China is becoming the new land of opportunity for marketers. The country has 250 million to 300 million people who can be considered middle class, and that number is expected to double by 2020.
Chinese consumers are clamoring for products that Americans consider necessities — electronics and pharmaceuticals — but are too expensive to get in China. The country's annual international trade has reportedly surpassed $1 trillion.
International express delivery companies recognize what's happening and are investing heavily in the market. As a condition of its membership in the World Trade Organization in 2001, China agreed to let foreign couriers operate wholly owned international express mail businesses in the mainland after Dec. 11, 2005. Until then, the companies must partner with ones from China.
“China is going great guns,” said John Flick, a spokesman for United Parcel Service International, which starts domestic express service across most of the country next month. “Our volume across Asia climbed 40 percent [in the second quarter], led by China, which doubled in volume. China is no longer an option, it's essential. If you can't offer China to your customers, you are dead in the water.”
To capitalize on the growth, carriers are taking over the international express operations of their Chinese partners and building expansive warehouse and distribution centers as well as quality control centers, service centers and air cargo hubs.
FedEx expects air freight from China to the United States to grow an average of 9.6 percent a year over the next 20 years.
“We are very excited about China,” said Don Colleran, FedEx senior vice president of international sales. “Not only for us, but for folks that manufacture and make things and for people that sell things. China is the next economic gold rush.”
China has some direct marketing companies and catalogers selling Chinese-manufactured goods and U.S.-based companies selling into China. Still, most companies request cash on demand when delivering goods, said Charles A. Prescott, vice president of international business, development and government affairs at the Direct Marketing Association. And that's not the most efficient system for DM, but the system is about to change.
“Within five years, every Chinese citizen will have a credit card,” Prescott predicted. “The government is encouraging the banks to issue credit cards.”
All of this carrier activity is crucial when companies enter China, he said, because a familiar infrastructure will be in place.
UPS: Control of Sinotrans
UPS' growth strategy in China involves its taking control of Sinotrans Ltd., which provides air, ocean, road and rail freight forwarding. Sinotrans is a subsidiary of logistics giant Sinotrans Group, owned by the Chinese government.
UPS, Atlanta, has worked with Sinotrans since it entered the Chinese market in 1988. Last year, UPS agreed to pay $100 million to take over most of Sinotrans' international express operations in 23 business locations, covering more than 200 of China's largest cities, by the end of 2005.
To further link China with markets worldwide, UPS opened three new warehouse and distribution centers in Shanghai, Suzhou and Futian in February. The facilities, with 866,000 square feet of space, expand to more than 40 the number of Chinese logistics centers operated by UPS Supply Chain Solutions. By the end of 2006, 20 more will open. These facilities are designed to distribute textile/apparel, high-tech, automotive and consumer goods for export and import.
UPS also said last month that it will start domestic express service within China. The contract-only service already is available to select customers in five metropolitan areas, with the rest to be implemented next month.
“We intend to have the most extensive package delivery and logistics offering to, from and within China,” UPS International president David Abney said. “This move increases the value proposition that UPS brings to businesses within China as well as to global companies with multiple operating locations in China. It also recognizes the longer-term potential of a rapidly growing consumer marketplace in China.”
To serve this rapidly expanding network, UPS introduced a China-wide toll-free customer service hotline in January. Last fall, UPS began flying the first six of 12 new flights to China with service to Shanghai, where the company's Greater China office is located. As part of that, UPS started nonstop service to Guangzhou and will establish a Shanghai air hub in 2007.
DHL's Strategy Differs
UPS' approach is opposite from DHL, which has said its 50-50 joint venture partnership with Sinotrans is key for its competitiveness.
DHL was the first foreign express deliverer to enter China via an agency agreement with Sinotrans in 1980, and the first international express joint venture, DHL-Sinotrans, was established in 1986.
A 50-year partnership between DHL and Sinotrans parent Sinotrans Group still has more than 30 years to run. Deutsche Post World Net, DHL's parent company, also is a 5 percent equity stakeholder of Sinotrans. According to DHL and UPS, the Sinotrans partnerships will not overlap.
DHL-Sinotrans has developed the largest air express services network in China, covering 318 cities with branches in 56 major cities.
DHL-Sinotrans also opened a quality control center near Beijing's Tianzhu Airport last month that will allow real-time monitoring of all flight information and shipment movement data, from pickup at the customer's home or office to final delivery. This is DHL's 11th such facility in the Asia Pacific region.
DHL, Plantation, FL, also is building gateways and service centers of its own throughout China and has increased its uplift capacity on its Hong Kong-Shanghai segment by 35 percent.
Since the start of 2005, the company has strengthened its Asia Pacific air network. In April, two new direct overnight express services were introduced — between Beijing and Hong Kong and Shanghai and the United States. The services launched shortly after DHL began an overnight service four times a week between Hong Kong and Nagoya, Japan.
FedEx Heads to Southern China
FedEx, Memphis, TN, will replace its Asian hub in the Philippines with a new $150 million facility in Southern China's Guangzhou, with twice the sort capacity of the Subic Bay center.
The facility, to be located at Guangzhou's Baiyun International Airport, is to open in December 2008. It will have 270,000 square feet of floor space, employ 1,200 people at startup and be capable of sorting up to 24,000 packages an hour, double the capacity of the Subic Bay site. The project was announced last month.
“We are not leaving the Philippines,” Colleran said. “We're just moving our hub and spoke system from Subic Bay — which has served us very well over the years — to Guangzhou, which gives us a tremendous amount of flexibility and capacity. In that market, he or she who has the network and the capacity really wins the game. That's why we are building our investment in China.”
Colleran noted a significant manufacturing presence from a variety of industries in the Guangzhou area.
FedEx operates 23 flights weekly out of China, more all-cargo flights to and from the country than any other U.S. airline.
In addition, FedEx will fly new Airbus 380 jets between Asia and North America, and the Guangzhou airport “has the capability and capacity to handle that aircraft, which will be core to our international expansion going forward.” The announcement also means that FedEx will have one more primary gateway. It now has gateways in Shanghai, Beijing and Shenzhen.
FedEx also has a 6-year-old joint venture with Tianjin-based express transportation company Datian W. Air Service Corp.
USPS Links to Pacific Rim
Not to be left out, the U.S. Postal Service and other leading postal administrations began offering a day-certain guaranteed delivery service last month linking Australia, China, Hong Kong, Japan, South Korea and the United States. The service reaches 261 million business and household delivery points.
“These are key areas for our customers,” said Jim Wade, USPS vice president for international business. “The Pacific Rim continues to grow in global significance as the nations there experience unprecedented growth in trade. It's where our customers want to be.”
Along with the USPS, the postal administrations in the network are Australia Post, China Post, Hong Kong Post, Japan Post and Korea Post. These six agencies control 60 percent of the world's mail flow.
Melissa Campanelli covers postal news, CRM and database marketing for DM News and DMNews.com. To keep up with the latest developments in these areas, subscribe to our daily and weekly e-mail newsletters by visiting www.dmnews.com/newsletters