JD.com’s logistics arm speeds up acquisitions, with a future move expected to bring in more external clients

The competition in China’s logistics field is fierce, so it’s no surprise that JD.com, being China’s second-largest e-commerce platform, has sped up the acquisition of other logistics companies to try to reinforce its freight and warehousing network, as well as open up its logistics services to more third-party customers.

Last Sunday, the long-time Alibaba rival announced its newest purchase in which its subsidiary JD Logistics acquired a 66.5% stake in the domestic courier Deppon Logistics for close to 9 billion yuan ($1.417 billion)

Deppon is a Shanghai-based freight and warehousing company that specializes in oversized parcel logistics. As of the first half of 2021, it has 140 warehouses, 143 sorting centers and is employing 63,700 delivery staff.

It is one of the most significant deals in the express delivery sector as of recent years. “We feel positive about the deal [with JD Logistics] and clearly see the potential for great synergy and various efficiency improvements for Deppon in aspects including labor optimization, operating structure, and technology,” Citi said in a note.

With the conclusion of the deal, the competitive gap between JD Logistics and China’s largest logistics company SF Holdings has begun to shrink. In the first half of 2021, JD Logistics’ revenue has reached 48.5 billion yuan, in addition to Deppon’s 14.9 billion yuan, totaling 62.4 billion yuan, while SF Holdings has had a revenue of 88.3 billion yuan.

This purchase is JD.com’s latest endeavor to expand its reach in the logistics sector. The addition of Deppon will not only make up for JD.com’s lack of oversized package logistics but will also attract more external clients. 

Last year, the company bought a controlling share in China Logistics Property Holdings Co. through its subsidiary JD Property for about HK$3.99 billion ($513.45 million). The acquired firm now operates 65 logistics parks in 45 Chinese cities, with a total gross floor area of around 6.2 million square meters (66.7 million square feet).

In 2020, the e-commerce giant paid 3 billion yuan ($472 million) for a majority share in Kuayue Express, which is a front-runner in the fast-paced express service sector. In a press release, JD.com said it believes its integration with Kuayue Express will help advance its supply chain management, technology initiatives, and service expansion to third-party merchants. The acquisition came just a few weeks after the company purchased a stake in the Hong Kong-based global supply chain solutions specialist, Li & Fung, for an estimated $100 million.

Through the acquisition of these significant shares, JD.com has established a far-reaching logistics empire, which serves as its most powerful weapon of competition, while JD Logistics is diversifying its income source – and it looks like the efforts are gradually paying off. According to the most recent financial report of JD Logistics, its overall revenue in 2021 was 104.7 billion yuan, with a growth of 42.7% year-over-year, and an income from external clients reaching 59.1 billion yuan, with a growth of 72.7% year-over-year, and accounting for 56.5% of the total revenue. A year before, it recorded a revenue of 73.4 billion yuan, with external clients accounting for 46.6% of the total.

In the prospectus filed with the Hong Kong Stock Exchange in May last year, the company said that its growth strategy is partially based on the assumption that the trend toward outsourcing supply chain services will continue. “Third-party service providers like us are generally able to provide such services more efficiently than other ‘in-house’ providers, primarily as a result of our expertise, technology, and more flexible employee cost structures.” said the company.

China’s logistics industry is experiencing a consolidation period, and leading players are accelerating mergers and acquisitions of small and medium ones. At present, the logistics networks relying on the three major e-commerce platforms of JD.com, Alibaba, and Pinduoduo, as well as SF Express’s own logistics networks have joined forces to dominate the market.

These top players, like JD.com, have evolved through acquisitions and investments. SF Express in 2021 acquired a 51.8% stake in Hong Kong-listed Kerry Logistics for HK$17.6 billion ($2.25 billion) to improve its end-to-end supply chain solutions. J&T Express, which relies heavily on Pinduoduo, acquired Best Express’ domestic courier business for 6.8 billion yuan ($1.07 billion) in October. A few years ago, Cainiao, Alibaba’s logistics arm, had already brought the four major Chinese express companies into its system through investments and acquisitions.

Also, the approval of major acquisitions by giants like JD.com, J&T Express, and SF Express also shows that Chinese regulators, who are wary of capital expansion, prefer to see large investments play a greater role in enhancing the efficiency of infrastructure areas such as logistics.

As of December 31, 2021, JD Logistics operates over 1,300 warehouses, which covered an aggregate gross floor area of over 24 million square meters, including space in cloud warehouses managed under the JD Logistics Open Warehouse Platform. 

The logistics service provider reportedly has served more than 190,000 enterprise-level customers, involving industries such as fast-moving consumer goods, apparel, home appliances, furnishing, digital products, automobiles, and groceries.