Exclusive later丨JiTu is negotiating with SF Express for a shareholding, explaining the logic behind the transaction in detail

Original link: https://www.latepost.com/news/dj_detail?id=1700

In the third year after entering China, Jitu Express, known for its aggressiveness and boldness, has started a new round of mergers and acquisitions. In May, Jitu spent 1.18 billion yuan to acquire Fengwang Express, a subsidiary of SF Express, which is an economical express delivery business established by SF Express in 2020. But this deal is just the beginning of the cooperation between the two parties.

“LatePost” exclusively learned that SF Express is currently negotiating with Jitu for a shareholding cooperation, and may invest in Jitu Global at a ratio of 1% – 2%. The specific investment amount and cooperation details are still under discussion.

Jitu was founded in 2015 by Li Jie, the founder of OPPO’s Indonesian business, and has grown into the largest express delivery company in Southeast Asia within 4 years. In the second half of 2019, Jitu returned to China for development, and became the fifth in China’s express delivery industry three years later. However, at present, China’s express delivery industry has entered the era of stocks, and Jitu is less likely to seek greater growth space here, and its eyes are once again turning overseas.

After SF Express failed to sink in 2021, it set internationalization as its second growth curve. Kerry Logistics, which it acquired, is currently the second largest express delivery company in Southeast Asia. It once had fierce competition with Jitu in Thailand. A person close to SF Express said that the two sides are expected to have a truce after this cooperation.

Today, the wave of Chinese e-commerce going overseas is one of the few opportunities for emerging express delivery companies to go global. For the two companies eager to explore the international market, cooperation is more urgent than competition – Jitu has overseas customer resources, as well as terminal distribution networks in Southeast Asia, the Middle East, and South America; SF Express has China’s largest air cargo fleet and rich Aviation trunk network, the two parties can jointly seize this window period faster. Otherwise, they also need to spend three to five years building the infrastructure from the ground up.

“LatePost” asked Jitu and SF Express to confirm the news, but no official response was received.

A Formidable Chinese Adversary



Three years ago, after Jitu shifted its business focus from Southeast Asia to China, relying on the support of Pinduoduo, launching a price war as a subsidy for merchants, and spending more than 20 billion yuan to build infrastructure, it became the fifth place in China’s express delivery industry.

Acquisition is a common method it uses to expand its domestic territory. In 2019, Jitu obtained the Chinese express delivery business license through the acquisition of Longbang Express; in September 2021, it acquired and integrated Best Express for 6.8 billion yuan, which greatly improved its infrastructure, raised the upper limit of production capacity and obtained An order from an Taobao e-commerce company. But this time, the acquisition of Fengwang may not bring much help to Jitu’s business.

Many extremely rabbit people expressed similar views to “LatePost”. In the year before the acquisition, SF Express has reduced its investment in Fengwang, and its order volume has dropped from a peak of 8 million orders to around 3 million orders. Previously, Fengwang mainly relied on SF’s infrastructure to support its operations, and there was not much self-owned infrastructure for Jitu to use. After the news of the acquisition was announced, SF Express also announced that it would refund security deposits, deposits, and provide compensation to Fengwang franchisees, which further accelerated the loss of Fengwang franchisees.

A person close to Jitu revealed that the essence of this transaction is that Jitu hopes to establish a deeper trust relationship with SF Express and seek more cooperation. An Jitu investor took the SF Express investment as an example. If the transaction is concluded, Jitu will receive capital supplements. “Buying Fengwang about equals not spending money.”

In 2020, when Jitu came to China, the founder Li Jie hoped to learn from China’s more advanced experience, improve efficiency, and then go to a larger global market. It is understood that the two parties may seek cooperation in the international freight business, and use SF Express’s aircraft and air routes to carry e-commerce packages carried by Jitu.

As the largest cargo airline in China, SF Express has nearly 100 cargo aircraft, and has opened cargo routes to and from Europe, North America, Southeast Asia and other regions. This is also a popular destination for Jitu’s overseas customers. According to CITIC Securities’ previous research on SF Express, SF Airlines’ mainline loading rate is 51%, which is lower than FedEx and UPS’s 61% and 73%. In theory, SF’s aircraft can carry more packages.

Right now, Jitu is shifting its focus back to the global market, which is also the choice Jitu has to make after the growth of its domestic business has slowed down.

In 2022, Jitu’s market share and ranking in the Chinese market will not go any further. It once hoped to continue to cooperate with Pinduoduo to expand market share through joint efforts to subsidize merchants; and then put the money raised and profits obtained in the Southeast Asian market into the country to build a basic network and obtain economies of scale.

For a time the plan worked. However, as Pinduoduo has introduced more logistics partners in the past two years, Jitu’s parcels have no longer increased significantly, and the proportion of parcels it carries in Pinduoduo’s total daily parcels has remained at around 20%.

Today, when the number of express parcels in China stays at 300 million pieces per day and does not increase significantly, competitors also begin to squeeze each other in their own way. ZTO and YTO, which rank first and second, have lowered prices to varying degrees this year; STO, which ranks fourth, also plans to sacrifice profits for growth, reaching third before the third quarter of this year.

A number of franchisees from Guangdong and Jiangsu, the main production areas of express delivery, told LatePost that since March 2023, the price of three links and one delivery in some areas of the two provinces has been lower than that during the express price war in 2021. An industry insider believes that the price reduction of ZTO and YTO means that the two companies have achieved results in network construction in the past few years, and can make single-piece express delivery cheaper.

For Polar Rabbit, this is not good news. In the case of similar price levels, merchants are more inclined to use express services such as ZTO and YTO, which have more stable services and timeliness. In terms of market share, in the first quarter of this year, ZTO’s market share increased to 23.4%, YTO’s to 16.58%, STO’s to 12.48%, and SF’s to 10.67%.

“LatePost” learned that Jitu’s best performance in the past year was a peak of 40 million orders in June last year. Since the third quarter of last year, Jitu’s goal has shifted to pursuing national gross profit and has given up large-scale subsidies. At the end of the year, Jitu China achieved a positive gross profit by shrinking its scale. As of April this year, the average daily order volume of Jitu failed to exceed 40 million orders.

Many people from Jitu said that in order to cope with possible future listing plans, Jitu allows a certain loss of market share, but does not want to generate large losses, so it will not follow up a large number of subsidies in future competition. This means that the opponent’s squeeze erosion of the pole rabbit will continue.

The express delivery industry has also returned to the competition of efficiency and cost today. The resources invested in the past determine today’s efficiency. The opponents are more powerful than Jitu. They have purchased more land, updated vehicles and equipment in the past ten years, continuously reduced costs and improved efficiency. This is directly reflected in the capital investment of several companies. The capital expenditure of ZTO Express, the industry’s first, reached 27.5 billion yuan in the past three years, and STO, which invested the least, also reached 8.9 billion yuan.

1c50cc393a41cef4c45361b0d4828460.png

Jitu’s previous acquisition of Best Express has helped its production capacity reach the level of 55 million orders. However, in terms of efficiency and cost, Jitu and its acquisition point, Best Express, do not have an advantage. The gap with the industry’s No. 1 ZTO is not only 25 million one. If Jitu wants to grow bigger and healthier in China, it must shorten the cost gap with its opponents as much as possible. These absent courses cannot be won quickly by subsidies, and Jitu will need to make up for them at a higher cost in the future.

“LatePost” learned that from 2021 to 2022, Jitu will spend about 3.5 billion yuan on upgrading and expanding the transshipment center, updating equipment and increasing production capacity. At present, Jitu’s franchisees, trunk lines, and franchisees in various regions are also increasing investment to improve and improve service quality.

A person close to Jitu revealed that the company has realized that under the current fierce competition, the express delivery industry will undergo major changes in the next year. There may be at least one laggard among the top five players, and the order volume ranking will be at the end. The polar rabbit is facing greater pressure.

SF’s Second Growth Curve

For a long time, “SF Express” was an alternative to China’s express delivery industry. This company represented speed and quality.

SF’s fortification was built on the early vision of its founder, Wang Wei. He established China’s largest air cargo network, and firmly grasped the most profitable business in the express delivery industry – time-sensitive express mail with an average price of more than 20 yuan per piece. About 70% of the time-sensitive express mail in the Chinese market is in the hands of SF Express.

Santong Yida chose another route—economic express delivery at 2-3 yuan per order. They traded profits for scale in the wave of e-commerce in the past decade, and survived the price war and knockout competition that lasted for several years.

Since 2013, SF Express has followed the fast-growing e-commerce market and launched standard parts with a 40% discount on the price of time-sensitive parts. Since then, it has successively launched lower-priced e-brand express, special special distribution and Fengwang. In 2020, Fengwang and Jitu will start online in the same year, but Fengwang is positioned at a higher end, priced at 3-5 yuan, and plans to erode the mid-to-high-end market of three links and one reach.

SF’s original idea for Fung.com was to use the remaining capacity of SF’s main network to operate products at low cost. Recruit franchisees in areas with a large volume of express delivery to receive e-commerce parcels, and rely on SF’s terminal outlets to deliver parcels for them. After reaching a certain scale, more franchisees will be recruited, and an independent distribution center and transshipment network will be established to realize self-collection and self-collection. group.

This idea was once successful. At the beginning of its establishment, Fengwang played the slogan of “SF’s service, Tongda’s price”, and attracted a large number of franchisees and e-commerce customers. The peak order volume once reached 8 million orders.

However, the influx of orders has brought new problems. The capacity that SF Express can overflow is lower than expected. If the quantity of Fengwang Express exceeds the carrying capacity of SF main line vehicles, the excess parcels will be stranded in the transfer centers at all levels, resulting in impaired user experience. If a new car is opened again, Fengwang will be unable to pay the vehicle fee because the package price is too low, and the business will face the risk of loss.

During the big e-commerce promotion seasons such as “Double 11” and “6.18”, in order to give priority to guaranteeing time-sensitive and standard-fast e-commerce items with higher profit margins, SF Express asked SF Express to actively reduce production and franchisees to reduce receipts, resulting in customer loss . Some merchants who use Fengwang will also falsely claim that they use SF Express to send their parcels. As a result, users still haven’t received their parcels after three or four days, and vent their dissatisfaction on SF Express. After that, SF Express began to cut off from Fengwang, and Fengwang was not allowed to use the name of SF Express to attract customers, and words such as “SF Express”, “SF Express” and “SF Express Net” were not allowed to appear on the face sheets.

In the first quarter of 2021, SF Express suffered its first single-quarter loss since its listing due to its investment in new businesses such as Fengwang and special special distribution. Gross profit margin slipped from nearly 20% when it went public in 2017 to 7.16%. Superimposed on the price war set off by Jitu and Santong Yida, SF’s stock price fell by more than 30% in the quarter, and its market value fell by more than 200 billion yuan.

The performance fluctuated sharply, and Wang Wei had to stand up and apologize to investors. He admitted that there was a problem with the company’s operations and guaranteed that a similar situation would not happen again. A person from SF told “LatePost” that after Wang Wei apologized, the company’s investment in sinking business and new business unrelated to the main business was greatly reduced. Supported by a large number of resources, it has become more and more marginal in the SF Express system.

The above-mentioned SF people believe that today SF’s attitude towards China’s express business has changed from offense to defense. The network integration previously planned by SF Express is still continuing, but the core purpose is no longer to touch the extreme low price and drop to 2-3 yuan sharply, but to maintain the basic market, such as e-commerce with an average price of more than 7 yuan 5-6 yuan to ensure stable service and prevent further upward penetration of opponents.

Starting in 2021, SF Express began to plan going overseas as the company’s new second curve, and acquired a 51.5% stake in Kerry Logistics, the second largest express delivery company in Southeast Asia, for HK$17.555 billion, but this was not enough to support SF Express’s ambitions.

Kerry still faces fierce competition in the Southeast Asian market. Starting in 2021, Kerry’s express delivery business, Kerry Express, and Jitu, and Thailand’s local express, Lightning Express, are in a fierce price war. The annual profit turned from HK$40 million in the previous year to a loss of HK$826 million.

A number of people from SF Express told “LatePost” that SF Express’s expectation for the future is to challenge the world’s top three express delivery companies, which means that SF Express needs to find more opportunities in overseas markets. Today, the world’s top three express delivery companies firmly grasp 80% of the world’s international express delivery business by virtue of their huge fleet size and transshipment network, occupying an absolute advantage in cost and efficiency. In the international market, there are not many opportunities left for emerging express companies.

For Jitu and SF Express, cooperation is the best choice to open up a new front in a market surrounded by strong enemies.

5770d74c2e6e086e8a5b6e638a935a4b.png

What SF Express wants and what Jitu can give

A number of people close to Jitu and SF Express told “LatePost” that Jitu has overseas customer resources, as well as terminal networks in Southeast Asia, the Middle East, and South America; SF Express has an aircraft network and air trunk lines, and cooperation can help Jitu increase overseas Logistics line to supplement transportation capacity.

A person from Jitu told “LatePost” that if the two sides choose to fight alone, whether it is SF Express’s self-built terminal network and attracting customers, or Jitu’s self-built aviation trunk line, it will take three to five years, and they will not be able to keep up with the current situation. In this wave of Chinese e-commerce going overseas, the market may also be intercepted by DHL and FedEx.

E-commerce is one of the few opportunities for emerging express delivery companies to go global. The three major express delivery companies led by UPS, FedEx, and DHL account for 90% of the world’s international express shipments. With their global hub sites and hundreds of cargo planes, they have a cost advantage. It is difficult for latecomers to challenge them on the frontal battlefield. As one of the few emerging global express delivery companies in the past few years, Jitu relies on order support from Chinese cross-border e-commerce companies such as Temu, Shopee, TikTok, and SHEIN.

b81ed0d9fe3759577d7b50bf6a6d79a8.jpeg

However, from the current point of view, the effect of this cooperation still has considerable uncertainty. “LatePost” learned that Jitu’s cross-border business is in the stage of exchanging subsidies for market size as a whole, and is still losing money.

International freight usually adopts the bidding model, and the lowest price wins. We have previously reported that about 50% of Temu’s overseas packages are carried by Jitu, and the price Jitu charges Temu is about 40 yuan/kg (approximately equal to the delivery fee at the end of the United States), which is lower than the market price of 80-100 Yuan/kg. In this regard, Jitu International claimed that the news was not true.

SF Express can provide aircraft and air routes, which means timeliness and stability, but it does not mean that the cost is better.

In the past three years, when the new crown pandemic led to the reduction of passenger flights, cargo flights were once hot, but when the world returns to normal order and a large number of passenger flights resume, they will take part of the cargo orders. The price of sending goods by passenger plane is about 70% of that of using a dedicated cargo plane.

In the short term, if this cooperation wants to achieve greater results, SF Express must subsidize with Jitu to attract more customers. In the long run, this business depends on how much users are willing to spend—whether e-commerce platforms are willing to pay a premium for faster and more stable logistics.

A problem that cannot be ignored is that most of the air parcels sent overseas by Chinese cross-border e-commerce companies are small items with low unit prices. For more controllable and stable standard products, especially large-scale products, when destination consumers have formed a continuous buying habit, e-commerce platforms can solve the first-leg logistics through low-cost sea transportation, and build local Local warehousing, and then consider solving distribution problems at the destination.

Only when these cross-border e-commerce platforms intend to provide a faster and better shopping experience, and at the same time, the unit price of the goods must be high enough, will they be more motivated to choose air parcel service providers with better timeliness. It is still unknown how the future e-commerce platform will bring continuous order growth and how expensive the products can be sold.

But today, Jitu and SF Express have to cooperate. This is one of the few opportunities they are unwilling to give up to open up overseas battlefields.

This article is transferred from: https://www.latepost.com/news/dj_detail?id=1700
This site is only for collection, and the copyright belongs to the original author.