JD Logistics: The Most Integrated and Innovative Logistics Company on the Planet
With the IPO of JD logistics just around the corner, I wanted to share some thoughts on the company post my US-China Series Virtual Forum with Jeff Towson of Asia Tech Strategy.
Richard Liu, JD’s founder, has made a series of bold moves over the past decades, starting with moving from physical to online sales in 2003 during SARS, then closing all the physical stores to focus on e-commerce.
In 2008 he determined that the one area JD did not provide a quality experience with was delivery, so he built an in-house network of logistics, drivers, and delivery people. JD can now deliver almost anywhere in China within 12 hours.
There are three points of contact with the consumer: the app, receiving the delivery, and customer service, all of which JD does in-house. No one else does this: Coupang, the South Korean e-commerce company that recently went public, copied JD and essentially is the mini-JD of South Korea.
Software is easy to replicate with significant network effects, while physical assets are hard to replicate. Competing with JD requires not just building the software but building the massive network of warehouses and delivery people they have been constructing for 13 years.
Some statistics on JD’s logistics network:
- 2200 total “cloud warehouses” across China, all operating on common software and network
- 800 directly owned and operated warehouses
- 1400 additional warehouses owned by others but connected through software to JD’s network
- Line-haul transportation network: 7500 trucks and delivery vehicles and 200 sorting centers
- Last-mile delivery network: 7200 delivery stations, 200,000 delivery people
- Growth: 10,000 employees in 2012 to 50-60,000 in 2015 to 200,000+ today, most of this is delivery people.
JD also has a bulky items logistics network, 86 separate warehouses, and 100+ sorting centers for big and oddly shaped items such as furniture. They also have a cold-chain logistics network of 87 warehouses and 2000 vehicles for perishable items.
There is also a cross-border network. There are six different networks they have built over the past decade, but in practice, they operate as one thing.
Express delivery networks are physical networks that are people-centred. From 2008 to 2018, they built a people-based physical network for moving items and now have started building an IT system on top of that, digitizing the network.
They built a warehouse management system, transportation management system, order management system, and another software system tracking goods. They are taking the traditional physical network and making it smart and automated, which no one has done before at this scale.
This network will be able to do things that have never been done before. You can go into warehouses where there are no people but autonomous robots that move things and work together, run by AI.
The main benefit is this is a unique capability JD has that others do not. The revenue coming into JD Logistics is 50% from JD, providing logistics for JD and shutting out rival e-commerce companies.
Secondly, they are selling what they call integrated logistics. According to their filing, logistics and fulfillment in China is a 14 trillion RMB ($2 billion) per year business. About 50% of this is outsourced, with single-service logistic companies such as FedEx, or a furniture transport company, or warehouse storage.
What JD is pitching is integrated logistics: warehouse, transportation, food storage, cold storage, bulky items, express delivery, all as an integrated service.
JD has identified six or seven industries where they are creating unique solutions. For FCMG (Fast-Moving Consumer Goods) such as Coca-Cola, which needs to constantly get Coca-Colas into all the little convenience stores, constantly refilling them and getting it from the bottling company to the warehouses, and storing near the retailers; JD can take the whole spectrum and handle all of it. JD can also give the data that shows the whole process for all of China.
With furniture, JD can connect everything from the factory where a desk is produced to specialized warehouses to coordinating with the seller and home delivery.
FCMG, groceries and perishables, furniture, and pharmaceuticals are ideal target industries where JD focuses on the unique customized solutions for industries that others cannot replicate.
Where it comes to logistics, it can be argued that JD Logistics is the most integrated and innovative logistics company on the planet.
If you found this of interest, why not join us for our next China Transformed panel?
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