Selling $9 Billion Singles’ Day Products is One Thing, Delivering Them is Another

Yesterday (11/11/2014), tens of millions of Chinese like Ms. Jiang bought more than $9 billion worth of products online in honor of Singles’ Day, China’s de facto e-commerce holiday, and the world’s largest Internet shopping event.

But buying is one thing. Delivery is another;

Really, yes, really!!

Ms. Jiang, who owns a bakery in the western Chinese city of Urumqi, spent 2,000 renminbi on a water purifier and kitchen supplies, and would have spent even more, she said, were she confident the products she ordered would get to her quickly and undamaged.

“I tend not to buy things on Singles’ Day because the logistics just worry me too much,” she said. “If I get the stuff I ordered this year in 10 to 15 days I’ll be happy.”

China has caught the e-commerce bug for sure.

An underdeveloped retail sector and a flourishing network of online merchants offering huge selections at cheap prices has led the Chinese to look to the web first to buy everything from shoes and ovens to toilet paper and toothbrushes.

The Chinese e-commerce market is already bigger than the United States, and by 2020, is projected to be the size of the United States, Britain, Germany, Japan and France combined, according to a KPMG report.

Value of e-commerce transactions in the US and China, 2009-2015

Source: KPMG analysis of US and Chinese e-commerce data from Statista, Bain & Company

But the country struggles with delivery, largely because of decades of underinvestment in inland logistics infrastructure and inefficient local regulation. Goods are slow to arrive in the interior of the country, and damage is a persistent problem - affecting both consumers and small businesses.

“Imagine having 30 N.B.A. teams but only a few high school gyms to play in - that was China’s logistics infrastructure when e-commerce took off,” said Shen Haoyu, chief executive of the Chinese e-commerce giant JD.com’s business-to-consumer website.

Deliveries within China are so inefficient that the country spent 18 percent of its gross domestic product on logistics in the 2013, 6.5 percent above the global average and 9.5 percent above developed countries like the United States, said Fox Chu, director of Asia Pacific infrastructure and transportation at the consulting firm Accenture.

“Shipping goods from Fujian to Beijing can be more expensive than shipping something from Beijing to California,” he said, referring to the roughly 1,200 mile trip between the southern Chinese province and the country’s capital.

Recently, both Alibaba, China’s main e-commerce company, and its smaller rival, JD.com, have tried to make things more efficient, especially inland.

Alibaba has pledged to invest 100 billion renminbi ($16.3 billion) in an initiative to link up third-party companies that deliver its shipments. The idea is to form an alliance that uses Alibaba’s consumer and shipment data to better anticipate orders and make delivery more efficient.

JD.com, on the other hand, is building its own warehouses and shipping its own goods. Currently, the company can manage same-day deliveries in 100 cities and next-day deliveries in 600 others, said Mr. Shen, the JD.com executive.

As with most things in China, the state of logistics can be broken down by geography and wealth. In the largest and most affluent cities on the country’s eastern coast, just about anything can be delivered within a day.

Zhang Rui, an information technology salesman who lives in Beijing, doesn’t even buy small daily necessities at stores anymore.

“Just about anything I need at home I buy online, whether it’s groceries, toilet paper, rice, cooking oil, salt, a toothbrush or shampoo,” he said.

For Ms. Jiang, living inland, it’s another story. She recalled when a courier refused to help her carry a heavy parcel up the stairs to her apartment. Some won’t wait for her to open the package to ensure the goods she ordered are all there and undamaged. Her friends who live on the east coast and use Alibaba question how she survives out west.

“When the package comes, I don’t expect it to be pretty,” she said. “Even if there’s a few scratches on something I don’t care anymore.”

Safety has also become an issue. In late 2013 one person was killed and seven hospitalized after a toxic liquid sent by a chemical company leaked onto other parcels being delivered. In 2012 a China Southern Airlines plane caught fire when weatherproof matches left inside a parcel ignited.

China’s delivery problems are highlighted on Singles’ Day, which was originally conceived as a way for the unmarried of China to shop away their loneliness. Beginning on Tuesday night, items from the 278.5 million orders placed on Singles’ Day at Alibaba’s e-commerce sites will be shipped, largely by truck, across a land mass the size of the United States and crisscrossed by dizzying mountain ranges.

The trucks will shuttle the packages from warehouses to smaller distribution centers, paying costly tolls and running into traffic jams along the way. After dropping off the goods, many vehicles can’t bring packages back because of convoluted local regulations.

From the distribution centers, equipped only with shelving to hold the deluge of packages, hundreds of thousands of deliverymen will begin the slow process of bringing each parcel to recipients spread out across distant Himalayan hamlets, eastern Chinese megacities and jungle towns on the South China Sea.

Part of Alibaba’s plan to improve things is to establish warehouses at critical choke points to help streamline deliveries. “China is too big, so we cannot buy a lot of land for warehouses,” said Alibaba’s chief operating officer, Daniel Zhang. “Instead, we will choose key areas, very strategic locations where resources are quite limited.”

The company will share the new warehouse space with logistics partners like YTO Express.

As an early partner of Alibaba, YTO grew huge by delivering the millions, and then billions, of goods ordered on the company’s e-commerce sites. Last year, just 13 years after it was founded, YTO’s 130,000 employees filled 1.5 billion orders across China.

For the jump in orders on Singles’ Day orders, YTO hired 30,000 temporary workers. Next year it plans to buy its first airplane.

This year for the first time, Alibaba is hoping to track the location of every item ordered during Singles’ Day.

JD.com’s 538,000-square-feet warehouse in southern Beijing, the largest in the city, shows the advantages it gets by building its own delivery service.

The huge structure is ergonomically organized and employees run full speed, pushing carts loaded with goods in lanes segmented for those going at different speeds. A screen displays how many orders each employee has processed.

It’s a far cry from most warehouses in China, which are often open-air and exposed to the elements, seemingly organized to cause traffic jams.

To help reduce the backlog during Singles’ Day, JD.com has run promotions the week before and brought in temporary workers from around the country for extra help. The warehouse can process more than 200,000 orders a day.

Though it has proved costly to build up what is effectively its own FedEx, the strategy enables JD.com to process orders more quickly than rivals, even as its scale lags.

Most critically, it’s able to train the couriers that Mr. Shen calls “literally the face of JD.com.”

Zhu Sichang, 29, is one of those couriers. Mr. Zhu said his favorite time on his job came after he dashed up several flights of stairs to get an urgent delivery to a customer quickly.

“He saw I was pouring sweat and offered me a cup of water to thank me for my hard work,” he said.

Source: New York Times