In its latest move, JD.com entered into definitive financing agreements for its logistics subsidiary to allow the Chinese company to enhance its smart supply chain network. The total amount raised in the coming funding round is expected to be close to $2.5 billion. JD.com will remain the majority shareholder of JD Logistics with an 81.4% stake.
“Our decision early on to build out our own logistics network has paved the way for JD Logistics to become the industry leader it is today,” said Richard Liu, chairman and CEO of JD.com. “The shift throughout global e-commerce toward our model is vindication of the path we chose. This current funding round sets the stage for us to further invest in expanding our lead in the sector in areas like automation, drones and robotics. JD Logistics will continue to support both JD.com’s e-commerce business and the logistical needs for a wide range of industries for years to come.”
JD.com has been operating its self-owned logistics system since 2007, and established JD Logistics as a stand-alone subsidiary in April 2017.
“Over the decade that we have built out our operations, initially to support our own e-commerce business, we have created the most efficient, integrated and user-friendly logistics network in China. This financing will enable JD Logistics to further enhance its smart supply chain network with openness and integration. It is a major step, which will speed up our collaborative efforts with leading industry partners and build China’s next-generation commercial infrastructure ecosystem.”
JD.com operates six major logistics networks, including normal-sized items, bulky items, cold chain, B2B, cross-border and crowd-sourced, covering over 99 percent of China’s population.
“The e-commerce space is definitely relying on the efficiency of logistics. It becomes a logistical competition,” Burak Kazaz, professor of supply chain management at Syracuse University’s Whitman School of Management, said.
Kazaz noted that JD.com has less than 10 fulfilment centers, but has a network of 400 or so small warehouses in China.
“JD is a company that’s understanding the fact the e-tailing business is going to become primarily a logistical competition and the efficiency that can be attained,” he said. “In a very systematic manner, they have been investing in high technology, artificial intelligence, and particularly, autonomous trucks and robots, and they have bene testing drone deliveries.”
Amazon also seems poised launch a delivery service for businesses, putting it in direct competition with UPS and FedEx. Dubbed “Shipping with Amazon,” or SWA, the new service would have Amazon picking up packages from businesses and shipping them to consumers.
While it hasn’t gone public with the service, an Amazon spokeswoman said, “We’re always innovating and experimenting on behalf of customers and the businesses that sell and grow on Amazon to create faster lower-cost delivery choices.”
It is expected that Amazon will soon introduce the new delivery service in Los Angeles with third-party merchants that sell goods on its website. Amazon could then expand the service to more cities as soon as this year.
While the program is being piloted with the company’s third-party sellers, it could eventually be opened to other businesses, too.
“It is important to understand the demand pattern for this online retailer,” Kazaz said of the SWA initiative. “Quarter four is when the company has its highest logistical needs with Thanksgiving, Black Friday and the holiday season. In the three remaining quarters, this transportation capacity might be at utilization rates less than ideal. SWA fulfills the need to make use of the unused capacity while providing the firm with the ability to serve its customers during high demand season. If pricing reflects this reality, then Amazon’s new initiative sounds like creating efficiency in the utilization of this transportation capacity.”
Amazon has developed its own logistic capabilities in recent years, including Prime Air, which already has 40 767 jumbo airplanes, which Kazaz noted can move a slew of products, both between its fulfillment centers and to reach its customers.
“I would not be surprised to see more than 100 767 jumbo airplanes in Prime Air at the end of 2018,” Kazaz said. “This is a significant investment in the firm’s logistical capabilities, one that would pose the type of threat mentioned to UPS and FedEx.”
Kazaz added that while Amazon may not have been the most efficient logistics provider early on, “the company has proven to be a quick learner from its experiences as indicated from the missed deliveries in 2013. Given the history, I would not be surprised to see some significant shifts in the playing field with new equilibriums in the transportation services both in the U.S. and in global services.”
Kazaz noted that Amazon and JD.com are following a similar path in investing in logistics and recognizing that success is going to be based on logistical efficiency and cost cutting.
“In that sense, what JD is doing is absolutely right, but in terms of the diversity it doesn’t have what Amazon has,” he said.
In comparing JD.com to fellow Chinese e-commerce specialist Alibaba, Kazaz said, “Alibaba doesn’t necessarily deal with logistics, but relies on the sellers on their marketplace to handle that. Their models are very different. JD wants to be the next Amazon whereas Alibaba focuses on marketing and selling.”
Bloomberg reported last month that JD.com is preparing for a U.S. debut, starting in Los Angeles, seeking to get a step ahead of Alibaba and challenge Amazon.com on its home turf. JD.com has said it would start online sales in the U.S. by the second half of 2018.