Yesterday, JD Logistics, a subsidiary unit of the ecommerce giant JD.com, announced its purchase of domestic courier company Deppon Logistics 德邦快递, amid rising competition in China’s delivery service sector. JD will pay 9 billion yuan ($1.42 billion) for a 99% equity stake in Deppon Holdco, the parent company of Deppon Logistics.

  • Deppon Logistics offers a wide range of shipment solutions, including truck transportation, special delivery services, and warehouse management.
  • The firm’s aggregate operating income increased from 12 billion yuan ($2 billion) in 2015 to 27.5 billion yuan ($4.3 billion) in 2020. However, data reports from the end of 2021 show a decline to 22.5 billion yuan ($3.5 billion).
  • Despite slowing sales, Deppon remains a large company. Deppon owns 30,000 service stations, 143 transfer centers, and more than 15,000 vehicles throughout China with cross-border capabilities.

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The context: Chinese companies are investing significant sums in logistics support and warehouse infrastructure of late. As COVID-19 accelerates consumer preferences toward delivery services, competition over transport speed and efficiency is ramping up.

  • Currently, JD Logistics covers six major network operations: warehousing, comprehensive transport, last-mile distribution, cold chain (low temperature) networks, cross-border networks, and large-scale networks.
  • Combining JD’s supply chain expertise with Deppon’s extensive transport networks, JD executives expect foreign orders to account for 50% of total business for 2022. As of last year, this rate was below 40%.

The takeaway: The logistics industry is consolidating. After the purchase, JD Logistics is set to become China’s second-largest logistics company behind SF Express, which has also been on a buying spree. After the merger, JD will confront the challenge of navigating Deppon away from flagging sales.

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