The express track that “heavily relies on e-commerce” is becoming increasingly crowded

On September 11, 2020, Zhongtong Express submitted a prospectus to the Hong Kong Stock Exchange, and there are rumors that it intends to raise US$2 billion. Goldman Sachs (Asia) acted as the sole sponsor, Deloitte (Guan Huang Chenfang) acted as the auditor, and Fuerde Law Firm acted as the sole legal counsel. Zhongtong, Yuantong, Shentong, Best (formerly Huitong) and Yunda are collectively referred to as “Four Links and One Link”. Participated in Best in 2008 (at that time Cainiao had not yet established), invested in YTO in 2015, and held shares in Zhongtong in 2018, signed a share purchase agreement with Shentong shareholders in July 2019, and obtained Yunda 2 through a major transaction in the secondary market in December 2019 % Equity, Ali spent 12 years to gather “Tongda System”.

Since 2015, Shentong, YTO, SF, and Yunda have been listed on A-share backdoors. Zhongtong and Best went to the New York Stock Exchange. Zhongtong also became the largest IPO in the US capital market in 2016.

In 2019, ZTO Express ranked first among Chinese express delivery companies with 12.1 billion pieces of business volume and 19.1% market share. It is a representative of the “Tongda Department” course.

“Rely heavily on e-commerce”

In 2019, the market share of the top five of the six major express delivery giants increased significantly, with a total of more than 10% and a total of more than 80%. Industry concentration will further increase, the track is crowded, small and medium players may be squeezed off the cliff or be swallowed by giants.

In 2019, ZTO’s business volume reached 12.1 billion pieces, with a market share of 19.1%, an increase of 2.3 percentage points from 2018; Yunda’s business volume exceeded 10 billion pieces, an increase of 43.6% year-on-year, and its market share was 15.8%, an increase of 2 percentage points from 2018 ; Shentong’s business volume increased by 44.2%, ranking first in the industry, with a market share of 11.6%, an increase of 1.6 percentage points from 2018, which is close to Best.

SF’s business volume also increased by 25.1% to 4.84 billion, but its market share of 7.6% remained unchanged, which was less than 40% of Zhongtong.

The express track that "heavily relies on e-commerce" is becoming increasingly crowded 1

In 2019, the total share of “Tongda Series” reached 72.8%, an increase of 8.2 percentage points from 2018.

In 2017, the State Post Bureau issued the “Thirteenth Five-Year Plan for Express Delivery Development”, which requires the formation of 3 to 4 express companies with an annual business volume of more than 10 billion pieces in 2020. Zhongtong and Best have already “hit the line” ahead of time, and YTO is working hard to reach tens of billions of business in 2020.

The main driving force for the growth of express delivery business is e-commerce. According to the National Bureau of Statistics, of the total retail sales of 41 trillion social consumer goods in 2019, the total retail sales of physical goods reached 8.5 trillion, accounting for 20.7%. And the year-on-year growth rate reached 19.5%, much higher than the growth rate of total retail sales of social goods (8% in 2019).

In 2019, the national express delivery business volume was 63.5 billion pieces, of which online shopping volume was 48.1 billion pieces, accounting for 75.7%.

The express track that "heavily relies on e-commerce" is becoming increasingly crowded 2

In 2017, 2018, and 2019, the contribution rate of online shopping to the growth of the total express business volume was 87.7%, 89.2% and 82.7%, respectively.

It is true that three-quarters of the express business volume and four-fifths of the growth rate come from e-commerce.

The statement that “express delivery relies heavily on e-commerce” implies turning the cart before the horse. Suppose someone has an annual salary of 200,000 yuan, and he enters company A with an annual salary of 1 million yuan. Others pointed out that this person is heavily dependent on Company A. I believe many people want to rely on company A.

Another example is a poverty-stricken county with beautiful mountains and rivers. The annual fiscal revenue is only 2 billion, and the fiscal revenue from tourism has reached 10 billion. “Severely rely on tourism”, build several steel mills and cement plants to get rid of dependence?

The retail sales of physical goods account for one-fifth of the total retail sales of social goods, and there is still much room for growth. Courier companies and commodity sales platforms are partners that coexist and prosper in the e-commerce ecosystem, with different division of labor, mutual dependence, and mutual achievement.

“Four links and one reach” revenue confirmation

1) How many yuan do you pay for express delivery?

In 2019, China’s express delivery industry had a revenue of 749.8 billion yuan, a business volume of 63.5 billion orders, and an average unit price of 11.8 yuan, a year-on-year decrease of 0.9%, which was 7.1% lower than 2016 votes, which can be described as “moderate”. E-commerce business volume in 2019 increased by 10.8 percentage points compared with 2016. It can be said that the rapid growth of e-commerce business has a far greater impact on the decline in unit price of express delivery services than imagined.

The express track that "heavily relies on e-commerce" is becoming increasingly crowded 3

The unit price of SF Express tickets is much higher than the industry average, and has loosened in recent years (especially in the first half of 2020). In 2018 and 2019, it was 23.3 yuan and 21.9 yuan respectively. Due to the direct operation model, SF Express was able to fully recognize the high fees as revenue. In 2019, the revenue of express delivery business reached 106 billion yuan.

With the exception of SF Express, all Chinese express companies adopt franchise-based business models, including “four links and one delivery”.

Under this model, the package network will charge users a courier fee, and the payment submitted to the courier platform after deducting the package revenue includes face-to-face fee (essentially an information service fee), material fee, transit fee and delivery fee. The courier company is responsible for information services, the strongest takes care of transit and trunk transportation, and the delivery fee is obtained by the receiving customer’s network.

Under the franchise model, the revenue of the express company usually includes three major parts: information service, delivery and transit revenue:

Information service

Income is obtained in the form of face-to-face fee. Specifically, the express company uses electronic information technology to locate and query the entire process of express service after collecting customer and mail-related information through face-to-face receipts.

The face-to-face is the only “identity card” for each item, and the barcode on it is scanned in sequence during the collection, transfer, and delivery links. The franchised online store only needs to post the above slip, and the received package can enter the express company’s transit system and be finally delivered.

Delivery fee

The delivery fee is collected by the sender’s outlet, and the express platform transfers to the recipient’s outlet. Strictly speaking, it should not be included in revenue.

Transit fee

The timeliness and processing capacity of transit are the core capabilities of express companies, which are equivalent to a person’s waist. People with poor waists can neither run fast nor bear weight.

Zhongtong is the latest company in the Tongda department. An important reason for its rapid rise is to take the lead in opening inter-provincial shuttle buses and transshipment centers, and gradually shift the transit business from outsourcing to direct operation. Nowadays, the necessity of “transit and direct operation” has become an industry consensus.

2) Revenue confirmation has mystery

Among the “Four Links and One Reach”, Zhongtong received the least revenue per ticket, which was 1.62 yuan per ticket in 2019, a year-on-year decrease of 10.7%.

This is because ZTO does not recognize delivery fees as revenue like the other five express companies. The reason is “We act as an agent for last-mile delivery services” (we act as an agent for last-mile delivery services). Zhongtong’s accounting treatment was more reasonable, but it was accused by ignorant American speculators as “sitting” and short selling.

Yunda “consists as good as the flow” and has confirmed the delivery fee as revenue from 2019 (accounting for 48.6%). In 2019, the revenue per single business reached 3.2 yuan, a “surge increase” of 85% year-on-year. Excluding delivery fees, Yunda’s revenue per ticket fell by 4.9% year-on-year.

The express track that "heavily relies on e-commerce" is becoming increasingly crowded 4

“Four links and one delivery” revenue is only a small part of the unit price of the ticket, and the big piece missing is the collection fee of the receiving network.

3) Revenue composition of single ticket of Yunda and Shentong

SF Express adopts a direct operation model, and Zhongtong does not include delivery fees in its revenue. Best and YTO have not disclosed details. Only the financial report data of Yunda and Shentong can see the composition of the average express delivery revenue under the franchise model.

In 2019, the single ticket revenue of Yunda and Shentong was 3.19 yuan and 3.11 yuan respectively, a difference of 8 cents. Excluding the delivery revenue, the single ticket revenue of Yunda and Shentong decreased by RMB 0.08 and RMB 0.17 respectively compared with 2018.

In 2019, Shentong’s paid delivery fee was 0.16 yuan more expensive than Yunda; the transfer fee Shentong also charged 4 cents more; but Yunda’s face-to-face fee was as high as 0.73 yuan, which was 0.32 yuan higher than Shentong, 78% higher.

The express track that "heavily relies on e-commerce" is becoming increasingly crowded 5

Face-to-face sales are essentially information service charges. In 2019, the utilization rate of Yunda and Shentong’s electronic face orders reached 99.63% and 99.55% respectively.

From the perspective of the revenue structure of Yunda and Shentong’s express business, there are various reasons for the decline in single ticket revenue. Yunda has reduced the transfer fee and Shentong has reduced the face-to-face fee.

4) SF Express has improved its price cut benefits

SF Express, which adopts the direct operation model, has far higher ticket revenue than the industry average, but the cost is also high. The gross profit margin in 2018 and 2019 was less than 18%.

The three biggest operating costs of SF Express are outsourcing, staff compensation and transportation, of which the first two are labor costs.

In 2019, outsourcing and salary costs were 53.8 billion and 11.7 billion, respectively, for a total of 65.52 billion, accounting for 58.3% of total revenue.

The express track that "heavily relies on e-commerce" is becoming increasingly crowded 6

SF Express performed well during the epidemic, with H1 business volume reaching 3.655 billion in 2020, a sharp increase of 81.3% compared to 2019 H1.

Although single ticket revenue plummeted to 18.4 yuan, a decrease of 5.2 yuan or 22.1% from H1 in 2019, the gross profit margin miraculously increased by 1.3 percentage points to 18.7%. The final deduction of non-net profit reached 3.445 billion, an increase of 47.8% year-on-year; the net profit rate was 4.8%, an increase of 1 percentage point from the 2019 H1.

It is necessary for SF Express to rethink its pricing strategy, reduce fees, increase business volume, and make scale benefits stand out.

Coincidentally, in 2020, H1 Zhongtong will also show a surge in business volume and a decline in single ticket revenue. In the first half of the year, the business volume of China Express was 6.97 billion yuan, a year-on-year increase of 29.8%; single ticket revenue was 1.28 yuan, a year-on-year decrease of 22%.

Zhongtong is the forerunner of “transit and direct management”

SF Express’s direct-sales model is not inborn, but a “strong revenue and strong purchase” of franchisees after six years (2002~2008).

Zhongtong was established in 2002 and is the youngest member of the Tongda Department. In 2005, Zhongtong took the lead in operating the inter-provincial shuttle bus, which was the first of its kind in the “transit direct operation”. Unlike SF Express, ZTO does not engage in overall direct operation, and the franchisees are responsible for the collection and delivery of parts. Instead, it invests heavily in sorting and trunk transportation to engage in direct operation. The advantages of the franchise and direct operation modes are both integrated.

Nowadays, the necessity of “transit and direct management” has been widely recognized, and members of the Tongda Department have put it into practice. But the leading advantage of Zhongtong has been established.

From the perspective of business structure, Zhongtong is almost a “specialized transfer fee company.” In 2019, ZTO’s business volume reached 12.1 billion orders, and its transfer fee income was 7.47 billion, accounting for 83.5% of express delivery business income. Each transfer fee income is 1.4 yuan, much higher than other members of the Tongda Department.

The express track that "heavily relies on e-commerce" is becoming increasingly crowded 7

In 2019, Zhongtong’s single-ticket transit cost (including trunk transportation, sorting and others) is about 1 yuan, and the gross profit margin of transit business is close to 28.6%. In H1 of 2020, the transfer fee of Zhongtong fell to 1.07 yuan, but due to factors such as the drop in oil prices, the single transfer cost also fell to 0.79 yuan, and the gross profit margin of the transfer business was still 26.1%.

Among other members of the Tongda department, only Yunda and Shentong disclosed the revenue and cost of the transit business. In 2019, Yunda’s single-ticket transfer business revenue and cost were 0.91 yuan and 1.09 yuan, respectively, and the gross loss rate was 20.3%; the situation of Shentong was slightly better. In 2019, the single-ticket transfer business revenue and cost were 0.95 yuan and 1.03 yuan, respectively, and the gross loss rate was 9.1%.

The express track that "heavily relies on e-commerce" is becoming increasingly crowded 8

During the epidemic, the express delivery giants cut prices one after another, which is both self-protection and social responsibility. In the final analysis, the track is too crowded.

SF Express is fully directly operated, and Zhongtong is “transit directly operated”. Several other “transit direct operations” still require huge investment, and life will not be too easy, but it seems that they can “survive”.