Alibaba vs. Amazon: How e-commerce giants are reinventing forwarding

The power of an open network

This coy cat-and-mouse game Alibaba and Amazon are playing belies the massive scope of what they are trying to accomplish. Essentially, they are striving to become the ultimate integrators, providing not only the post-sale logistics, shipping and last-mile delivery of goods, but also the distribution of the same goods from the factory to the warehouse and the selling of the merchandise online.

With the explosion of B2C and C2C e-commerce, the Alibaba Group was one on the first online mega-retailers to realize, back in 2011, that the intense demand from its customers would far outstrip the ability of the express firms to delivery merchandise on time. China still doesn’t have the equivalent of a FedEx or a UPS that could blanket the entire country to provide overnight service to everyone. So Alibaba’s founder Jack Ma decided that instead of building his own huge warehousing and logistics operation, like the major integrators did, he would lead the development a vast “open logistics platform,” that all express players could access.

The result is the China Smart Logistics Network, run by Cainiao Network Technology Co., Ltd., a consortium in which Alibaba is a leading player. Included in this network are some of China’s top express firms – SF Express, Shentong Express, Zhontong Courier, Yuantong Express and Shanghai Yunda Express – as well as retailers Yintai Group and Fosun International. Launched in 2013, Cainiao (which means “rookie” in Mandarin) today operates in 12 main cities across China, plus 1,200 village-based service centers and more than 100,000 delivery stations that reach far into rural areas. More than 30 million packages ordered through Alibaba’s online portals, such as Taobao, Tmall, and 1688.com, are easily handled by the Cainiao network every day.

Ma said that he wanted Cainiao, eventually, to deliver online orders to any address in China, no matter how remote, in eight hours or less. As of the end of 2015, that goal, dubbed by Ma as “the virtual urbanization of every village across China,” is still some way off (there are a lot of remote villages in China), but Cainiao has made great progress. However, as ambitious as that goal is, it turns out only to be the beginning of Alibaba’s vision.

Global ambitions

If the first two years of Cainiao’s domestic e-commerce growth could be considered “Phase I” of its business strategy, “Phase II” began roughly at the mid-way point last year, when Daniel Zhang took over the CEO spot at Alibaba (Jack Ma is still chairman). Soon after taking the job, Zhang said globalization is the new goal – to replicate what Cainiao achieved in China and spread it worldwide.

Rather than just focusing on same-day delivery, Alibaba now wants to be able to open distribution centers around the world so that any package could be sent anywhere the world in just three days, regardless of distance. A June 2015 study by Accenture estimated that this kind of cross-border e-commerce trade will be worth about $1 trillion by 2020, serving 900 million shoppers.

According to a report from China Money Network, Cainiao Logistics is considering a new round of fundraising to total up to US$6 billion to supplement its plans to pour $16 billion into a global network over the next five to eight years. Aside from that, there are few details available about Alibaba’s specific plans to follow through on its grand scheme.

Amazon, too, is rumored to have similar ideas about dominating the global e-commerce, but because of its unwillingness to comment on its strategy, much of its vision has come out piecemeal. For instance, after Air Cargo World’s sister publication, Cargo Facts, reported on the express air trials in the U.S. and Europe, and later broke the news about Amazon’s plans to launch its own-controlled U.S. domestic express operation, beginning with the acquisition of a fleet of twenty 767-300 freighters, Amazon refused to confirm or deny any involvement.

In early February, however, all pretense of innocence on Amazon’s part was shattered by a report in Bloomberg News, which leaked excerpts from Amazon documents dating as far back as 2013, indicating the online giant’s apparent interest in creating a global logistics network to throttle Alibaba, as well as its erstwhile shipping partners, FedEx and UPS.

With a name that may or may not be a nod to its China-based competition, Amazon dubbed its global strategy the “Dragon Boat” project. The plan was to begin a rapid expansion of its Fulfillment by Amazon (FBA) service, which provides storage, packing and shipping services for merchants that sell good on Amazon’s website. The documents also describe a plan to take control of the entire supply chain, from transporting goods from factories in India and China to delivering parcels on customers’ doorsteps on the other side of the world.

The documents also said that, possibly as soon as this year, Amazon would begin its “Global Supply Chain by Amazon” service that would work directly with thousands of merchants around the world to arrange air, road and ocean space on trucks, planes and ships at reduced rates – all via mobile devices.

“Sellers will no longer book with DHL, UPS or Fedex but will book directly with Amazon,” the leaked 2013 report said. After working with third-party logistics firms and carriers to build its network, Amazon would then be able to price out everyone else by its sheer volume and ability to book cheaper cargo space.

FedEx founder Fred Smith said in these page last December that he considered Amazon a “partner” in his express empire. But when the long-range plans of Amazon and Alibaba are taken into consideration, it becomes clear that integrators such as FedEx and UPS will become adversaries.