Ding Wendang uses local express delivery services almost daily to ship the items he sells on Taobao, a popular online shopping site. Though his customers typically pay the shipping charges, his primary consideration in choosing an express delivery service is usually cost, not the safety of the goods. But Ding is nevertheless frustrated by the quality of the service he receives.
"My goods have been damaged many times. I just can’t get compensation. The only time I got compensation was when I used [delivery service] Yunda, but the procedure was very complicated and there is a lack of standardization," he said. Thanks to pending regulations, Ding may be able to get better service in the future, but costs are likely to go up.
While Chinese consumers are highly price sensitive when it comes to shipping costs, that doesn’t mean they are any more satisfied with the status quo than Ding is. An official website for consumer issues, www.315ts.net, received more than 10,000 complaints in 2008 about similar unresolved issues with local express delivery companies.
Until recently, the domestic express delivery industry flourished practically unchecked, resulting in a saturated market in which some 5,000 registered express delivery service providers, called kuaidi, compete. This has kept costs down for customers, most of whom are apparently willing to ship cheap and hope for the best. While the kuaidi services give the Chinese mass market what it wants – the lowest possible price – the government isn’t satisfied. There are public costs to the wastage created by lost and damaged goods, and – perhaps more pertinently – the existence of so many fly-by-night operations puts pressure on state-owned postal services’ profit margins.
Beijing’s most recent attempt to reign in the wayward firms came in the form of the new Postal Law that took effect October 1. According to the law, package delivery companies must get an operating license, which will cost them US$73,000-147,000, and submit to regular inspections of their service quality. Unregistered domestic firms are not permitted to deliver letters, postcards, and government documents. Those caught operating without certification or in violation of the terms face hefty fines of US$7,000-15,000.
At the same time, the new rules prohibit foreign-invested firms from delivering domestic letters. The major global couriers are not happy. The same day the law was announced, the Conference of Asia Pacific Express Carriers (CAPEC), which represents the four big international carriers – TNT, FedEx, DHL, and UPS – released a statement claiming the new legislation "[would] erode the competitiveness of foreign invested firms against their domestic counterparts in the wider express market and eliminate market incentives to maintain or improve customer-focused service."
The European Union Chamber of Commerce in China (EUCCC) echoed CAPEC’s sentiments in a strongly-worded statement, calling the legislation "protectionist" and "a step backwards." The American Chamber of Commerce expressed similar disappointment.
However, there is some confusion as to exactly how much damage the new regulations will do to the foreign companies’ share in the market. Perhaps it is because the regulations are likely to weaken their domestic competitors, or because they prefer to let the lobbying organizations do their griping for them, but the firms themselves don’t seem too distressed.
FedEx Senior Vice President Eddy Chan said the improvement of service standards is a boon for customers, and credits the State Postal Bureau (SPB) for supporting both domestic and foreign companies. He said that foreign competition has had a salutary effect on domestic service providers. For example, when FedEx arrived in China, domestic express firms did not offer a time-definite service. But because FedEx offers three options for time-definite service, such as next day and two-day delivery, many domestic companies have followed suit.
As for the restrictions, Chan stressed that the law only prohibits international express companies from handling domestic documents. "I don’t think that will significantly affect transportation companies penetrating into the domestic express market because the parcel market is a huge market."
TNT North Asia Managing Director Michael Drake said that the new laws are aimed at domestic companies. He believes they will have little effect on the big four, whose primary business is international delivery. These four firms account for 80% of China’s international express delivery market.
"The delivery of domestic letters is not among the core services provided by foreign express service providers," added an external EUCCC consultant.
Even so, the organizations representing the international players have not altered their initial stance on the new legislation. They are also still petitioning the SPB on other issues plaguing the sector, such as inordinately burdensome bureaucratic procedures, heavy taxes and a lack of transparency.
The domestic services agree the rules are aimed at them. The general manager of domestic express delivery service An Xin Da Express, who gave his name as He, is concerned: "Express companies, including us, will suffer greatly. This will bring very bad consequences."
Still, the kuaidi’s pain is unlikely to be the international express companies’ gain. For one thing, it would take an enormous increase in costs before the small merchants would consider changing providers.
For example, He Ping sells clothes on Taobao and is unhappy about the domestic service providers. While she has never had to file for compensation, she still complains of inconsistent service. "There are many companies that deliver, but the quality of the personnel varies from region to region," she said.
But if she wants to increase the likelihood that the goods will arrive intact, she knows her customers won’t want to pay extra for it.
"It’s the customer that pays for delivery, so they want the cheaper prices as well," she said. "But the Chinese companies don’t guarantee the delivery arrives intact … even if I am willing to pay extra. For those goods which are very expensive we deal with [China Post’s Express Mail Service] EMS, but EMS is much more expensive than the other private companies."
For foreign firms, the price difference is even more significant. Kuaidi companies offer their services for as little as RMB5-10 (US$0.73-US$1.46) for next-day or same-day deliveries within the same city. FedEx shipping rates begin at twice that amount.
As far as most of the international express services concerned, though, price isn’t really an area of competition.
"FedEx focuses more on those high-value goods purchases," said Chan. "With that, the customer may pay a premium, but in return they can get guaranteed service … The transportation cost is not important [to high-end customers]."
The foreign firms also focus on the most developed portions of the country. Richard Brubaker, founder and managing director of consultancy China Strategic Development Partners, said even though domestic customers will sometimes use foreign companies for security, their limited geographic reach remains a liability – and a missed opportunity.
In the long run, the effects of the policy will be mixed. In the short term, however, little is likely to change on the ground. Even though the new rules have already formally passed into law, they will take a while to become effective. According to state media, the SPB will give firms a year to raise funds and standards before enforcing the new regulations.
Until then, shipping costs may remain relatively stable. But given the kuaidi’s thin margins, the costs of quality control will most likely be passed down to consumers. Shipping packages and shopping online are about to get more expensive.