DHL Express says it will take a long time for it to return to the mainland domestic market, which is too fragmented and regulated.

    The global courier express giant decided to scrap its mainland domestic service in June after cut-throat competition saw it suffer US$15.64 million in losses since last year. Instead, it strengthened its international service, reported the South China Morning Post.

    "It's very difficult for a company like ours, which believes in process, brand and quality, to compete with people who ride on bicycles, walk or take the [train] to deliver barbecued pork," said Jerry Hsu, the chief executive of DHL Express Asia-Pacific.

    Hsu said DHL had no pricing opportunity to deliver quality services on the mainland because most of the customers did not recognise reliability and speed – the company's core strengths and competence.

    DHL-Sinotrans International, a 50-50 joint venture, bought Apex, a mainland delivery company, for $46.96 million in 2009.

    At the time, DHL believed the venture would open opportunities in a courier service market that was blossoming in response to the explosion of buying goods through online shopping portals – from clothes to electronic gadgets.

    In the first seven months of this year, express cargo volume on the mainland rose 53 per cent year-on-year to 1.9 billion pieces, while sales grew 27.6 per cent to $6.21 billion, State Post Bureau figures show.

    Growth was attributed to intra-city and inter-city services, which saw sales increase 62 per cent and 35 per cent, respectively. Meanwhile, international express deliveries rose just 5.6 per cent to $1.64 billion.

    However, robust sales figures do not guarantee profit. Apex lost $15.53 million last year, followed by a further $5.17 million loss in the first three months of this year. It blamed the highly fragmented courier market, which has 35,000 local players.

    Another big blow to DHL was a change in government policy. In October 2009, the state passed a law prohibiting foreign-invested entities from delivering local documents or letters, which account for 35 per cent of total shipments.

    Losing one-third of its business overnight prompted Hsu to reappraise its investment and position in the domestic market. "We wish we could have known earlier that the law would change, and if we did, we wouldn't have invested."

    Hsu shrugged off media reports that disagreements between DHL and Sinotrans were one of the major reasons for its decision to quit the domestic market.

    Boardroom meetings within DHL-Sinotrans were harmonious, he said, and the two companies were a "happily married couple".

    Since quitting the domestic market, DHL had focused its attention on the international express business. Hsu said the company was building a bigger hub at Shanghai Pudong International Airport, which would open in March next year. It would also deploy more aircraft to serve the mainland market.

    DHL would consider a return to the domestic market when it became more mature through consolidation, customers started to recognize quality services, and foreign players allowed to deliver local documents again. But Hsu doubted this would happen soon.

    "Today, I don't know. As a responsible manager, I need to get out. You need courage to invest as well as the courage to make the call to quit when the timing isn't right," he said.
 

source:cargonewsaisa