J&T ditches low-price strategy to focus on customized deliveries

The upstart logistics provider has moved on from its controversial pricing-based strategy, as it continues to log rapid growth 

Key Takeaways:

• J&T’s average daily parcel volume in China rose 36.3% in the first half of this year to 48.5 million 
• The company launched its Tuyouda premium service last year, offering customized features targeting businesses in specific sectors.

By Lee Shih Ta

Newcomer J&T Global Express Ltd. (1519.HK) has earned its stripes as a disruptor in China’s parcel delivery market, successfully carving out a comfortable place despite its late arrival to the ultra-competitive game. It gained that position initially using a low-price strategy, and is now shifting its strategy by focusing on China’s smaller cities and targeting specific industries and sectors with customized delivery services. 

Now, the company is chasing its last elusive target, namely, finding profits in the niche it has carved out for itself.

J&T delivered a cumulative 11.02 billion parcels globally in the first half of the year, up 38.3% year-on-year, the company reported in a quarterly business update released last week. Its average daily parcel volume totaled 60.5 million, up by a similar 37.5% year-on-year. Its total included 8.84 billion parcels delivered in China during the period, with an average daily volume of 48.5 million, up 36.3% year-on-year.

Growth in J&T’s parcel volume slowed to 30.7% in the second quarter, with 5.98 billion delivered. Still, its growth is outpacing larger and more established Chinese rivals like STO Express, YTO Express (600233.SH), ZTO Express (2057.HK), Best Express(BEST.US) and Yunda Express (002120.SZ). 

Despite its market-beating growth, however, and its inclusion in a program that makes its stock available to Mainland China-based traders at the end of May, J&T’s shares aren’t getting much love from investors. Initial enthusiasm after its IPO last October quickly went into reverse, and the stock is now down 55% so far this year. 

The lackluster performance owes partly to the company’s perennial conundrum of strongly growing revenue but lack of profits. In 2023, its revenue rose 21.8% to $8.85 billion from $7.27 billion in 2022. But it recorded a sizable annual loss of $1.16 billion during the latest period.

The company initially competed with low prices to grow its parcel volume in China – a model used by young companies to gain market share despite the tendency to generate huge losses. Its relentless pursuit of the low-price strategy in China triggered a price war that only let up after the government intervened. 

New guidelines that took effect in March threatened penalties of up to 30,000 yuan for companies that left parcels in onsite lockers at residential complexes or nearby service stations without a customer’s consent. That rule was seen as taking direct aim at J&T, whose strategy included such tactics to keep down its prices.

Aware of its vulnerabilities, J&T has been gradually fine-tuning its model since last year by finding other ways to reduce its cost per parcel and achieve positive gross profits. 

In 2023, its revenue per parcel in China increased to $0.34, while its cost per parcel decreased by $0.06 from the 2022 level to $0.34. In the same period, its parcel volume in China grew by 27.6%, as it swung to a gross profit of $58.8 million in China, compared with a gross loss of $660 million in 2022.

Taking aim at smaller cities 

To meet the diverse demands of a wide range of e-commerce customers, J&T unveiled a higher-priced premium service called Tuyouda in 2023. Tuyouda provides customized services that can speed up and improve the delivery process based on a customer’s needs by offering differing levels of elements like documentation and use of green and preferred distribution channels.

An example is J&T’s service in Southwest China’s Guizhou province, where it has designed special features for the delivery of the region’s locally famous liquors such as Moutai. Those include prioritized delivery of liquor parcels with customized shipping bills, and shipments using green channels to guarantee timely delivery of prioritized parcels, along with higher levels of post-sales services. 

As it rolled out the service, the volume for its liquor delivery business in Guizhou reached over 4 million parcels in the first half of the year, up 40% year-on-year, while its customer base grew by a similar 39%.

In addition to targeting specific sectors such as Guizhou liquor makers, J&T is also doing more to expand its presence in villages and smaller cities. It provided service in 200 counties and villages by the end of last year, with dedicated distribution and delivery channels for perishable products such as plums from Guizhou, apples from Yan’an and pomelos from the city of Pinghe in Southeastern Fujian province.

The company is no longer content to simply compete on low prices, and instead is trying to differentiate itself by offering more customized services like the ones from Tuyouda. For customers in these industries, seeking delivery of products like liquors and fruit, such differentiated services are worth the cost since they ensure the timely delivery of perishable and high value-added goods. 

Global aspirations

China currently accounts for nearly 60% of J&T’s revenue, and the company is already a major player in the domestic market thanks to its rapid growth. At the same time, it has also been the top player in Southeast Asia for four consecutive years and is moving into new markets such as Saudi Arabia, the United Arab Emirates, Egypt, Mexico and Brazil.

E-commerce has big potential in the Middle East and Latin America, where there is huge demand for cheap and high-quality Chinese goods. In the first half of this year, J&T added 800 service points in those two regions, with daily parcel volume increasing by 63% to 749,000. The company raised tens of millions of dollars during a funding round in May, saying it would use the money for further expansion into the Middle East and North Africa, including the United Arab Emirates and Saudi Arabia, as part of its global expansion.

In terms of price-to-earnings (P/E), J&T currently trades at a forward ratio of 84 times, on the expectation that it will become profitable this year. That compares with 18 times for S.F. Holding (002352.SZ) and 12 for ZTO Express, a vote of confidence for J&T’s future profit potential.

J&T not only wants to become king of the China market, but also wants to become a leader in the global express delivery business. It appears to be building such a base through its latest expansion and close contacts with e-commerce companies in China, positioning itself to achieve such goals.

To subscribe to Bamboo Works free weekly newsletter, click here