SF’s 100B Yuan Revenue Bodes a War for Market Share in China’s Express Delivery Sector

Shenzhen-based delivery services giant SF Express published its annual report indicating that the company’s operating income in 2019 reached 112.193 billion yuan, an increase of 23.33% year-on-year. The firm’s net profit attributable to shareholders soared to 5.797 billion yuan, an increase of 27.23% year-on-year. After a decline in profits in 2018, SF Express seems to have returned to a path of growth. However, there are other storms that the company still has to weather.

The price SF paid to regain market share and the slowdown in the growth of some of its new business directions might come to haunt it in the future. For express delivery companies, market share is an important business development indicator and although SF’s business model and positioning initially relied mostly on mid-to-high-end commercial deliveries, the competition from e-commerce adjacent delivery companies, collectively known in China as “Tongda” (ZTO, Yunda, YTO, STO and Best Express) has forced it to change gears to keep up.

According to data on the business volume of the express delivery industry unveiled by China’s State Post Bureau in 2019, SF’s market share was 7.61%, a slight increase of 0.04% from 2018. Yet, while still being extremely popular with Chinese consumers, SF lags far behind “Tongda.” According to calculations made by the 21st Century Business Herald’s in 2019, ZTO, Yunda, YTO, STO, and Best Express had a market share of 19.1%, 15.8%, 14.3%, 11.9%, and 11.6%, respectively.

In May 2019, SF adjusted its product strategy to increase business volume and launched new products specifically designed for the e-commerce market and customers. A delivery industry analyst then shared with the 21st Century Business Herald that the purpose of launching such products was to penetrate the e-commerce courier market, compete directly with “Tongda” and regain market share.

SF’s eagerness to focus on e-commerce is also explained by a noticeable slowdown in its other business areas, mid-to-high-end commercial deliveries in particular. In its annual report, SF divided the express delivery business into “temporarily effective” and “bearing economic value” sectors. The former refers to the company’s mid-to-high-end delivery business, while the latter alludes to the e-commerce direction. In 2019, the two business segments of SF Holdings achieved operating income of 56.521 billion yuan and 26.919 billion yuan, a year-on-year increase of 5.93% and 31.96%, respectively. The growth rate of SF’s “temporarily effective” business sector slowed to single digits.

Judging from the recently released SF business data in February 2020, SF’s overall business growth rate reached nearly 120%. Although the express delivery industry as a whole was affected by factors such as the novel coronavirus epidemic and the usual Spring Festival slowdown, SF’s new products spurred overall business growth.

However, entering the e-commerce field, SF will have to face fierce price competition from “Tongda.” Additionally, the COVID-19 outbreak is likely to make the competition even gorier, as declining business volume will force “Tongda” to adopt aggressive price-slashing strategies to restore their market share after the epidemic subsides.

SF Express gained an advantage over its peers when it became one of the first delivery services companies in China to resume operations despite the coronavirus outbreak. Since the launch of its rescue transportation mission on Jan. 23, SF Group carried out more than 190 assistance flights and delivered more than 4,000 tons of epidemic prevention supplies. At present, it is one of only nine companies conducting deliveries in China’s Hubei Province, the epicenter of the outbreak, alongside China Post, JD Logistics and others. Nonetheless, although SF has reaped considerable benefits from the early resumption of work, once the“price war” officially starts, this achievement could be of little importance.