JD Logistics buys out partner in its race to time-sensitive deliveries

The company is building out its integrated supply chain services by completely purchasing Kuayue-Express, its time-sensitive delivery partner for B2B customers

Key Takeaways:

• JD Logistics will buy out the remaining stake it doesn’t already own in B2B delivery specialist Kuayue-Express, whose net profit rose 70.6% last year to 1.45 billion yuan
• Kuayue-Express ranked third last year in China’s less-than-truckload (LTL) logistics market with revenue of 18.47 billion yuan, behind only after S.F. and Deppon

By Lee Shih Ta

Further reducing costs and improving efficiency have become key points in China’s logistics sector, as companies jockey for any advantage they can find in the crowded and highly competitive space where services are largely the same. JD Logistics Inc. (2618.HK) is taking the differentiation game further by trying to offer the widest range of “integrated supply chain services” that appeal to customers with many differing needs.

In the latest step in that direction, the company this month announced an agreement to buy the remaining 36.43% of Kuayue-Express that it doesn’t already own for up to 6.48 billion yuan ($894 million), making Kuayue-Express into a wholly owned subsidiary.

The acquisition by the logistics unit of e-commerce giant JD.com is divided into three phases. In the first, JD Logistics will acquire about 16.43% of Kuayue-Express for 2.31 billion yuan. Payment for the second and third stages will be determined based on Kuayue-Express’ future performance.

Kuayue-Express will continue to operate its own brand and team independently, and founder Hu Haijian will continue to serve as the unit’s chairman and CEO in charge of the company’s daily operations, said JD Logistics.

Same-day delivery pioneer

Kuayue-Express is a bit of a niche player focused on the B2B market, boasting a high degree of integration with the industrial chain of its customers and expertise in time-sensitive express deliveries. Accordingly, the acquisition will help to widen JD Logistics’ capabilities in its drive to offer the widest range of integrated supply chain services and technology-driven supply chain solutions.

Kuayue-Express was founded in the Southern boomtown of Shenzhen in 2007, a time when most Chinese logistics companies had yet to specialize and ran largely using a single-service model. While other peers tried to stand out from the crowd by reducing costs and expanding their scale, Kuayue-Express took aim at the B2B market, focusing on improving delivery times and efficiency. It was the first to launch differentiated services such as same-day, next-day and three-day delivery, and even promised full refunds for deliveries that weren’t completed within the promised time.

As demand for timely and higher quality logistics services grew with China’s booming economy, Kuayue-Express launched night flight charter service allowing it to offer overnight deliveries with next-morning arrivals. As it sharpened its rapid-delivery focus, the company achieved a milestone when it was able to offer door-to-door cross-province deliveries in just eight hours starting in 2015. It later cut the time even more to within six hours in 2017.

Kuayue-Express has also been upping its game by introducing Boeing 757 cargo planes on multiple routes. The company currently has a total of 20 freighters, with an average daily air cargo volume of over 2,000 tons.

The self-proclaimed technology-driven company even spent 1 billion yuan to develop its “sword-forging system,” which integrates more than 20 large-scale management systems such as quality control, vehicle management, and truck tracking. The system can perform fully automated scheduling and control commands after an order is placed, and generate a variety of plans automatically based on road conditions, customer characteristics, and other information.

In summary, Kuayue-Express says the system enhances transportation efficiency at the lowest cost. It says the system can save 80% in labor dispatchment costs and reduce the use of site resources by 20%, increasing operational cargo capacity by more than 30%.

Kuayue-Express’ cumulative expertise and technology in B2B logistics caught JD Logistics’ eye as early as four years ago, when the pair reached a strategic cooperation agreement in 2020. JD Logistics later acquired a controlling interest in Kuayue-Express for 3 billion yuan in August that year. In 2022, JD Logistics increased its holding to 63.57%, which is where it stood before the latest buyout announcement.

Rapidly improving performance

With JD Logistics’ backing, Kuayue-Express has been on an expansion fast track in recent years. The company was third in China for less-than-truckload (LTL) logistics services last year with 18.47 billion yuan of revenue, up 32% year-on-year, behind only S.F. (002352.SZ; 6936.HK) and Deppon (603056.SH). Kuayue-Express has been a leader in its niche in terms of expansion over the last three years, logging annual growth of 30%.

Kuayue-Express reported after-tax profits of 850 million yuan in 2022 and 1.45 billion yuan last year, representing 70.6% growth in 2023. At the end of last year, the company’s unaudited net assets totaled 5.30 billion yuan.

For JD Logistics, the acquisition of Kuayue-Express’ aviation freight resources and time-sensitive delivery expertise will bring new strengths to its own service offerings. The integration of resources like Kuayue-Express’ air freight capabilities will enable JD Logistics to improve its own delivery service for time-sensitive products, and enhance its broader technological capabilities in express deliveries.

The acquisition comes just as China is stepping on the accelerator to improve efficiencies in its broader logistics industry to support the economy. That priority was evident in a recent action plan from the General Office of the State Council, China’s cabinet, calling for cutting logistics costs throughout society to make the economy more efficient. In such an environment, JD Logistics’ acquisition appears to be coming at an opportune time, allowing the company to both reduce costs and improve its efficiency.

The investment community also appears bullish on the deal. Morgan Stanley pointed out the acquisition, which is based on sound asset quality, valuation and net profit, will promote synergies and boost JD Logistics’ net profit from Kuayue-Express by 49% year-on-year, much higher than the 30% it previously forecast. JD Logistics shares rose 2.8% to HK$14.76 in the first trading day after the announcement, showing investors were also positive about the deal.

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