says Victor Mok, a co-president at Global Logistics Properties, China’s largest warehousing operator, which manages around 30m sq m of space in the country.
GLP so far has focused on China’s biggest cities — Beijing, Shanghai and Shenzhen — but logistics operators increasingly are following online consumption into smaller, inland locales.
Investment in warehouses has slowed, though, as big cities have begun limiting the amount of land allotted for industrial use to control urban sprawl. Investment peaked in 2015 with a jump of 28 per cent from the year before, slowing to 5 per cent in 2016 and just 4 per cent in 2017.
In the past two years, six key Chinese cities including Beijing, Guangzhou and Shanghai have shortened land leases for warehouses from 50 to 30 years and slashed the percentage of land allocated to industrial purposes.
In contrast, some inland cities such as Wuhan are dealing with warehousing oversupply.
“There’s been a forced development and repositioning of the facilities in the marketplace by the government,” said Mr Ross. “China has the largest road network in the world. It’s also got the largest rail network. Those infrastructure improvements, as well as development of scores of new airports and seaports, have enabled this industry sector to really thrive.”
As it has grown, the logistics warehouse sector has attracted private equity, insurance companies and sovereign wealth funds seeking stable returns. Most recently GLP was taken private for $11.6bn by a consortium that included Hopu and Hillhouse Capital, and set up a Rmb10bn warehouse fund with China Life.
“In last five years or so, there has been more than $25bn of investment with a focus on the logistics sector,” said Mr Ross. “We’re really at an apex point now where logistics is the hottest real-estate sector in the country.”
China’s ecommerce groups are moving to consolidate their logistics operations. Last September, Alibaba invested $800m to increase its holding in logistics platform Cainiao to a controlling stake.