Chinese eCommerce Experiences Logistical Growing Pains

21. August 2018.








As Chinese eCommerce continues to grow, the race to build warehouses and site them to support quick, efficient deliveries is heating up in that country.

But complications are emerging.

Financial Times framed the battle as one that mirrors “the broad competition among Alibaba, Tencent and to dominate China’s eCommerce market, which churned out revenue of Rmb7.18tn ($1tn) last year, according to the commerce ministry.” Online retailers are vying for “high-quality warehousing space, one of the few links in the logistics chain not handled in-house by the eCommerce companies given the high upfront capital costs of owning property.”

Chinese eCommerce produces some 40 billion parcels a year for delivery, according to state figures cited in the report, and so far has led to the construction of at least 52 million square meters (about 560 million square feet) of warehouse space — which still pales in comparison to the estimated one billion square feet of warehouse space built in the United States in the last decade.

Amazon accounts for a decent chunk of that U.S. space. Overall, the eCommerce operator and cloud services provider operated at the end of 2017 a total of 254 million square feet of space, which includes all types of buildings, not just warehouses. Amazon has added 30 percent to its warehouse space over each of the last two years as it seeks to offer quicker deliveries on more products to more consumers.

Consumer Demands

Consumer expectations for quicker deliveries drives much of the warehouse construction and siting in China — and that, as the report noted, means companies have to anticipate consumer demand and political moods.

Transport can eat up to half of logistical costs, so having more warehouses closer to more consumers is a no-brainer. That, of course, has led to a race to build space in the country’s largest cities, but now things are becoming more complicated.

For one, consumers outside the biggest cities are buying more online. Beyond that, those cities are starting to crack down on industrial sprawl via zoning restrictions and reducing how long leases can run. Both of those general factors have combined to dampen investment in warehouses, with a 4 percent year-over-year growth rate in 2017, down from 5 percent for 2016 and 28 percent in 2015, according to the report.

Rural Concerns

Warehouse oversupply, meanwhile, is becoming an increasing problem outside the major cities along the Chinese coast, especially as the country invests more in infrastructure for its inland regions.

“There’s been a forced development and repositioning of the facilities in the marketplace by the government,” said Stuart Ross, head of industrial in China for real estate services firm JLL. “China has the largest road network in the world. It’s also got the largest rail network. Those infrastructure improvements, as well as development of scores of new airports and seaports, have enabled this industry sector to really thrive.”

Major eCommerce players in China have tried to have a more direct role in logistics and delivery, but there have been stumbles. Take Alibaba: Late last year, it decided to take direct control of its money-losing delivery business, Cainiao. Over the next five years, the firm intends to spend $15 billion bettering and expanding its delivery network. That network currently serves approximately two million people across more than 600 cities.

Chinese eCommerce will certainly need more warehouse space as that industry grows and consumers come to expect all but instant delivery of their goods. But figuring out where to build those warehouses — and pleasing the politicians whose approval is needed — promises to become more complex.

0 0 vote
Article Rating

Notify of
Inline Feedbacks
View all comments
Would love your thoughts, please comment.x
Register New Account
Login to
Reset Password