The price war among the logistics companies and the deepening control of Ali Group could be the reason for the profitability shriveling.
On November 19, 2020, ZTO Express announced its Q3 operating result. The logistics company achieved CNY 6.64 billion revenue, up 26.1% year-on-year, and a net profit of CNY 1.21 billion, down 7.4% year-on-year. It also reported an increase in the delivery volume to 4.62 billion, up 51.2%, and takes 20.8% market share.
The company’s net profit has experienced its third quarterly fall in a row. In Q1 2020, during the COVID-19 epidemic, the company achieved CNY 1.86 billion net profit. However, its net profit dropped to CNY 1.45 billion in Q2 2020. The average decrease rate reached 24.0% from Q1 to Q3. This was mainly due to a price war among the largest logistics companies in China, such as STO Express, YTO Express and Yunda Group. Logistics companies use price wars to take more market share and try to recover more quickly from the COVID-19 impact. Now the price war looks like a vicious circle.
Moreover, the deepening control from Ali Group could also be a reason for the decrease in profitability. Since Ali Group became the second-largest shareholder of ZTO Express in 2018, over 85% of the total deliveries are e-commerce deliveries and the percentage is increasing. Though the cooperation with Ali Group brings much business, the price per e-commerce delivery is far less than the regular one. In sum, the logistics company may need to improve its profitability by focusing on these two problems.