Alibaba, partners establish national logistics network

China's e-commerce giant Alibaba Group Holding Ltd, in tandem with industry partners, announced on Tuesday the establishment of a 100 billion yuan ($16.3 billion) logistics network that aims to make 24-hour domestic deliveries possible.

The project, China Smart Logistic Network, is expected to improve efficiency through streamlined warehouse and logistics infrastructure, said Alibaba Chairman Jack Ma in Shenzhen.

The new company, established by Alibaba and its partners, known as Cainiao Network Technology Co Ltd, plans to complete the network in five to eight years.

By teaming up with industry players like the retailer China Yintai Holdings Co Ltd, private conglomerate Fosun Group and major express delivery companies including SF Express (Group) Co and Yunda Express Service Co Ltd, the network is expected to support transactions worth 10 trillion yuan a year within the next decade.

Apart from Alibaba and Yintai, China's top insurer China Life Insurance (Group) Co and medium-sized lender China CITIC Bank Corp Ltd will help finance the project.

Ma said the move is consistent with Alibaba's long-term vision to make logistics less of a bottleneck for the fast-growing e-commerce industry.

Shen Guojun, chief executive officer of the new company and the current chairman of Yintai, said: "By naming the firm 'Cainiao', ('rookie'), we position ourselves as a green hand in logistics so that we can maintain learning momentum in the Internet age."

Alibaba and its partners will set up warehouses across the country and build a data system tracking trade and delivery information.

The network will be open to manufacturers, online sellers, delivery services and third-party service providers to help build the end-to-end chain, which will allow 24-hour deliveries across China.

The launch marks only the first phase of the mega project, while participating parties and potential newcomers will need to agree to keep injecting funds over the next five to eight years.

China's logistics costs accounted for 18 percent of its gross domestic product in 2012, compared with just 8 percent in the United States, according to the China Logistics Association.

Alibaba has long been eyeing a logistics strategy, and Jack Ma pledged in 2011 that he will build a warehouse platform and information management system by attracting investors. But there have been no updates until now.

However, some have expressed concern about the network, alleging that it may lead to unfair competition.

"The cooperation is rather complicated and may not be what people have understood. It may be contrary to our own business interests," said a source from one of Alibaba's partnering companies, who declined to be named.

Given Alibaba's presence, the project may be interpreted as a fight-back against Jingdong Mall, another e-commerce giant, which has built a combined inventory space of more than 1 million square meters and poured 3.6 billion yuan into its logistics system in the past year, said Xu Yong, principal analyst with China Express and Logistics Consulting, an independent logistics think tank.

A combined 60 percent of all express-delivered parcels in 2012 - or 12 million units per day - were from Alibaba's two major trading platforms, Taobao and Tmall. These figures propelled Xu to regard the network as a possible attempt to achieve a monopoly.

"They have already taken more than half of the e-commerce market share. Tianwang (an existing logistics platform) and Diwang (the comprehensive network being built) will help Alibaba to take a lion's share of the logistics market," Xu said.

The network may arouse more controversies as Alibaba has the final say in resource distribution, Xu noted.

"The delivery companies are handling similar types of goods. But they may not get what they see as a fair share of the market, since it is mostly decided by Alibaba," he added.

Taking part in the network may also diminish the couriers' chances to cooperate with other e-commerce firms, Xu added.