The annual results of the holding company of China’s biggest courier company, SF Express (顺丰快递), reveal net profits for 2017 of just RMB4.77 billion on a revenue of almost RMB71.1 billion. Generated by delivering 3.05 billion parcels that’s an average of RMB1.56 net profit per delivery–and that’s before recurring deductions. But why does only SF Express have such a low-profit rate in the industry when it charges double what the rest do?

SF Holdings’ revenue was up almost 24% but net profits rose only 14%. The good news is that due to the nature of the company’s spending in 2017, even after deducting non-recurring profits and losses, SF Holdings made a profit of RMB3.7 billion (or RMB1.21 per parcel) which is actually an increase of 40% on the previous year. A dividend of RMB2.20 is to be issued per 10 shares.

A report by Daily Economic News (每日经济新闻) has compiled the figures of SF Express’s competitors (in Chinese) to show that ZTO’s revenues of RMB13 billion (up 33%) netted a profit of RMB3.16 billion (up 54%), close to SF Express’s profit. Competitors Shentong and Yunda have similarly higher profit rates.

It’s all about the business model. Despite the cut-throat delivery marketplace in China, SF Express has stuck to a business model of direct control throughout the delivery. Unlike the competition who use a franchise model, it runs all its own stores and networks. It buys its own fleet and has even had its proposed acquisition of a 46% stake in Hubei’s Ezhou airport approved in February, becoming the first courier company to have its own airport. It added another five aircraft to its fleet, bringing it to 41 last year, along with the lease of 16 more.

The company has been plowing money into its “sky network” of air freight and drones, “ground network” including last-mile and overall “information network” (天网、地网、信息网). It has added tens of thousands of outlets and pioneered user experience to win the trust of its customers, despite (or because) of its high cost.

SF Express is expensive to use, compared to the competition. After previous price gouging among competitors, delivery companies increased fees in 2017. SF Express prices remained constant and roughly double the rest, at around RMB24 on average versus RMB12-14 for others, according to an industry report (in Chinese).

According to the State Post Bureau, China’s courier sector handled 40.06 billion deliveries in 2017 with revenues of over RMB500 billion. With Alibaba potentially bolstering its Cainiao delivery alliance with Ele.me last-mile know-how, there is scope for a protracted proxy war with Tencent-backed SF Express. But already the biggest player in the world’s biggest courier market, SF Express could start delivering a profit to match.