Chinese e-commerce behemoth Alibaba invested 23.3 billion yuan ($3.3 billion) in logistics affiliate Cainiao in a move to strengthen its logistics operations, according to the South China Morning Post. Alibaba founded Cainiao in 2013 along with a consortium of partners and in 2017 spent $807 million to acquire majority control of it.
Alibaba’s latest investment brings its stake from 51% to 63%. Cainiao plans to use Alibaba’s investment to develop new technologies and services in an effort to improve its existing smart logistics network, which already includes warehouse robotics, drones, high-speed scanners, and self-driving vehicles.
Alibaba’s decision to take further control of Cainiao is part of a growing trend of e-commerce giants bringing logistics operations in-house to bolster their services. US rival Amazon is also in the midst of a push to internalize its logistics ecosystem: It plans to build a new robotics hub to further innovate its own warehouse robotics and has ordered 100,000 delivery vans to conduct its own last-mile delivery operations.
Moreover, Chinese rival JD.com is aggressively pursuing ways to grow and improve its own logistics network: In October 2019, the company participated in a closed-door logistics meeting with Google parent Alphabet and in May 2019 invested $55 million in Jiangsu Xinning Modern Logistics in an effort to build up its cargo matching system.
Legacy logistics providers, like DHL or UPS, stand to lose out on a growing source of revenue as e-commerce giants become less dependent on their services. Currently, online shopping accounts for nearly 15% of total retail sales globally and is expected to grow to 22% by 2023, according to eMarketer.
As e-commerce companies increasingly are able to process and ship the growing number of orders they receive, legacy delivery partners will find themselves with a smaller share of revenue. Moreover, as e-commerce companies grow their logistics operations they can evolve into potential rivals to legacy players. FedEx canceled air and ground delivery partnerships with Amazon earlier this year as the e-commerce giant became a larger logistics threat.
To counter the increasing independence of large e-commerce, legacy logistics providers need to partner with smaller platforms to ensure access to a steady flow of e-commerce orders. For example, last month UPS partnered with online shipping platform Shippo to allow Shippo customers to more easily access UPS services and boost the appeal of UPS’ services.
Want to read more stories like this one? Here’s how to get access: