As global trade recovers, so do China’s exporters – but rising costs are pushing many businesses inland. Logistics companies have been on the leading edge of corporations moving beyond China’s coast as lower-tier markets develop. CHINA ECONOMIC REVIEW spoke to Eddy Chan, senior vice president at FedEx China, about the company’s plans to develop networks inland and how a changing economic situation affects relationships in the industry.
Q: What sectors of China’s economy are most important for FedEx’s business and growth?
A: First of all, as an international express company, we are actively involved in the import and export trade here in China. It’s been good to see the import and export environment in the previous few months improve significantly, and I would say that FedEx has benefited a lot. We are involved in quite a lot of high-value goods movement, and we have seen that this sector of the market is improving. Quite a lot of high-tech customers are exporting goods, particularly to the US and Europe. For the previous six to nine months, we have also seen local consumption doing well. In addition, the economy has been moving inland, so we have been expanding our coverage to second- and third-tier cities.
Q: When you say that local consumption is doing better, what are local consumers importing?
A: We have seen quite a lot of movement in electronic goods. In addition, the B2C (business-to-consumer) market is booming. For example, we are working with Taobao customers to facilitate their shipping. I think our services are critical to them because we offer reliability. We are also helping some B2C companies to collect cash on delivery of the shipment, which really enables the B2C market to develop more effectively.
Q: How has working in less developed inland markets compared to working in first-tier cities?
A: I think that there are a couple of differences. First of all, customers’ knowledge of international shipping and domestic express shipping is not as comprehensive, which means that our people have to spend more time explaining the benefits. The second thing is that some of these customers are not as experienced with shipping, so our people need to offer more ancillary services to them. For example, we give them tips on how to pack their packages so that there will be more protection, or help them prepare their international paperwork, so that when they send their goods overseas, it will not cause any customs problems. Beyond that, some of these customers may not know how to make use of the internet to track their shipments.
Q: Is FedEx still predominantly dependent on its relationships with multinationals outside of China in order to generate business within China?
A: It is changing over time. Part of it has to do with the changing economic situation here. In the past, multinational companies dominated. But in the past few years, local companies have been playing a very significant role in the overall economy. From that perspective, we have many local customers. And also, quite a lot of small and medium-sized customers really appreciate the service FedEx offers to them. In the past, when you approached these customers, they may have just focused on price, but now due to competition, due to more exposure to the outside world, these customers appreciate the value of our service. In the previous year in China, part of our focus has been on enhancing our services.
Q: Can you name some specific initiatives?
A: In January of this year, we launched a non-stop Boeing 777 flight from Shanghai to our superhub in Memphis [Tennessee]. With the launch of this flight, we can improve our pickup time in Shanghai by two hours – from 6 p.m, to 4 p.m. In February of last year, we moved our Asia-Pacific center from the Philippines to Guangzhou to improve our inbound service as well as outbound service in the southern part of China.
Q: What about domestic services? Does the new Postal Law unfairly favor local companies by blocking international carriers from domestic document delivery?
A: We believe fair competition between all market participants is the best way to ensure Chinese businesses have access to the best possible service. We remain concerned about the Postal Law in China, which limits competition by excluding foreign firms from the domestic document delivery business. However, since this is the law, we will continue to provide domestic service in China within the framework of the new law, and will work with the state postal bureau to ensure full compliance.
Q: Assuming fair competition, how does FedEx intend to keep its edge in China?
A: One of our competitive advantages is our people. We have quite a lot of programs to develop our people here in China, which is beneficial to our overall development here.
Q: Will that development mean changing services?
A: Our strategy is to provide comprehensive service options for our customers. We are the first international express company to provide domestic express services in China, and with the expansion of the FedEx trade network here, we are offering ocean and air forwarding services. We have different types of products. Our international economy service, for example, can address the concerns of customers on price but also meet their requirements for reliability.
Q: What are your plans for handling the logistical loads of more services to western China?
A: We keep on expanding our coverage here in China, and the western part of China offers excellent opportunities. Because of this, last year we expanded our customer service center in Wuhan. In addition, in the coming years, one of our focuses is to expand the number of cities we serve. The majority of the cities to be added to our network will be in the western part of China.
Q: What challenges do you see for the future of shipping in China?
A: One is air traffic control delays. If you take domestic flights frequently here in China, you would agree that many domestic flights are delayed because of air traffic control problems. This affects the ability of express companies to provide reliable services. The second problem is that the licensing process in China is complicated. It takes time for customers to get all the licenses necessary to establish a network here, but I think the process is improving. Overall, we are very confident about China’s economic prosperity. We are at the right time and the right place with an excellent team. We are very confident that our development here in China will continue to be good.