Emerge as a dark horse from Indonesia
Looking back, Amazon, as the e-commerce behemoth of the United States, has firmly maintained its dominant position on the global stage. However, the rise of Chinese e-commerce enterprises is reshaping the global market landscape. These companies have not only won consumers' favor through efficient supply chain management and innovative marketing strategies but also proactively explored rapid channels to reach global users, ensuring swift delivery of goods to every corner of the world.
As the e-commerce industry continues to surge, it places higher demands on the logistics sector. Express delivery companies require robust logistical infrastructure to support their expanding operations, including modern warehousing facilities, efficient distribution networks, and widespread application of digital information technologies. Against this backdrop, J&T Express has surged forward.
On June 16th, J&T Express(Chinese:极兔), a global logistics service provider, submitted its prospectus for an initial public offering (IPO) in Hong Kong. With its origins in Indonesia in 2015, J&T Express (J&T) gained a strong presence based on its founder Jet Lee’s extensive distribution network built during his tenure as CEO of Oppo Indonesia and the well-established Chinese express delivery models. The company prides itself on providing comprehensive delivery services to local leading e-commerce platforms such as Shopee(Chinese: 虾皮购物), Lazada (Chinese: 来赞达), and Tokopedia(Chinese: 商店百科). It now expanded its operations into Latin America and the Middle East, spanning 13 countries.
In 2022, J&T delivered a staggering 14.6 billion parcels, achieving a remarkable compound annual growth rate of 112.3% from 2020 to 2022. Breaking down the figures by region, J&T achieved a parcel volume of 2.5 billion in Southeast Asia with a market share of 22.5%, surpassing its closest competitor by threefold. In China, the company achieved a parcel volume of 12 billion in 2022, securing a market share of 10.9% and ranking sixth in market share.
J&T previously raised multiple rounds of financing from blue-chip investors, including Boyu Capital(Chinese: 博裕投资 ), Hillhouse Capital(Chinese: 高瓴资本 ), Sequoia Capital China(Chinese: 红杉资本中国) and Tencent Holdings Ltd(Chinese: 腾讯控股). The IPO filing showed J&T 's ambition to raise capital as the company is ready to embark on exciting new chapters in some of the fastest-growing markets.
Charting a thriving path
J&T had leveraged its aggressive acquisition strategy to expand its footprint in China since its entry. In 2019, J&T acquired Longbang Express(Chinese:龙邦物流) to gain a license to operate the business in China. In September 2021, it successfully acquired Best Express (Chinese: 百世汇通) for USD 1.1 billion, followed by the purchase of Fengwang Express(Chinese: 丰网) from S.f.Holding Co., Ltd. (Chinese: 顺丰), significantly enhancing its infrastructure and gaining access to e-commerce orders from Alibaba Group. Through these acquisitions, J&T seize the opportunity to bolster its presence in the Chinese market without spending three to five years building infrastructure from scratch.
These acquisitions, coupled with its ability to secure partnerships with major players including Alibaba(Chinese: 阿里巴巴) and PDD (Chinese: 拼多多) . From 2020 to 2022, the company's top five customers accounted for respective revenue shares of 44.6%, 39.4%, and 25.7%. It is worth mentioning that the financial data further shed light on the substantial contribution that PDD has made to J&T Express' financial performance. The orders from PDD not only enable J&T to have a reliable revenue stream since its entry into the Chinese market but also navigate a challenging initiation within a remarkably short span of one year. This achievement surpassed the timelines required by its well-established competitors, including STO Expres (Chinese: 申通快递), YTO Expres (Chinese: 圆通速递), ZTO Expres (Chinese: 中通速递), Best Express, and Yunda Express(Chinese: 韵达速递), who took more than a decade to attain a comparable level of success.
It is undeniable that the deep ties between J&T and PDD helped the company win a portion of the market share. Despite that PDD has frequently denied any special relationship with J&T, J&T is a company carrying BBK’s (Chinese:步步高电子工业有限公司) DNA. The connection between PDD and J&T could be traced back to the founder of BBK Duan Yongping, who is also the mentor of PDD founder Colin Huang, Jet Li, and OPPO’s CEO Chen Mingyong. The convergence of these influential individuals and their respective endeavors demonstrates the huge impacts generated by the web of relationships in China's complex world of business.
The business model of J&T is another strong factor for its quick expansion. Drawing from his extensive experience of over 15 years at OPPO, Jet Li developed a distinctive business model that incorporates what he refers to as "regional sponsors”. J&T would outsource a portion of its operations to regional partners, engaging them in a wide array of responsibilities encompassing deliveries, customer support, parcel retrieval, and collaboration with local courier networks. By empowering its regional partners with the autonomy to develop localized expansion strategies and providing equity interests as incentives, J&T Express has effectively streamlined its capital expenditures while swiftly gaining market presence, as stated in its prospectus.
Overall, by capitalizing on strategic acquisitions, securing major E-commerce players, and a unique business model, J&T has earned itself a spot in the competitive Chinese logistics landscape.
Underneath J&T’s crazy expansion lies concerns
The arrival of J&T Express, renowned for its competitive pricing, disrupted the landscape of China's domestic express delivery sector. In the bustling hub of Yiwu in Zhejiang province, which stands as the nation's largest express delivery center, J&T's entrance triggered a wave of disruption by subsidizing shipping costs for local merchants associated with PDD. This resulted in a remarkable reduction in delivery prices, with rates dropping to as low as CNY 1 for parcels of all sizes. This approach of offering low prices also came with several concerns. One of them is the attention of regulatory authorities, who raised concerns about the impact on market stability. On April 6, 2021, the Yiwu Postal Administration took a stand and issued a warning letter to J&T Express to ensure a fair and sustainable marketplace for all participants. Additionally, the strategy of maintaining low prices leads to financial loss. From 2020 to 2022, the company incurred average annual gross losses of USD0.28, USD0.15, and USD0.06 per shipment, respectively.
More importantly, low prices have never been the core competitiveness of the express delivery industry; Rather, it is the quality of service and customer experience that truly matter. In November 2022, the State Post Bureau released the public satisfaction rankings for domestic express delivery services in the third quarter of 2022. The top five express delivery brands were JD Logistics (Chinese: 京东物流), SF Express, China Post EMS(Chinese: 中国邮政), ZTO Express, and YTO Express, with all of them scoring above 80 points. J&T, on the other hand, achieved a score in the lower range, ranging from 77 to 80 points. The crucial test for J&T lies in regaining consumer trust.
Furthermore, unlike its Chinese counterparts, such as SF Express and YTO Express, which spent a decade establishing their foothold before going public, J&T Express is just an eight-year-old baby. Although J&T's service covered most large cities, it still can’t compete with the established players in accessing the rural and remote areas. Not to mention that Cainiao Express (Chinese:菜鸟速递), JD Express, and SF Express are all striving to provide "same-day delivery" services.
At the end of March, Cainiao, in collaboration with Tmall Supermarket(Chinese:天猫超市), announced the launch of half-day delivery in Hangzhou. In May, this service expanded to other cities such as Shanghai, Guangzhou, Chengdu, and Shenzhen. SF Express announced that its "same-city half-day delivery" service has grown to over 80 cities nationwide, achieving 100% coverage in key large cities such as Beijing, Shanghai, Guangzhou, and Shenzhen. In April, JD Logistics introduced an innovative service called "Cloud Warehouse Delivery," offering a cost-effective, efficient, and superior half-day delivery fulfillment solution for O2O non-immediate demand orders.
Another major concern stems from J&T’s worrying profitability status. The company currently profitable only in Southeast Asia, experienced modest yearly revenue growth of 4% in 2022, accompanied by a slight decline in net profit. The situation gets worse when Southeast Asia is not even the company's primary source of income. In the previous fiscal year, the region contributed to approximately 32.8% of J&T's sales. Comparatively, the China market proved to be the major revenue driver, accounting for a substantial 56.4%.
Lastly, according to the "2022 Annual Report on Express Delivery Market Supervision" released by the State Post Bureau, the total business volume of express delivery companies nationwide reached 110.58 billion parcels, a growth of 2.1% compared to the previous year. The cumulative revenue from express delivery services reached CNY 1.057 trillion, a growth of 2.3% compared to the previous year. With such slow growth rate of the national express delivery industry, J&T 's future growth seems unpromising.
A series of problems such as low consumer trust, limited access to remote areas, unfavorable economic climate, and industry war centered around last-mile services signify that J&T going public is just the beginning, as the fiercer competition lies ahead.
Where does J&T’s future lie?
As mentioned above, J&T has willingly foregone immediate profitability within the Chinese market in exchange for more market share. Such lavish spending relied on its substantial fundraising. The contraction of profit margins within its Southeast Asia operations, coupled with the uncertainties surrounding J&T Express' capacity to sustain competitive pricing battles in China and other international markets, has forged a sense of urgency for the company to pursue a public offering, aiming to secure additional capital. The prior IPO of JD Logistics encompassed a three-month journey from application to listing. Although J&T Express currently has better financial figures compared to JD Logistics during its IPO phase, the certainty of a successful listing remains uncertain. Compounded by mounting uncertainties surrounding profitability and diminishing liquidity within the Hong Kong stock market, the question lingers as to whether the IPO will yield adequate capital for J&T Express. Looking ahead, the question lies in whether J&T can find a sustainable model that balances affordability and long-term profitability.
On the other hand, as J&T expands its global footprint, emerging markets in Latin America and the Middle East contribute 10.8% of the company's revenue. J&T currently operates in 86 countries and regions globally and provides support for various transportation modes. With rich experience collaborating with e-commerce platforms such as SHEIN (Chinese:希音), TikTok, Temu（PDD's overseas version）, Shopee, and Ali Express(Chinese: 速卖通), J&T could be able to tell a new story if it put more efforts on the global market, especially when these e-commerce platforms take off. Diversify revenue streams by capturing opportunities across various regions, while highlighting the significance of China as the key market would contribute to the company's continued growth and success as well.