Logistics "Air War": Players, Logic and Imagination

Competition among logistics companies is moving from the ground, into the sky.

Over the past few years, several major airlines, including Air China, China Southern Airlines and China Eastern Airlines, have completed mixed reforms and spun off their cargo business to form new companies. Everyone's intention is to focus on providing cargo capacity for high-end manufacturing, cross-border e-commerce, and fresh cold chain market development, in addition to providing general cargo transport services.

At the same time, the express industry leader in the scale bottleneck, in order to get rid of homogeneous competition, caijiao, shunfeng, jingdong, roundtrip, ems, zhongtong, etc., through the expansion of the fleet, build airports, mergers and acquisitions, in the field of aviation layout into the accelerated period.

 

It can be seen that the giants are coincidentally moving towards new markets to capture the opportunities of industrial upgrading, consumption upgrading and new incremental markets in an orderly manner.

Since the completion of the independent listing of Donghang Logistics in 2021, in the first half of this year, Air China Cargo and China Southern Airlines Logistics have appeared capital action.

At the beginning of April, China Cargo Airlines updated its prospectus; at the end of May, China Southern Airlines issued an announcement agreeing to spin off its subsidiary, China Southern Airlines Logistics, to be listed; so far, the three giants of the mixed reform of the logistics sector to accelerate the landing, and is expected to be gathered in the year in the A shares.

In fact, from 2016 onwards, the three giants have successively started to carry out mixed reform of the cargo sector, laying the groundwork for independent listing. In this process, everyone has successively introduced enterprises related to the logistics field. For example, there are Cainiao and Shenzhen International in the shareholders of Air China Cargo, Sinotrans and GLP in the shareholders of China Southern Airlines Logistics, and Deppon and GLP in the shareholders of China Eastern Airlines Logistics.

From the perspective of the time point of the layout of the cargo business of several major airlines, around 2002 is the stage of professional division of labour. At this time, Air China, China Southern Airlines, China Eastern Airlines set up a cargo department, using the belly of the resources to provide logistics and transport services.

Around 2007, it was the stage of express division of labour. Accompanied by the differentiated development of domestic express enterprises, the logistics services of the Cargo Department of the Airline Division began to advance from general cargo transport to express time products.

Around 2012, it was the stage of vertical integration, and the cargo department of the shipping company began to enter the vertical development one after another. With the rapid development of 3C electronics, biomedicine, cold chain transport, cross-border e-commerce and other industries, each of them formed solutions for vertical industry segments.

It can be seen that the positioning of the freight sector of the airline company is gradually clear, and ultimately manifested in the prospectus and financial results, respectively, air cargo services, air cargo terminal services, integrated logistics solutions in three major segments.

According to everyone's public financial data, the three giants freight business revenue in 2022 have reached the level of 20 billion yuan, accounting for the proportion of the total revenue of the airline company ranging from 20% to 50%. The cargo segment has become a key force in the revenue of several major carriers in the past few years.

However, the revenue of the cargo business is still secondary, the most eye-catching performance is that the cargo business in the past few years each year for the airline company to contribute 2-5 billion yuan of operating profit.

It should be noted that over the past three years, the total loss of the three giants exceeded 200 billion yuan, equivalent to their profits in the past ten years combined. In this comparison, the freight business has properly become the "profit cow" of the airline company.

From the dimension of capacity assets, the current three giants are mainly passenger aircraft cabin, supplemented by all-cargo aircraft, and showed a gradual expansion of the scale of all-cargo aircraft trend.

At present, the scale of all-cargo aircraft of Air China Cargo is 15, the scale of all-cargo aircraft of China Eastern Airlines Logistics is 15, and the scale of China Southern Airlines Logistics has reached 17 after the introduction of new freighters in succession this year.

The expansion of capacity is due to the stability of business scale. Over the past few years, the cargo volume of the three giants has been stable at more than one million tonnes. In terms of 2022 data, the cargo volume of Air China Cargo, China Eastern Airlines Logistics and China Southern Airlines Logistics will be 991,100 tonnes, 1,326,500 tonnes and 1,143,100 tonnes respectively.

The outstanding performance of revenue scale, business scale, profitability, high growth and other dimensions means that the cargo segment of the airline company is increasingly equipped for healthy growth.

Of course, in addition to the shipping company itself to split the cargo business for independent operation, express delivery enterprises to reach a certain size, also began to build fleet, build airports.

Recently, the Hunan Provincial Department of Commerce news that the provincial port office recently held a scheduling meeting, a special study of the joint venture between China Express and Hunan Airlines to form a cargo airline project related to the work situation.

This means that, after SF, Jingdong, Yuantong, China Communication also want to build airports.

At present, SF is the first private courier enterprise to build its own airport and fleet. Its hand in hand with Hubei Ezhou, built the first domestic professional cargo airport - flower lake airport, all-cargo aircraft fleet size reached 81;

Yuantong and Zhejiang Jiaxing City Government signed a strategic investment agreement, the construction of global air logistics hub in Jiaxing Airport, the current fleet size of 13; Jingdong Logistics Nantong City Government signed a strategic cooperation framework agreement, is committed to building Nantong Airport for Jingdong Logistics global air cargo hub, the current fleet size of 4; China Postal Airlines fleet size of 31.

In the past, the layout of the aviation field is the time-sensitive label of SF. Today, more and more players enter, trying to touch Shunfeng across the river, trying to break the blurred zone between economic express and business express.

The driving factor behind this is that the head of express delivery to find a new source of profit in the economy of scale.

On the one hand, homogeneous competition, enterprises inevitably fall into the vicious circle of increasing revenue without increasing profits.

Currently, the mainstream express delivery enterprises have reached ten billion votes per year business scale. Even before such a scale of business, Best Express, Shentong Express in the past few years are facing a loss situation, especially in the extreme rabbit churning, have to face the homogenisation of the price competition. Eventually, Best Express domestic business choice "sold" pole rabbit, Shentong Express "sold" Ali.

On the other hand, the economic courier into SF, Jingdong hinterland.

Under the scale effect, economic courier is gradually shorten the time gap between SF and Jingdong, the time limit of ordinary products is basically stable within 72 hours. On this basis, Shentong, as a representative of the players, began to unite the layout of Cainiao based on the warehouse network, to carry out the core economic circle of the time limit again.

This process can be found, shunfeng cut economic courier downward strike, huge investment did not burn a net, but dragged the main body, so that it fell into a micro-profit situation. Eventually, SF chose to "break the arm for survival", focus on the main business, will Feng network sold to the pole rabbit.

And similar to the economic express such as Zhongtong, is in the scale effect, product layering logic, upward attack, complete profit catching up.

This contrast can be found under the "price war" under the courier business roll is the cost of capacity, now the aviation is becoming a key battle of the courier business roll service.

As a result, following the completion of the first professional cargo airport in China by SF, Jingdong, Yuantong, and Zhongtong have one after another put the construction of airports and fleets into an important strategic position to see.

In particular, Zhongtong Express. 2018, Zhongtong Express set up Starlink Aviation, layout of air freight, the mode of operation is based on the cooperation of the airline company, and now it will also begin to embark on the road of self-built airports.

Of course, the new profit source of express enterprises is more than just time-sensitive products.
The imagination of air cargo, in addition to time-sensitive layering, there are new increments.

According to the financial reports and prospectus data of the logistics sector of several major airline companies, the air cargo sector has three main business directions: express express, cross-border e-commerce, high-end segmentation.

Express express business, mainly to the postal service, express express, air freight forwarding and other customers in the same industry, to provide traditional air freight forwarding business; cross-border business is mainly derived from cross-border e-commerce in recent years has shown a high growth trend, is becoming an important engine of growth in China's foreign trade, showing sufficient growth; high-end segmentation is in the airline vertical mining, the formation of biomedical, 3C electronic, aviation equipment and other market segments.

Which is the big head in this business structure?

According to Air China Cargo's prospectus data reveals that its international business revenue accounted for 78.30%, 78.78% and 83.36% in the past three years, which means that about 80% of the business comes from cross-border logistics.

2020-2022 international business share of national cargo airline

Previously, the relevant person in charge of logistics of China Southern Airlines has also revealed that China's high-end manufacturing industry, cross-border e-commerce industry under the global layout, accelerating the pace of China's manufacturing and China's products to enter the global supply chain era, the cross-border industry is the most critical driving force of air cargo.

Meanwhile, comparing the tonne-kilometre revenue of the three giants' international business and domestic business, the international business is basically 2-3 times of the domestic business. Under the superposition of high business scenarios, high unit tariffs and high growth potential, cross-border e-commerce logistics has become the main track of air cargo.

Ton-kilometre revenue of international routes of the three major airlines in 2020-2022

Ton-kilometre revenue of domestic routes of three major airlines, 2020-2022

However, this does not mean that cross-border business will continue to lead air cargo to run fast. The high profit level of air cargo over the past few years has been the result of a combination of factors.

Firstly, as domestic enterprises actively participate in international trade, demand for air logistics is growing. Secondly, under the epidemic environment, international capacity is in short supply, which has led to an increase in air logistics prices. Thirdly, the main procurement costs such as jet fuel, aircraft and aviation materials did not increase significantly by the same margin.

Under the combination of several factors, air cargo showed high profitability.

Next, with the market supply and demand relationship gradually returning to normal, more and more players in the air cargo field, it is expected that the market competition will revert to the normal development trend, or even the state of micro-roll. At this time, there is still much room for progress in the service capability of air cargo companies.

This trend of service points to the extension of the service chain, the establishment of end-to-end capabilities, and the enhancement of the whole chain time efficiency.

In the past, air cargo enterprises focused on trunk transport, and the carrier segment of the air logistics business had relatively limited bargaining power for upstream and downstream. With Air China Cargo, China Eastern Airlines Logistics, China Southern Airlines Logistics and other companies have accelerated the transformation of the traditional freight business, in the traditional air transport services as the core, based on the gradual extension of services to the two ends of the air logistics chain, dedicated to achieving the "end-to-end" flow of goods, and integrated fusion of transport, warehousing, distribution, information and other services, competition is about to move from dry to dry. With the integration of transport, warehousing, distribution, information and other service functions, the competition is about to shift from mainline capacity to internationalisation of the whole chain.

At present, airports and aircraft fleets are becoming the grips of giants. Similar to Cainiao, SF and other enterprises are relying on airports, overseas HUB nodes to extend the end-to-end capabilities, continue to play the advantage of resource integration, relying on self-built, acquisition, and strengthen the control of the whole chain.

Overall, it seems that the air cargo field is ushering in more and more players. This scenario, which represents the high-end market label, is becoming a key point of differentiation for logistics companies.