Alibaba and China's Shipping Problem

E-commerce sites such as eBay (EBAY) and Amazon.com (AMZN) arose when they did for a reason. The Internet first had to be invented, of course, and become a part of everyday life. They needed another thing, however: an efficient, reliable, nationwide system for delivering the stuff people ordered, in as little as a day, if requested. And in the U.S., that existed in the form of FedEx (FDX), United Parcel Service (UPS), and the U.S. Postal Service.

One of the challenges for Chinese e-commerce companies—Alibaba being the largest—is that this isn’t yet the case in China. While some consolidation has come lately, the Chinese shipping industry is still fragmented into lots of small companiesthat ferociously compete to undercut each other on price, and timeliness and package care often suffer.

Big international carriers such as UPS and FedEx are niche players, hampered by government policies that limit their range. “It’s very, very competitive, very rate-driven, and on-time delivery, until not that long ago, was a problem for many of the shippers,” says Cathy Roberson, an analyst at Transport Intelligence. “You’ve got lots of mom-and-pop companies.”