Fast-growing Chinese delivery firm ZTO is broadening its network with new facilities in Chengdu and Zhejiang after recently expanding a fresh goods delivery service and successfully testing drone deliveries.
The listed company announced yesterday that it has begun trial operations at its newest sorting hub in Chengdu, Sichuan. The sorting hub is ZTO's largest in Western China in terms of parcel volume.
Located in Longquanyi District in Chengdu, the sorting hub covers approximately 15 hectares and will incorporate in-house developed cross-belt sorting systems which will allow it efficiently sort more than 5 million parcels per day. ZTO invested approximately RMB400 million in its construction and expects full operations to begin in early October 2017.
The launch of the Sichuan sorting hub is part of the Company's preparations for the enormous surge in orders that will take place during the 11.11 shopping festival in November 2017.
Meisong Lai, Chairman and Chief Executive Officer of ZTO, commented: "The launch of trial operations at our largest sorting hub in Western China is critical to meeting the surge in parcels that we expect to see during the most important day in China's e-commerce market. Our in-house developed cross-belt sorting systems significantly improve sorting efficiency allowing us to further reduce unit logistics costs, improve customer service and strengthen brand loyalty. We will continue to invest in expanding our network and developing tools to improve efficiency as we work to create greater shareholder value."
ZTO already announced in June that it plans to invest up to RMB150 million (approximately US$22 million) to expand its current Zhejiang regional warehouse and sorting hub. ZTO has obtained land use rights to an over 32,000 square meter piece of land in Jinyi New Urban District, Zhejiang Province to construct additional office space, warehouse and sorting hub with processing capacity for up to one million parcels per day. Construction is expected to be completed by August 2018.
"Building additional infrastructure at our Zhejiang regional warehouse and sorting hub is another step in our strategy to expand the scale of our network and improve service quality and operational efficiency," commented Lai. "Zhejiang is a very important commercial and regional hub for us and is one of the main distribution channels for the thousands of customers and merchants we provide services to in the area. The additional capacity to process up to one million parcels per day will further reduce regional unit logistics costs, improve customer service and in turn strengthen brand loyalty among our customers and merchants."
Last month ZTO expanded its fresh produce delivery services with the addition of two high-speed rail links between Kunming, Yunnan Province, and Beijing and Shanghai. The expansion extends ZTO's current fresh product delivery network to a total of eight high-speed rail links including Guangdong, Guangxi, Hunan, Hubei, Jiangxi and Guiyang Provinces.
The company began offering fresh produce delivery services in 2016 and rapidly expanded it across China in collaboration with air transportation and high-speed rail networks to guarantee on-time delivery. ZTO has established outlets in a number of fresh produce markets across China's south and southwest ensuring the timely and safe delivery of fruits, vegetables and flowers to major markets along the east coast within 24 hours.
Lai explained: "The addition of two high-speed rail lines between Kunming and Beijing and Shanghai in addition to the 12 airports in which we arrange air transportation will ensure the freshness of produce we deliver from Yunnan to major markets on the Chinese eastern coast.
“The expansion of our fresh produce delivery services is part of our focus on anticipating the needs and providing higher-quality services to our end customers, which further strengthens customer satisfaction and brand loyalty. By expanding the application of new technology and leveraging the data from our service outlets, we are able to ensure the timely delivery of fresh produce parcels by attaching digital waybills which prioritizes their handling and delivery through each step of the delivery process. As the scale of our business grows, we will continue to expand our transportation network in order to provide the highest quality service possible and increase shareholder value."
In a separate move, ZTO is also testing out deliveries by drones. In July, it successfully completed its first trial delivery using a drone in an industrial park in Zhejiang Province. The drone, developed by a domestic drone producer and custom designed for ZTO, flew 14 km from ZTO's sorting facility in Le Qing county, Zhejiang Province to the office building of an enterprise customer located in an economic development park in the same county.
The drone used in the trial delivery has a maximum range of 30 km, is equipped with a 25-liter container, a maximum load carrying capacity of 10 kgs and is pre-programmed to fly to its destination and does not require a remote control.
"Drone delivery is an innovative new application of technology that we are developing to further optimize and increase the efficiency of last-mile delivery," commented Lai. "This test successfully demonstrated that we can shave 60% off our traditional delivery times using drones. Using traditional ground transportation, this delivery would have taken approximately 50 minutes when taking traffic conditions, gate checks, wait times for elevators, etc., into consideration. We were able to do this in less than 20 minutes using a drone. We believe that drones can be best used for the delivery of parcels to rural areas in the future as they can improve accessibility, ease labour shortages, and reduce logistical costs and delivery time of the entire network."
ZTO is continuing to grow fast, according to recent financial results for the second quarter ended June 30, 2017. Its revenues increased nearly 30% to RMB2,971 million (US$438.3 million) with parcel volume growing by nearly 38% to 1,493 million shipments. Net profit improved by 68.4% to RMB716.9 million (US$105.8 million).
"Our business continued to gain growth momentum with parcel volume growth again exceeding the industry average," Lai said in the earnings release. "Our parcel volume grew by 37.6% year-over-year during the quarter, well above the increase of 30.7% for the industry overall during the same period.
“Our market share continued to expand as well, underlining just how effective our strategy of balancing growth with service quality and profitability is in strengthening our industry-leading position and aligning the interest of our network partners with ZTO. We continued to optimize parcel mix during the quarter by focusing more on more profitable parcels to improve efficiency and lower unit cost. This resulted in lower average revenue per parcel as parcel weight fell, but our margins continued to expand thanks to our economies of scale and the various cost cutting measures we have been implementing, all without affecting the high-quality service we are known for.”
