Note: This article was first published on TechNode China (in Chinese).
Southeast Asian courier company J&T Express has recently submitted its prospectus to list in Hong Kong, with plans to raise from $500 million to $1 billion.
Unlike Chinese rivals SF Express and YTO Express, which operated for ten years before going public, J&T Express is not even eight years old.But with its bold expansion plan, J&T has gone after market share and captured 10% within just three years of entering the Chinese market. The release of its prospectus sheds light on the development strategy of this ambitious overseas company operating in a competitive Chinese landscape.
Cutting a path through the jungle
J&T was founded in 2015 in Indonesia, where prominent e-commerce players Shopee, Tokopedia, and Lazada emerged.
During its initial two years, J&Tgained a strong presence in Indonesia by capitalizing on its founder’s extensive distribution network built during his tenure as CEO of Oppo Indonesia, and following the well-established Chinese express delivery models.
By recruiting skilled professionals from China’s logistics industry, J&T’s business volume soared. Remarkably, within five years of launching, J&T surpassed long-standing Indonesian logistics company JNE to become the country’s largest express delivery and logistics enterprise.
In 2020, Jet Lee, the Sichuanese founder of J&T, made the decision to take the company to China for further expansion and development.
Intense competition followed, and the express delivery and logistics industry in China turned into a landscape dominated by companies like SF Express, YTO Express, and JD Logistics. By 2019, six leading enterprises commanded a combined market share of 68.7%.
The entry of J&T, which is known for offering low prices, disrupted the domestic express delivery sector. In Zhejiang’s Yiwu, the largest express delivery hub in China, J&T subsidized shipping costs for local Pinduoduo merchants, leading to a substantial reduction in delivery prices, offering prices as low as RMB 1 ($0.15) for both large and small parcels.
As a price war broke out, the Chinese express delivery industry experienced pricing as low as ten cents for the first time thanks to J&T. Such shocking prices also caught the attention of regulatory authorities. On April 6, 2021, the Yiwu Postal Administration even issued a warning letter to the company, specifically addressing their practice of “dumping at low prices.”
However, J&T’s aggressive subsidy strategy proved to be effective. Within ten months, it surpassed a daily volume of 20 million shipments, and has currently reached 40 million.
This approach of offering low prices also came with drawbacks. From 2020 to 2022, J&T incurred an average annual gross loss of $0.28, $0.15, and $0.06 per shipment.
J&T relied on its substantial fundraising to support its lavish spending. According to the prospectus, J&T has completed five rounds of financing since entering the Chinese market, with a cumulative fundraising amount of $5.39 billion. Sequoia Capital China, Morningside Venture Capital, and Hillhouse Capital have repeatedly reinvested. The company is now valued at RMB 130 billion.
Growing together with Pinduoduo
E-commerce plays a pivotal role in driving orders for the express delivery industry, and the rise of prominent new e-commerce platforms presents fresh market opportunities for express delivery companies.
Data shows that Pinduoduo held a substantial 31% market share of e-commerce deliveries in 2020, and J&T Express relied on Pinduoduo for 90% of its delivery volume. By strategically establishing multiple branches in lower-tier cities, J&T Express has achieved an impressive geographic coverage rate of over 98% across China’s counties and districts.
The collaboration between J&T Express and Pinduoduo can be attributed to a combination of coincidence and inevitability. Prior to establishing J&T Express, Lee had a connection with Pinduoduo through his previous work at Oppo, which was associated with Duan Yongping’s Better Life Investment Group. Duan, who had shown favor to Pinduoduo’s founder, Colin Huang, was an angel investor in the company and had even introduced Huang to Warren Buffett’s renowned high-priced lunch. This connection led Pinduoduo to give J&T Express special attention among China’s various delivery companies.
Simultaneously, driven by competitive needs, Pinduoduo required its own dedicated express delivery service. Both Pinduoduo and J&T Express strategically positioned themselves to compete for substantial user traffic in the lower-tier markets through low-cost services, making their partnership a perfect fit.
According to the prospectus, J&T Express generated revenues of $543 million and $1.715 billion from its largest customer, Pinduoduo, in 2020 and 2021, respectively, accounting for 35% of its total revenue.
However, this heavy reliance on Pinduoduo was short-lived. Starting from 2022, J&T Express experienced a significant decline in revenue from Pinduoduo, dropping to $1.231 billion, a year-on-year decrease of 40% and a reduction of nearly $500 million.
“The percentage of revenue from this customer [Pinduoduo] as a proportion of our total revenue has decreased as our business expands and our customer base diversifies, and we expect it to continue to decline in the future,” stated J&T Express in the prospectus.
Acquiring weaker rivals
In the price war with J&T Express, traditional delivery companies faced a gradual decline in net profit. Best Express was the weakest among them. In 2020, Best Express generated revenue of RMB 29.995 billion, a year-on-year decrease of 7.3%. It incurred a net loss of RMB 2.05 billion, while its asset-liability ratio soared to 91.3%. It became crucial for the company to sell underperforming businesses to improve its financial situation.
In late October 2021, Best Express transferred its domestic express delivery business to J&T for approximately RMB 6.8 billion. J&T was attracted to the company’s well-established network and team, including 87 transshipment centers and over 49,000 end-point branches, which were vital for J&T Express to expand its market presence.
Moreover, through the acquisition of Best Express, J&T successfully gained another major client—Alibaba, which was the largest shareholder of Best Express. Previously, due to its ambiguous relationship with Pinduoduo, J&T was not allowed to deliver packages to Cainiao, Alibaba’s delivery network.
Furthermore, in May of this year, J&T acquired Fengwang Express, a subsidiary of SF Express, for RMB 1.183 billion, in the hopes of strengthening its business network in China.
As the tail-end market gradually consolidates, acquisitions of capital among top-tier express delivery companies are becoming more frequent. J&T’s entry into China’s logistics industry indicates a transition from a concentrated stage to competition among a few dominant players.
Conclusion
J&T Express, currently profitable only in Southeast Asia, experienced modest yearly revenue growth of 4% in 2022, accompanied by a slight decline in net profit. Meanwhile, the company has been actively expanding its presence globally, having entered the Middle East and Latin American markets, and introduced cross-border services targeting Europe and North America through Pinduoduo’s sister app Temu.
Although J&T Express has started to turn losses into profits, the narrowing profit margins in its Southeast Asia business, combined with uncertainties surrounding its ability to sustain price wars in China and other global regions, have created a pressing need for the company to go public and raise funds.
The previous listing of JD Logistics took three months from application to listing. While J&T Express has a stronger financial position compared to JD Logistics at the time, it’s still unclear whether it will see a successful listing. Furthermore, with increasing uncertainties in profitability and declining liquidity in the Hong Kong stock market, it remains uncertain whether the IPO will generate sufficient funds for J&T Express.
