Recently, the State Post Bureau reviewed and issued the "Guiding Opinions on the Merger and Restructuring of Express Delivery Enterprises" (referred to as the "Opinions"), encouraging the merger and restructuring of express delivery enterprises of different ownerships. According to a recent announcement by Sinotrans, the competition in domestic express delivery business is too fierce, and foreign express delivery companies lack cost advantages. Therefore, Sinotrans DHL has transferred all 100% equity of its holdings in Quanyi Express, Express Company, and Jinguo to Shenzhen Youhe Daotong Industrial Co., Ltd. through equity transfer. The three express delivery companies mentioned here actually refer to the mainland and Hong Kong business of DHL's domestic express delivery brand "Sinotrans All in One". The time gap between the two events is very short, and the official release of the opinion makes people speculate on the entire process and future development of the transfer of Quanyi Express.

Dunhao Enters Domestic Express Delivery with Quanyi

To understand the entire process of the transfer of Quanyi Express, it is necessary to mention the previous wholly-owned parent company, Sinotrans DHL. The company was established in 1986 with 50% investment each from DHL and China Foreign Trade Transport Group Corporation. It is the earliest and most experienced international air express company in China, with its main advantage in global express delivery business. It was not until 2004 that Sinotrans DHL began to operate domestic express delivery services mainly focused on parcels. At that time, it mainly served DHL's global contracted major customers, accounting for a small proportion of the overall business volume.

Due to the optimistic outlook on the domestic express delivery business at that time, DHL had already made significant moves before acquiring Quanyi Express. In 2009, Sinotrans DHL acquired Beijing Sinotrans Express, a wholly-owned subsidiary of Sinotrans Group. According to informed sources, Beijing Sinotrans Express was originally a courier business developed by Sinotrans. Since 2004, it has undergone about five years of development. Although it has not yet turned around, its scale is steadily growing and its network is rapidly expanding.

At that time, Sinotrans DHL also hoped to develop domestic express delivery strategically. In order to optimize the platform, learn from DHL's successful express delivery operation experience, and avoid industry competition, the parent company of Sinotrans Development spun off its express delivery business, and all equity of Beijing Sinotrans Express Company was transferred from Sinotrans Development to Sinotrans DHL. This merger can be considered a natural and effortless process.

After acquiring all the equity of Beijing Sinotrans Express Company, Sinotrans DHL continues to search for acquisition targets and seeks faster expansion. In June 2010, Sinotrans DHL announced the acquisition of 100% equity in Quanyi Express and jointly launched a new brand called "Sinotrans Quanyi" with its acquisition of Sinotrans Express a year earlier.

Short-lived marriage alliance

As the saying goes, 'there are unpredictable changes in the sky.' The integrated operation of Sinotrans seems to have encountered ups and downs, and it is not as smooth as imagined when the acquisition was made. Especially in terms of timing (the introduction of the new national postal law), geographical location (market environment), and human resources (the integration of teams from state-owned and private enterprises by foreign-funded enterprises), the situation is not good. These unfavorable factors cast a shadow over this' not blessed 'marriage alliance.

When acquiring Quanyi Express, DHL predicted that the policy environment of China's domestic express delivery industry would become increasingly relaxed in the future, but the fact is exactly the opposite. The newly introduced Postal Law not only clarifies the status of express delivery enterprises for the first time in law and proposes entry thresholds for the express delivery industry, but also explicitly stipulates that foreign investors are not allowed to invest in domestic express delivery services for letters. This is extremely unfavorable for COSCO Shipping, which has a shareholder background in DHL. There have been reports quoting Xu Kewei, CEO of DHL International Express Asia Pacific, as saying: "This regulation not only includes wholly-owned foreign express delivery companies, but also joint venture express delivery companies. This means that according to legal regulations, Quanyi Express, which was acquired by Sinotrans DHL, will not be able to engage in related document delivery business, but this business volume can account for 35% of our overall business volume." The introduction of this policy has brought unprecedented policy constraints to Sinotrans Quanyi, which has joint venture heritage, making it difficult for Sinotrans Quanyi. On the other hand, the express delivery industry involves cross management of multiple departments such as industry and commerce, traffic management, and transportation, and there are significant differences in employment among different express delivery companies. As a joint venture express delivery company, Sinotrans Quanyi appears relatively rigid in the face of China's complex government cross management and employment environment, which directly reduces its competitiveness. Even some industry insiders pointed out bluntly that the Chinese and foreign shipping companies have been choked due to being too standardized in their work.

The cost of standardization, coupled with the business restrictions on foreign-funded joint venture express delivery companies under the Postal Law, has brought the alliance between Sinotrans Quanyi and DHL to an end. The statement that Sinotrans DHL has decided to transfer 100% of its shares in Quanyi Express to Youhe Daotong has been circulating for nearly a month, and recent announcements from Sinotrans Development have further confirmed this news.

China's express delivery dilemma is difficult to break through in the short term

From a micro perspective, Shenzhen Youhe Daotong Industrial Co., Ltd., which has taken over the transportation of all goods, is a domestic enterprise with good professionalism and growth potential in the industry. Especially after the acquisition, it can further leverage its economies of scale. And insiders also revealed that the equity transfer and business development of Quanyi are in line with policy guidance and are the best solution in the current policy and market environment. However, from a macro perspective, the fate of Sinotrans Quanyi, which was acquired and transferred one year later, reflects the common predicament faced by Chinese express delivery companies.

On the one hand, domestic express delivery companies are "small in scale, weak in strength, scattered in operation, low in industrial concentration, lagging in operation and management capabilities, price wars, delays, and frequent lost packages, which have attracted national attention." Ma Junsheng, Director of the State Post Bureau, said, "The ultimate goal of promoting the merger and reorganization of express delivery companies is to optimize industrial layout, transform development mode, promote the transformation and upgrading of the express delivery industry, and achieve leapfrog development

According to reports, with the release of the "Opinions", 56 unlicensed express delivery companies, including Shentong and Zhongtong, have been banned, most of which are non direct franchise outlets. However, it remains to be seen how long this shuffling process will take and what the outcome will be.

On the other hand, the new Postal Law stipulates that foreign investors are not allowed to invest in domestic express delivery services for letters. Although it is a short-term protection for the few domestic enterprises that can operate letter express delivery services, this practice undoubtedly blocks the market improvement effect of first-class express delivery enterprises with standardized management and mature operation. This policy is a double-edged sword.

Comparing the development process of the foreign express delivery industry with that of China, it can be found that this process is opposite in some aspects both domestically and internationally. The development of the express delivery industry abroad first had a "regular army" and strict industry standards, followed by the emergence of industry scale. On the contrary, in China, there was a surge of thousands of express delivery companies, among which there was chaos and few enterprises above a certain scale. The so-called industry norms are still being continuously improved.

Xu Kewei, CEO of DHL Asia Pacific, recently stated that "the operational threshold for domestic and international express delivery is different. The threshold for domestic express delivery is a policy threshold; the threshold for international express delivery is a natural business threshold, such as network, technology, facilities, etc. Currently, there are more than 3000 express delivery companies competing in the domestic express delivery market in China, which is a headache. When the commercial and legal environment of domestic express delivery is standardized, it is the time for us to enter." Foreign companies that are in opposition to the development pace of the domestic industry may temporarily withdraw from this market, and only they know the taste of "not adapting to the local conditions". From the CEO's words, we can also boldly speculate that Sinotrans DHL has not completely abandoned the domestic express delivery market, but has participated in this undeniable market more flexibly through strategic cooperation. Perhaps one day in the future, the scene of foreign investment competing for domestic express delivery will eventually emerge.

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