Alibaba’s Cainiao, one of founder Jack Ma’s grand projects, to heat up China’s logistics industry after US$1 billion IPO in Hong Kong, analysts say

Cainiao is expected to ‘bring fierce competition and further standardisation to the entire express delivery industry’, IPG China’s Bai Wenxi said
A decade after its creation, Cainiao has started to offer half-day express delivery in China and five-day global delivery in selected overseas markets

Alibaba

Tracy Quin Shanghai

Published: 9:30pm, 27 Sep 2023

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About a decade after Jack Ma pushed forward the establishment of logistics enterprise Cainiao, a big opportunity looms for global investors to own a stake in one of the Alibaba Group Holding founder’s grand projects.

Cainiao Smart Logistics Network is the first of the e-commerce giant’s six spin-off companies to test the appetite for new listings in Hong Kong, where it has applied to raise at least US$1 billion in what is widely expected to be the world’s second-largest initial public offering (IPO) this year.

South China Morning Post owner Alibaba’s plan to independently list its logistics enterprise “will strengthen Cainiao’s management, improve Alibaba’s financial transparency and capital strength, and bring fierce competition and further standardisation to the entire express delivery industry”, said Bai Wenxi, chief economist at IPG China.

Although the word cainiao is slang for rookie in Mandarin, Ma showed he was no newbie in leading the creation of the logistics unit in 2013 – months after stepping down as Alibaba’s chief executive – to strengthen the foundation of his e-commerce empire.

Autonomous delivery vehicles for Cainiao are seen near Alibaba Group Holding’s headquarters in Hangzhou, capital of eastern Zhejiang province, on August 2, 2022. Photo: Bloomberg

“For e-commerce firms, the three most important infrastructure items are information flow, cash flow and delivery,” Ma said at the time.

He envisioned Cainiao delivering a consumer’s online purchase to their doorstep within 24 hours in any of the 2,000 cities on the mainland.

A decade later, Cainiao has started to roll out its half-day express delivery service in eight major Chinese cities, including Shanghai, Hangzhou and Shenzhen, as it ratchets up efforts to help stimulate domestic consumption amid the country’s gloomy economic outlook.

The company on Tuesday began its global five-day delivery service in the United Kingdom, Spain, the Netherlands, Belgium and South Korea, where consumers can receive their parcels within five working days of placing an order on AliExpress.

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Cainiao, where Alibaba co-founder Joe Tsai also serves as chairman, recorded more than 1.5 billion cross-border e-commerce parcel deliveries in the group’s recent financial year to March, making it one of the world’s top logistics services providers.

Delivery has emerged as a tough new battleground for China’s e-commerce giants, as they jostle to win both local and overseas consumers with faster and cheaper shipping services.

Cainiao ranked No 3 last year in the premium e-commerce logistics segment with a 16 per cent share, according to Chelsey Tam, an analyst at Morningstar.

JD Logistics was ranked No 1 in that market segment last year with a 36 per cent share, Tam said. SF Express had the No 2 spot with a 20 per cent share in the same period.

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Some analyst have expressed concerns about Cainiao’s performance amid the slowdown in e-commerce activities on the mainland.

The rapid growth of J&T Express, which is also seeking an IPO in Hong Kong, and Pinduoduo has affected Cainiao’s orders, according to Li Chengdong, founder of Dolphin Think Tank in Beijing.

“Cainiao still relies on orders from Alibaba … while Alibaba is also stuck in a bottleneck,” said Li, without elaborating.

Cainiao’s total sales before inter-segment elimination, which includes revenue from services provided to other Alibaba businesses, rose 16 per cent in the recent financial year to March to 77.5 billion yuan (US$10.6 billion), with 72 per cent of sales generated from external customers.

Upon completion of Cainiao’s IPO, Alibaba will continue to hold more than 50 per cent interest in the company, retaining it as a subsidiary. Alibaba held about 69.54 per cent of Cainiao as of Tuesday.