JD Logistics Goes Plane Shopping to Tap Air Freight Demand

JD Logistics, the logistics arm of Chinese e-commerce giant JD.com, has gone shopping for planes to tap into surging demand for air freight services in China. Richard Liu, chairman and chief executive officer of JD.com said “The air freight industry is currently growing at a very fast pace.” He noted that JD Logistics’ total revenues climbed to RMB100 billion (US$14.61 billion) in 2015, up from about RMB20-30 million (US$290000-450000) in 2010. He said, “JD was like an elephant running on the ground and now it is transforming itself into a bird taking off for flight.”

“We are preparing very hard; we have thousands of delivery planes ready,” The chairman added without elaborating further on how many planes this involved or when they would be used. He made his comments during a conference call with analysts after JD reported its fourth-quarter results ended December 31.

The CEO also stated, “The logistics industry has been growing at breakneck speeds, with the average growth rate at 40 percent annually over the past few years.” He added that JD.com is China’s largest e-commerce company by revenue and second-biggest after Alibaba’s Tmall in terms of gross merchandise volume (GMV).

“While our two main rivals are both giants with deep pockets, we have to be creative about how we operate,” The company’s chair said. “We will continue to invest heavily in logistics infrastructure as the foundation for future development.” He also indicated on Thursday during earnings call that JD was looking at building its warehouses outside major cities like Beijing and Shanghai where there were already too many facilities, as a way of reducing costs. He also said JD was exploring other ways to cut the cost of its logistics infrastructure, such as using drones for delivery from rural warehouses and combining online sales with brick-and-mortar stores.

Richard added that the company’s goal is to become one of China’s top five retailers by 2020 in terms of revenue. He stated, “We know very well we have a long way ahead.” He noted that while the core marketplace business will remain important going forward, JD plans to expand into more areas including physical retailing through acquisitions and new channels like convenience stores and supermarkets where it can sell directly onto shelves instead of requiring customers to visit a website first before buying products via their smartphones or computers. He also said JD is looking at areas like high-end apparel, cosmetics, and pharmaceuticals as potential new revenue streams.

Richard Liu added that China’s logistics industry would soon become an important battleground with Alibaba now having its own logistics unit called Cainiao Network after it paid US$680 million to take a 25% stake in Shanghai YTO Express (Logistics) Co Ltd last September. He stated, “It will be interesting; they are our direct competitor.” He indicated that the company’s partnership with Walmart Stores Inc., which bought 15 percent of JD for $500 million two years ago, was still on track despite falling short of some targets including GMV growth rates due partly to issues surrounding Alipay – the online payment service run by Alibaba affiliate Ant Financial – Liu said: “This is not an easy thing to control, but we are trying.”

Richard Liu also stated JD’s logistics arm would now operate as a separate unit under the company’s main e-commerce business instead of being part of its parent entity. He added that this was key to ensuring it could attract talent and continue working closely with other units like finance and technology because there were many synergies between them. Liu noted “We want our customers to be able to shop online 24/24 365 days a year so we have made huge investments in warehousing, delivery capabilities, and supply chain management over the years. He added “Last year alone saw us invest US$12 billion in logistics infrastructure, a figure that will rise to US$16 billion this year. Liu added, “We are always on the lookout for opportunities when it comes to building our capacity and developing new businesses which is why we believe working with Airbus makes perfect sense.”