On the rise

SF Express: increasingly reliant on planes (and drones) for deliveries

On September 26, a Boeing 737 took off from Hangzhou, bound for Chengdu, marking for Yuantong Express the inaugural flight of its new Yuantong Airmail operation and launching the first air delivery service based in the East China region.

Yuantong Express, a privately-owned company, is one of the largest express delivery companies in China, where a growing market is compelling many delivery firms to take to the skies.

Yuantong currently has three planes to its name. The virgin flight in September is to be followed by the second plane’s launch in November, and the third in December, indicating expectations of steady growth in demand for its airborne deliveries.

Yuantong Express showed its commitment to its new business model during Xi Jinping’s state visit to America last month. Company representatives were in attendance at the Seattle-based Boeing factory as part of Xi’s delegation, where they signed a deal with Boeing to purchase 15 of its planes, and secured the rights to be the launch customer for the new B737－800BCF – a model said to offer greater cargo storage and better fuel economy than previous versions.

Yuantong’s recent purchase will take its total fleet up to 18, close to its domestic rival, SF Express, which owns 20 aircraft.

These numbers are still small in scale. The volume of express goods delivered within Chinese borders has surpassed America’s to become the largest in the world, with the State Post Bureau reporting 13.96 billion items last year, surging 51.9% from a year earlier. Despite this, China’s air delivery fleet is less than 100 aircraft, whereas America’s Fedex has over 600 alone.

Whilst Yuantong Express is investing in more aircraft, SF Express is seeking to build an airport. The new hub is planned for Hubei province, from where SF Express claims the flight time to 90% of China’s “economic population” is only one and a half hours.

The specialist cargo distribution facility will be the first in Asia, Thepaper.cn says.

Aside from its new airport, SF Express is contemplating other means of expanding its business. Last month its representatives announced at the E-commerce Logistics Summit that the company will invest in storage facilities as well as transport. According to Oriental Morning Post, the delivery firm intends to develop warehouses across the country, to tap into growing sales of goods online and to reduce the costs of next-day delivery.

SF Express has also invested in a novel delivery capability which many express operators are hoping to capitalise on: drones. It has signed a partnership with four other Chinese companies, collectively investing Rmb500 million ($78.75 million) to establish a drone systems firm. The use of drones has seen some experimentation in China – with companies like Alibaba and online cake shop Incake running trials this year. According to IT Times, SF Express has partnered with drone producer Xaircraft since 2013, and already runs 500 drone delivery operations a day in the Pearl River Delta area. While Xaircraft drones have a maximum cargo weight of 10kg, SF Express has ambitions to develop unmanned heavy goods cargo carriers via the new company it established in August. The Oriental Morning Post speculates such drones will become a key component of future delivery services.

Other airlines are also looking closely at the commercial prospects in the express delivery sector, including Okay Airlines (see story on accompanying page), which has just announced a tie-up with ATSG (a leading provider of Boeing freighter aircraft) and the online retailer Vipshop to launch United Star Express Airlines, an air cargo joint venture registered in Tianjin’s free trade zone.

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.