There’s definitely something going on behind the scenes of China’s e-commerce industry: In no other country in the world is delivering packages to consumers in 24 hours considered standard practice. What’s the driving force behind this logistics service?

The answer is pretty easy to find. Just look at the Chinese e-commerce market: intense competition, large volumes of packages, and the need to satisfy ever-growing demands from sophisticated Chinese consumers.

E-commerce in China is three times the size of any market globally, according to eMarketer. According to Alibaba, Cainiao Network and its logistics partners delivered 25.1 billion packages in 2019.

Peak shopping seasons in China bring dizzying numbers of orders. Last year, during the 11.11 shopping festival, more than 1.3 billion orders were processed within 24 hours by Alibaba’s Cainiao Network.

Opinion

Hendrik Laubscher is the Founder and Chief Analyst of Blue Cape Ventures, a boutique research consultancy that focuses on marketplaces and cross-border e-commerce. 

Recently, Netsunion Clearing Corporation reported that 26.18 billion transactions worth RMB 16.91 trillion (about $2.38 trillion) occurred during the 6.18 online shopping festival from June 1 to June 18, 2020.

To serve over 1.4 billion citizens and nearly 900 million mobile internet users, retail and e-commerce businesses must innovate. They frequently adopt new technologies like AI, Internet of Things, and automation.

To get the edge in a fiercely competitive marketplace, digital commerce giants JD and Alibaba have pushed each other to master the difficult step-child of e-commerce: getting stuff from here to there.

Logistics with Chinese characteristics

Consumers in China expect logistics services to be on-demand and free, and do not expect to pay extra for these features. This is a contrast to the European and American markets, where consumers pay a premium for expedited services like Instacart and Amazon Prime Now. The additional fees charged by these companies reflect the high cost of shipping items in developed markets. 

At its core, Alibaba is a marketplace, while JD.com is a retailer. Their business models have huge differences, but in logistics, Alibaba’s Cainiao Network and JD Logistics have both thrown traditional e-commerce logistics business models away and created market-specific solutions. 

Alibaba’s Cainiao Network

Alibaba’s Cainiao Network offers an innovative, data-driven platform that helps improve efficiency and customer experience for all supply chain partners. At a high level, it can be summarized as a logistics platform which focuses on freight between warehouses that then use third-party partners to complete last mile deliveries.

Alibaba has also invested in these logistics companies in an effort to improve operational efficiency across the entire logistics chain. Cainiao Network offers a data platform that links warehouse operators, distribution centers, and contractors together to ensure that it can support local and international shipments.

  • Automation: Cainiao Network’s smart warehouse in Wuxi has 700 automated guided vehicles (AGVs). Internet of Things technology in the warehouse directs AGVs to drive, load, and unload.
  • Last-mile delivery solutions in local communities have also grown in 2020. Package pickup stations located in neighborhoods and university campuses, called Cainiao Post, account for 10% of total packages delivered in Alibaba’s China retail marketplaces. In March 2020, the total number of package pick-ups saw three-digit growth year-on-year, due to surging demand for contactless delivery during and after Covid-19. Cainiao has recently announced that it will add 30,000 new community post stations in 100 cities in China.
JD’s unmanned delivery van on Wuhan street (Image credit: JD)

JD Logistics

JD Logistics offers end-to-end logistics, including both freight-to-warehouse and last mile delivery. Its logistics services are available to online and offline businesses, even those that do not sell on its e-commerce platform. Brands and businesses can use these services to deliver products, without investing into their own logistics.

Unlike Amazon, JD Logistics does not charge its clients higher fees for servicing other businesses. Amazon is being investigated by the FTC for charging businesses up to 75% more when shipping to a consumer who purchased on a non-Amazon platform.

  • JD Logistics, like Cainiao Network, is leveraging automation and 5G technology to enable logistics at speed.
  • JD’s smart logistics infrastructure has expanded its highly automated “Asia No.1″ logistics parks network to 28 parks in 2020 in a bid to increase same- or next-day delivery service coverage, especially in lower-tier markets. These are essentially fulfillment centers that can speed up parcel delivery.
  • The three new parks are in Langfang, Hebei province; Dezhou, Shandong province; and Zhengzhou, Henan province.
  • The park in Dongguan, in the Pearl River Delta, is 500,000 square meters, equal to the size of seventy football fields, and can fulfill about 1.6 million orders per day.
  • JD Logistics also launched its first 5G-powered smart logistics park in Beijing in October 2019. The facility implemented real-time monitoring systems that detect and analyze the warehouse, tracking the location and routes of forklifts and pallets in real time. The technology provides preemptive alerts to human operators if something abnormal arises. 

The secret sauce

Both Alibaba and JD.com often promise consumers that their orders will be in hand in as little as a few hours, a goal which would be impossible to meet without consistent innovation. 

The two Chinese titans have the advantage of stress testing their logistics networks on a massive scale during China’smultiple shopping holidays, which see delivery volumes unheard of in any other e-commerce market. There is no other e-commerce market in the world that regularly generates tens of billions of online orders in a few days, as happens in China during the various shopping festivals. Alibaba and JD.com have used these massive shopping events to accelerate market-specific solutions.

READ MORE: JD.com cites ‘record’ 618 for Q2 earnings beat

In order to move millions of packages between brands, warehouses, sorting centers, and collection points, 5G, data and automation are necessary to ensure that this undertaking ends with customer happiness and package delivered. Supply chain leaders should look to Chinese e-commerce as a barometer of how to innovate in what is often seen as a totally mature sector.