Cainiao Is Staying Focused on Network Growth and Tech Innovation (2 of 2) (Tech Strategy)

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In Part 1, I discussed the surprising growth numbers for AliExpress in 2023, which had a lot to do with AliExpress Choice and Cainiao.

And I really want to talk more about Cainiao. It’s one of my favorite companies. And smart logistics is just a fascinating new type of business.

I visited Cainiao’s headquarters in Hangzhou (which I wrote up here). And I left with a couple of conclusions from the visit.

  • Cainiao is rapidly changing from an internal capability to a services business.
  • Cainiao Post is a unique capability and a good solution to the last mile problem. It is also a big barrier to entry.
  • Cainiao is going to use global reach plus tech to catch UPS and DHL.

I still think those are basically true.

But in the recently released earnings, we got a nice window into what management is thinking about. And I think they are staying focused on two things:

  1. Growing the network, services, and usage.
  2. Doing lots and lots of tech innovation.

Let me start with the first point.

Cainiao Keeps Expanding their Network, Adding Services, and Growing Usage. That’s Great.

Alibaba’s recent financials showed some pretty good Q3 revenue growth for Cainiao. About 24% year-over-year, reaching $4B in revenue for that business. Logistics is turning into a sizeable business for Alibaba, about on par with Alibaba cloud (which gets a lot more attention.

Here’s the announcement from Alibaba:

  • “Cainiao’s revenue grew 24% year-over-year to RMB28,476 million (US$4,011 million), primarily driven by revenue from cross-border fulfillment solutions. The Company delivered an adjusted EBITA of RMB961 million (US$135 million), demonstrating improved profitability.”

That’s pretty great growth. But it really follows from their steady expansion in the size (and density) of their global logistics network. They are just always growing their network. And it mostly happens incrementally. With lots of little announcements throughout the year. Follow example, here are some press releases:

  • “In Spain…Cainiao’s self-operated local express network now covers 47 key regions, providing a wide range of logistics services, including cross-border small-parcels delivery, local warehouse dispatch, last-mile delivery, and intra-city delivery, for local Spanish and cross-border Chinese merchants.”
  • “Cainiao launched the first China-Mexico express cargo flight route, allowing consumers in Mexico to receive packages from China in as fast as 10 days.”

On a monthly basis, you can see Cainiao increasing its logistics network around the global. They are always adding new cargo flights. Or new eHubs. Or new customs agreements for some ports.

And this is usually followed by the announcement of new services and service improvements, usually being offered in more locations. Here are some press releases:

  • “Cainiao launched parcel forwarding services in the United States, offering as fast as 5-day delivery via air freight and 15-day delivery via sea freight. The services also support one-click consolidation of parcels across its entire network.”
  • “In Hong Kong, Cainiao launched the “One-Click Pickup” service through its Cainiao App, which is available at over 130 Cainiao self-pickup points across the city (as of the end of January 2024). Moreover, customers in Hong Kong now have the option to return packages at Cainiao’s self-pickup points, in addition to the existing doorstep pick-up and return service.”
  • “For cross-border logistics, Cainiao further expanded coverage for its premium 5-day delivery service to 10 countries, with the addition of two new countries this quarter. Order volume for the premium 5-day delivery service achieved robust triple-digit quarter-over-quarter growth.”

The constant announcements about network expansions go hand-in-hand with new services. Or improvements to existing services.

Cainiao is pretty clever at these services. They are usually aimed at identified gaps in standard logistics services. Here are some announced services for Chinese New Years:

  • “Seven-day express delivery service for oversized parcels in South Korea.”
  • “Discounted shipping options for goods purchased by Hong Kong residents at seven Freshippo outlets in Shenzhen for the first 10 days of February”

Finally, we see increasing customer usage. It’s a steady progression from network expansion to increasing services to revenue / user growth. Lots of customers and strategic partners. For example, they recently signed a collaboration with snack producer Oranges Are in Bloom for B2B warehousing and distribution services.

Anyways, that’s the pattern, which I’ve been watching for like 8 years. It’s a slow steady progression, that makes the business stronger and stronger.

That’s the beauty of network-based business models like logistics. The primary asset is a physical asset. Once in place (which takes a long time), you can add service after service on top of it. And sometimes you can add a platform business model.

And the bigger you get, the better your service becomes. For logistics, this is usually about getting cheaper, faster and with more locations over time. Note: Warren Buffett has been investing in these types of businesses for decades.

Ok. On to the other point.

Cainiao Is Doing Lots and Lots of Tech Innovation. Also, Great.

Everything I just said, was true in the 1970’s when companies like DHL and FedEx were growing globally. Back when logistics networks were lots of physical buildings and physical trucks. With lots of people physically moving boxes around.

But when you combine digital technologies with a physical logistics network, you get something new. You get smart logistics. Which is sometimes called an IoT network. Or “logistics 4.0”.

When the logistics network is digitized, we start to see different capabilities.

First, it becomes really transparent. And everything becomes data driven.

Second, you can do lots of analysis on this data, which its retrospective or predictive (hello AI). The system is increasingly intelligent.

And third, it becomes increasingly automated.

This is something we have not seen before. A smart and increasingly automated logistics network at global scale. And Cainiao / Alibaba is one of the few companies with both the logistics and technology capabilities to pioneer such a system. In fact, Cainiao describes itself as a “globalization”, “operation” and “digitalization” company.

So, we also see a steady progression of announcements from Cainiao about new tech tools and innovations.

Competing in logistics is a lot about getting faster delivery times, reducing costs, and adding more locations (and product types). In logistics, you really don’t compete on that many metrics. It’s mostly been a game of efficiency.

But smart, automated logistics at scale is a different animal. We are going to see competition on lots of other dimensions. Because the business is going to be able to do lots of things we haven’t seen before.

So, this is really a long game of tech and business model innovation. And I keep an eye out for tech announcements. Some recent ones have included smart lockers in Singapore, smart shipping labels, recyclable packing, and integrated data with delivery partners and customers. Personally, I like Cainiao Post, which is a highly automated solution to last mile.

Cainiao Senior Vice President, William Xiong wrote a good article (here) about tech innovation in logistics for The Edge Malaysia. He talked about how tech and data tools are capturing big advances in speed and efficiency. He referred to this as the logistics 4.0 era.

From that article:

“Generative AI can streamline decision-making processes by analyzing large data sets to provide actionable insights and suggestions. It is already delivering significant improvements across routine logistics operations in areas such as demand forecasting for e-commerce logistics needs, delivery route optimization and supply chain risk management, to bring about an overall increase in efficiency and productivity.”

I thought he made a good point about how AI can change the workforce and human capital management:

“Generative AI-enabled automation not only streamlines workflows but also elevates employees’ productivity and job satisfaction. Ultimately, freeing employees from mundane tasks and empowering them with more strategic work helps foster a sense of fulfilment and motivation in the modern workforce.”

It’s worth reading.

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That’s a lot of what I keep an eye on for Cainiao. I watch their steady advances in networks, services and tech innovation.

That’s it for today.

Cheers, Jeff

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Related podcasts and articles are:

From the Concept Library, concepts for this article are:

  • Smart Logistics at Scale

From the Company Library, companies for this article are:

  • Cainiao
  • Alibaba

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I write, speak and consult about how to win (and not lose) in digital strategy and transformation.

I am the founder of TechMoat Consulting, a boutique consulting firm that helps retailers, brands, and technology companies exploit digital change to grow faster, innovate better and build digital moats. Get in touch here.

My book series Moats and Marathons is one-of-a-kind framework for building and measuring competitive advantages in digital businesses.

This content (articles, podcasts, website info) is not investment, legal or tax advice. The information and opinions from me and any guests may be incorrect. The numbers and information may be wrong. The views expressed may no longer be relevant or accurate. This is not investment advice. Investing is risky. Do your own research.

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