Last week saw a bit of drama erupt in an area not usually known for it: shipping logistics.
It began on June 1, when Cainiao, a logistics company that also happens to be an affiliate of Alibaba, released word that Shunfeng, one of China’s largest shipping companies, had shut off its data connection. That prevented Cainiao from information about the carrier’s shipments and offering package tracking to customers. Shunfeng, however, refuted the story, saying it was Cainiao that had made the move to break off the connection, and accusing Cainiao of trying to coerce Shunfeng into leaving Tencent’s cloud services for Alibaba’s. For its part, Cainiao then said that, just before the row started, it was updating its security for its logistics data, adding that: “Anything is up for discussion, but there is no compromising on information security. This is something Cainiao will not concede on in the slightest,” thus implying that Shunfeng was being in some way uncooperative with an essential need. All of this was enough to get the National Postal Bureau involved, issuing a statement on its website within hours calling for both sides to work it out.
Things quickly got more heated, however. On that first day, Cainiao urged Taobao sellers not to ship through Shunfeng. Taobao, one of Alibaba’s flagship ecommerce operations, is an ecommerce site where independent sellers and small businesses can sell directly to consumers, and considering that it is home to several million sellers and sales through the site amounted to 1.6 trillion RMB in 2015, the loss of that business would be a heavy blow to Shunfeng. By the next day, however, Taobao sellers reported that the online system would not even accept Shunfeng shipping orders when they tried to enter them. What had been phrased as a suggestion was evidently more of a command.
Shunfeng was not to sit passively, however, and later that same day announced that it was partnering with JD.com, the only real rival to Alibaba in Chinese ecommerce, giving JD.com the use of Shunfeng’s self-pickup stations. As yet that agreement would only cover a relatively small fraction of the packages shipped around China each day, and in just 13 cities, but there was a promise of doubling that number by the end of the year, and the symbolic threat was not to be overlooked.
For a moment, it appeared as if it all might get out of hand. Shunfeng and Cainiao (and behind it, Alibaba) both stood to lose—though JD.com, uniquely, stood to gain. Meanwhile, Taobao sellers were left stranded and unable to access order shipments that were already out, while on the other side were shoppers who were suddenly told they could get no word on their packages or where they were.
Then, as quickly as it flared up, the dispute was resolved (although what exact agreement was reached to settle matters remains unclear). Shunfeng and Cainiao have reestablished their data sharing, and Taobao sellers can again ship through Shunfeng, at least for now.
Still, the very public if shortlived spat has exposed the tense relations at work within China’s ecommerce industry.
Superficially, there might not seem much reason for conflict. Shunfeng handles packages, Cainiao the data attached to them. In theory, they could work well together. And Jack Ma, Alibaba’s founder, has said that the company “will never take business away from shipping companies.” Strictly speaking, that has been true. But Cainiao’s use of logistics data, tracking delivery on-time rates, routes, and even ratings of delivery personnel, has given it an extraordinary power over shipping companies like Shunfeng. In the twelve months leading up to March, 2016, for instance, Cainiao oversaw and expedited the shipment of 12.2 billion packages, or roughly a third of all shipments in China. Still, Cainiao likely hopes for an even greater share of the market.
But Shunfeng has resisted Alibaba’s embrace. The existing working agreement between the two companies, however, stipulates that Shunfeng cannot, or will not, provide Cainiao with the full set of its package shipping data, reasoning that only those packages from Taobao are relevant to Cainiao. Moreover, during Cainiao’s “2017 Global Smart Logistics Summit” last month, Shunfeng was conspicuously absent, even as its ostensible competitors like Yunda and Zhongtong showed up. Shunfeng’s CEO, Wang Wei, seems to have a more far-sighted view of where his company stands. In April he told shareholders: “Our competitive rivals are not from within our industry, but outside of it.” Such rivals, he specified, are those with technology, a grasp on the upstream of the shipping industry, and big data. Listeners could hardly miss the implication. Yet Wang also noted that “relying on physical labor is not the ultimate fate of shipping. Our operating model will gradually need to move from one based on physical power to mental power.”
Wang does not seem to envision challenging Cainiao directly; after all, it has the full backing of Alibaba, and even Shunfeng does not have the wherewithal to take on the second largest tech company in the country. Still, Shunfeng seems to be maneuvering to counterbalance Alibaba’s sway, first by signing on to Tencent’s cloud services rather than to Alibaba’s, and secondly by warming up to JD.com (which, incidentally, also has some support from Tencent). Yet that is part of what makes the Shunfeng-Cainiao dispute so significant, and so intractable: it is more than just the two companies alone, but reflects part of a tangle of competing interests, cutthroat tactics, and power plays between at least a half dozen companies, including two internet giants.
Ecommerce owes its existence to shipping and logistics networks (and, almost if not quite equally, shipping and logistics companies owe most of their growth over the last decade and more to ecommerce). And a disproportionate share of China’s consumer economy flows not through brick and mortar stores, but from websites directly to doorsteps: ecommerce already makes up roughly a fifth of all retail spending, a larger share than in any other large economy (the proportion for the US is less than half that), and that is only expected to grow. Upheaval to the system is no abstract matter; as was seen in this case between Shunfeng and Cainiao, disruptions in shipments for even a day have the potential to affect millions of people, both sellers and shoppers.
For now, perhaps, Shunfeng may be able to play off its connections to Tencent, direct and otherwise, to hold its ground. But neither it nor Cainiao is likely to accept the status quo for long, and will probably continue to push their separate interests. In any case, the events of the last week have proven that Chinese shipping logistics is far from the sedate business one might have imagined.