DHL Express shuts down in China, domestic players winning the market

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DHL as pulled out of its money-losing domestic delivery business in China last week. DHL-Sinotrans International, the 50-50 joint venture with Sinotrans, had sold its entire domestic courier business to Uni-top, a tiny Chinese delivery company.

Just a year ago, in June 2010, DHL Sinotrans set-up Sinotrans-Apex in a bid to develop its domestic express delivery business in China. At its inception, a lot of buzz was made with Sinotrans-Apex claiming it was active in 662 Chinese cities, with plans to increase that number to 800 by the end of 2011, and also aimed to have 25 hubs and sorting centres in operation across China by that time.

But after a year of continued losses, Sinotrans sold its domestic operations to small Chinese courier firm Uni-top, according to Reuters. Sinotrans blamed “overly fierce competition in the domestic courier service sector” for the poor financial performance of the venture and subsequent pull-out, adding that “foreign companies lack cost advantage”. According to the Sinotrans statement, the DHL-Sinotrans domestic delivery arm lost RMB 99.2 million (around US$ 15 million) as of the end of 2010, with no sign of improvement.

Despite huge investment on the last few years, DHL, FedEx, TNT and UPS have failed to compete with state-owned giant EMS and a growing number of private express delivery companies. Shunfeng (SF Express), Shentong, Yuantong, Yunda, Zhongtong and Huitong have reaped annual revenue of nearly 30 billion yuan in total, accounting for half of China’s express mail market.

The lower-priced services and franchise businesses played a big role in the success of these companies, but weaknesses were exposed during their fast expansion. Most private couriers charge a price much lower than state-owned and foreign express delivery companies. While the state-owned EMS charges at least RMB 20 (or US$ 3) for a delivery in the same city, a private courier charges only RMB 5  (or US$ 0.80).

Shentong for example became China’s biggest private express delivery company with more than 4,000 outlets and 50 distribution centers. Its revenue in 2010 exceeded 10 billion yuan (US$1.52 billion). Shentong invested RMB 200 yuan in setting up a sorting center in its headquarters in Hangzhou Tonglu county and expanding a transit hub in cities allo over China.

Yuantong will invest RMB 350 million in mega operation centers in major cities such as Shanghai, Guangzhou and Hangzhou, as well as launching services in the Middle East and Southeast Asia. Meanwhile, Zhongtong invested 120 million yuan in constructing a new headquarters in Shanghai’s Qingpu District and Yunda invested 150 million yuan in setting up new transit hubs.

Some of them are also in talks with private equity and capital venture firms about absorbing investments to support their expansion.

Other divisions of DHL in China have suffered from increasing competition over the last few years. DHL Supply Chain division nearly collapsed a few years ago recently with all its management in China leaving the company. Despite the domestic withdrawal, DHL said it will continue its efforts to develop its international express market across Asia.

When contacted, DHL executives in China refused to comment.

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