Vaccinated against failure?

SF Express is beefing up its tech and healthcare investments

“Many logistics firms have gone public. But I could not see any difference in them before and after their listings, except [their bosses] becoming one of the richest tycoons, which is meaningless,” Alibaba’s Jack Ma declared, as he chided Chinese delivery firms for not investing enough in technology.

The disparaging remarks were widely thought to be the trigger for the stand-off between China’s largest private courier SF Express and Alibaba’s parcels tracking platform Cainiao last May – resolved only after an intervention by the government (see WiC374).

For a long time, SF’s low-key boss Wang Wei did not attempt to disprove Ma’s scathing assessment. But his Shenzhen-based company has just set out to deliver a rebuttal with actions rather than words.

Last month SF Express invested $100 million into Flexport, a San Francisco-based freight forwarder founded by serial entrepreneur Ryan Petersen in 2013. The start-up provides cloud-based solutions for managing global shipments weighing over 150 kilograms, and offers route suggestions and order tracking.

In an interview with AirCargoNews, Petersen revealed that the Chinese firm would not get a board seat. Yet he emphasised that SF would be instrumental in helping the company beef up its capabilities on the Asia-North America trade lanes. Last year it added new offices in Los Angeles, Atlanta and Shenzhen, while tripling its revenue on the year to $244 million.

The move marks SF’s first international investment in the technology sphere. Previously Flexport had received investments from tech-focused venture capitalists including Uber’s early backer First Round Capital.

The transaction will likely be complemented by SF’s new cooperation pact with Singapore-based private equity firm Mapletree Investments (announced the same day), which will see the latter provide warehouse facilities to the Chinese company.

“SF is transforming itself into a logistics technology company,” wrote Jiemian, noting that Wang increasingly viewed tech players as the biggest threat to SF. To achieve his goal, SF more than doubled its outlays on research and development to Rmb1.17 billion ($180 million) in 2017, representing 1.64% of its revenue, while increasing the size of its research team by a third.

Last month it also teamed up with eight companies including Shenzhen-based logistics firm Eternal Asia to create a supply chain data company with registered capital of $1 billion. SF will have an 11% stake, and Wang will be the chairman of the newly formed entity.

SF’s recent manoeuvres were mirrored by JD.com’s logistics arm, which on May 15 announced a $306 million investment in pan-Asia warehouse developer e-Shang. The deal came shortly after its acquisition of a 10% interest in Hong Kong-listed China Logistics Property in the open market in April.

The competition between JD.com and SF, as some local media has noted, will be particularly heated in pharmaceutical logistics, thanks to regulatory changes made in 2016.

One significant revision was the “two invoices” system, which mandates that drug manufacturers must either perform direct delivery or commission a qualified distributor. The rationale: to reduce the many layers of ‘middle men’ distributors along the supply chain in order to lower drug prices .

The highly fragmented drug delivery market is expected to grow at an annual rate of 8% to Rmb3.8 trillion ($594.7 billion) by 2020. Around 30% of the market is held by top-tier drug companies such as China National Pharmaceutical Group, China Resources Pharmaceutical Group, Shanghai Pharma and Jointown Pharmaceutical, while the rest is up for grabs.

According to Sohu.com, there were 123 licenced players as of 2016. While state-owned China Post is the market leader in deliveries, SF and JD.com are two early-movers taking it on. SF first made preparations to enter the drug delivery segment in 2014. Its pharmaceutical network now covers 132 cities and is supported by three cold storages (necessary for vaccines which have to be carefully temperature controlled). It wants to build up to seven drug warehouses with a total storage area of over 80,000 square metres.

SF is also co-building a drug delivery hub in Chengdu with French pharmaceutical company Sanofi. JD.com, meanwhile, is building a pharmaceutical warehouse in Anhui Taihe Huayuan Logistics Park with an initial focus on the central provinces of Hunan, Hebei, and Anhui.

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