Logistics Bottleneck Of Online Retail Industry In China

Transcription

1 Logistics Bottleneck Of Online Retail Industry In China Shu Zhou* San Jose State University, San Jose, California, USA The last ten years has witnessed the exponential growth and development of online retail industry in China. However, most recent data has shown that such development has been hampered by the low efficiency and high cost of E-commerce logistics. Due to its fragmented nature, sub-standard infrastructure, and lack of last-mile delivery expertise, logistics has become the biggest bottleneck of online retail industry. This research uses most recent data published in 2012 and 2013 to analyze the logistics issues and discuss approaches which can be used by online retailers, logistics firms, and government regulators, to break down such bottleneck. *Corresponding Author: I. LITERATURE REVIEW China has the world s largest online population, which is 538 million as of June 2012 and will be more than 700 million by By comparison, the numbers of internet users are 245 million for the US and 101 million for Japan. Yet China s online population is far from reaching its full potential, since its internet penetration rate, which is the percentage of the total population that uses the internet, is only 40.1% in 2012, as compared with 78.3% for the US and 80.0% for Japan (Internet World Stats, 2013). A McKinsey research shows that internet users are younger, richer, and more educated than average Chinese citizens, and online shoppers are even younger, richer, and more educated than average internet users. On average, the Chinese also spend a much greater proportion of time on the internet, both at home and at work, than internet users from other countries (McKinsey, 2010). Rapidly expanding broadband network, growing consumer desire for value and convenience, improved online payment systems, and poor access to traditional retail stores in rural regions or lower tier cities are four key factors driving the growth of online shopping. As of June 2012, China has more than 210 million internet shoppers, which accounted for 39% of online population (CNNIC, 2012). With such a huge number of online shoppers, China s online retail business has been able to maintain its strong growth momentum. As online retailers attempt to attract more customers over wider geographic regions across China, more and more challenges have emerged. Alarmingly, the demand for E-commerce is growing much faster than any infrastructure could accommodate, and one major challenge is to build and manage the logistics network to support the rising demand. The slow expansion of logistics industry has been lagging behind the exponential growth of China s online retail for many years. Its low efficiency, low quality, and high cost not only restrict the development of logistics industry itself, but also cause it to become the biggest bottleneck of online retail industry. The interaction between China s E- commerce industry and its supporting logistics industry has been discussed in literatures (Xu, 2010, Lin, 2010, Lin and 1

2 Lin, 2010, Gu, 2010, Zhao, 2011, Wang, 2012, and et ct.). Researchers agree that E- commerce logistics has been limiting the development of online retail business. However, to our knowledge, no research paper gives a comprehensive analysis of both online retail business and E-commerce logistics industry from different perspectives and to enough details. Given the rapid expansion of China s E-commence market, an up-to-date research is needed to understand the status quo. Our research concentrates on what has happened in these two industries since 2012 and tries to illustrate the most recent trends and issues. Section 2 provides an overview of China s online retail industry, with a focus on its promising trends. Section 3 discusses current status of E-commerce logistics and its issues, including low service quality, high operating costs, low efficiency, sub-standard infrastructure, shortage of capital, and complex regulations and taxations. Section 4 discusses the realistic approaches to overcome logistics bottleneck of online retail business. We propose strategies for online retailers, logistics firms, and government regulators. The most recent data and cases are presented to help illustrate our points. We conclude the research in Section 5. II. CHINA S ONLINE RETAIL INDUSTRY Currently, China's E-commerce market is dominated by C2C (consumer-toconsumer) industry, which accounts for 63.9 percent of the market in the second quarter of 2013 and is driven primarily by Alibaba s C2C platform Taobao, which takes more than 95% of the total C2C market share. B2C (business-to-consumer) market has been rising continuously in recently years. In the second quarter of 2013, it accounts for 36.1% of the total online retail sales, compared with 29.5% in the second quarter of B2C market is expected to maintain this ascending trend and to reach more than 40% of the market share in The two major players are Alibaba s B2C platform Tmall and 360Buy (Jingdong Mall), which account for 50.8% and 17.1% of the total B2C market share. Compared with C2C market, B2C market has a much brighter prospect due to its better product and service quality (iresearch, 2013) is a record year for China s online retail, with a total transaction value of 1.3 trillion yuan (1 yuan = 0.16 US dollar), which is 66% higher than previous year (785 billion yuan in 2011). Transaction values for 2013, 2014, and 2015 are expected to be 1.85, 2.45, and 3.02 trillion yuan respectively (iresearch ). China s online retail industry has shown the following promising trends: 1) Increasing transaction value. The online retail industry has not seen any slowdown that has being experienced by many other industries, such as manufacturing, exporting, and real estate. In 2012, online retail sales accounted for 6.2% of the total retail sales. This percentage still lags behind that of the developed countries, such as UK (12%) and US (9%), but compared with 2011 in which the share of online transaction in total retail sales was 4.3%, it is a big accomplishment (iresearch ). Chinese customers demand for shopping online has continued to grow with strong momentum. iresearch projects that, by 2013, China will overtake US to be the largest online retail market in the world. An example of this boom is China's biggest B2C website, Tmall.com under Alibaba. According to market research firm Euromonitor International, Tmall will surpass Amazon.com in sales to become the world's largest internet retailer by Tmall sales are projected to hit $100 billion, compared with $94 billion for Amazon by then (Lahouasnia, 2012, iresearch, ). 2) Wider geographic coverage to inland cities. A report from Taobao and A.T. Kearney shows that in 2010, eight of the top ten fastest-growing cities in terms of total online spending on Taobao were inland lower tier cities. This trend continued in The overall geographic coverage of online retail has expanded with deep 2

3 penetration into inland cities. According to a CNBC s interview with Alibaba's chief strategy officer, Zeng Ming, China s growth in online retail in 2012 is expected to be boosted by demand from lower tier cities. In these cities, consumption has been growing at a much faster pace than big cities along the coast (CNBC, 2012). Consumers in such inland cities may not have the same buying power from local stores as their counterparts do in the coastal cities, but now they have the same buying power online. China is quite unique in the sense that its geographical spread of internet outpaces the expansion of physical retailing chains. The fragmented retail market and limited physical retail network has driven both the retailers and consumers to online business, and their devotion to online retailing has fueled the robust growing trend of Chinese online retail industry. 3) More online retailers. Online retail industry is becoming particularly crowded with more players and various business models. To build and strengthen their competencies in the intensively competitive market, online retailers have adopted different strategies, such as starting price wars, expanding product categories, offering value-added services, launching promotion events, enhancing online shopping experiences, and investing in new technologies and infrastructure. More and more traditional retailers have launched online stores or increased their investment in online operations. As of 2012, 62 of the top 100 chain retailers in China have launched their own online stores, in the hope to capture more customers and enhance shopping experiences. While market shares of these online stores remain small for now, in the long run they are expected to grow and challenge current industry leaders like Tmall and 360Buy. Some major foreign retailers have also entered China s online retail market through acquisition of, or partnering with, Chinese companies. For example in May 2012, Macy s, the leading US department store chain, acquired a stake of 15 million USD in Chinese online VIPStore. In February 2012, Wal-Mart increased its stake in the Chinese online grocery store, Yihaodian, to approximately 51%. 4) Advanced infrastructure and technology. Major vertical B2C companies have transformed to B2C E-commerce platforms with technologies like cloud computing. This migration allows third parties to sell goods on their open platforms, which provides third parties with logistics, warehouses and other supply chain services in exchange for fees and deposits. 5) More market shares from mobile commerce. In the second quarter of 2013, M-commerce (mobile commerce) shares increased 181.1% from same time last year. In the first two quarters of 2013, shares of M-commerce (mobile commerce) rose to 8.6% (iresearch, ). M-commerce has been expanding rapidly in China with growing popularity of mobile devices like smart phones and tablets. More and more online retailers have developed shopping applications to facilitate transactions on mobile platforms. Despite its rapid growth and all the promising trends, there are still several challenges which might impede the development of online retail in China, which will be discussed in next section. III. OVERVIEW OF CHINA S E- COMMERCE LOGISTICS INDUSTRY No matter what kind of business model an E-commerce company may adopt, it relies on logistics to distribute and deliver its goods. Efficient delivery of goods has been proven to be a key success factor of online retailers. E-commerce in China, especially the online retail, has been developing with stunning rapidity and has been demanding more logistics services such as warehousing, transportation, and last-mile delivery. Unfortunately, the logistics industry has not been able to grow with the same pace. Although it has benefited significantly from the boom of online 3

4 shopping, it has always been lagging behind, especially in inland cities and rural regions. As a consequence, the huge number of online orders can easily overload express delivery companies, especially during promotional events. Online shopping has made the last-mile delivery an important interface between seller and customer, therefore a poorly managed logistics network not only increases online retailers logistics cost, but also hurts their brand images due to the bad experiences of customers whose orders are delayed, damaged, or lost in delivery. In developed countries, when internet retailers were expanding rapidly, they could tap in to existing shipping and delivery networks. However, China s logistics market itself is highly fragmented. Unlike UPS and FedEx in the US, almost none of the logistics companies in China has nationwide coverage, except for the state-owned China Post and its Express Mail Service (EMS), which are known for their low service quality and high delivery fee. Statistics from the National Post Bureau claim that there are nearly seven thousand legitimately registered express delivery service companies in China with more than 700,000 employees serving in the sector. Major cities could have hundreds of small-scale local logistics service providers (LSP). Such logistics companies, which possess local knowhow, offer services at affordable rates. This fragmented nature is one of the most fundamental reasons that logistics becomes the bottleneck of the development of China s online retail industry. More specifically, logistics industry presents online retailers a number of challenges: 1) Low service quality. Due to the fragmented nature of distribution industry, in most cases, an online order is not handled by one single high-quality third-party logistics (3PL) provider, but by a mixture of companies instead. There are tens of thousands of local express delivery companies in China. It is very likely that retailers have to deal with numerous logistics companies instead of just one. High costs are often incurred. Due to the shortage of capital, most of the small companies do not have sustainable investment in equipments or professional staff; therefore they lack last-mile delivery expertise. Such companies usually do not adapt to modern logistics practices, and their services are sub-standard without compliance with industry requirements. In most cities of China, a delivery staff would probably pilot a tiny van or motorbike trailer overflowing with brown-paper boxes. Online retailers hardly have any service quality control over delivery. According to a survey conducted by the State Post Bureau, delivery quality of China s express delivery services remained dissatisfactory for over half of the respondents. Deliveries could be messy and chaotic. Parcels are barbarically sorted and frequently delayed, damaged, and even lost or stolen, especially during online retailers promotion seasons. Case I: Logistics chaos after the Single s Day online promotion event (Jinghua, 2012, iresearch, 2012). In China, the biggest online retail promotion sale in 2012 was on November 11 th, known as the Single s Day, when E- commerce giant Alibaba s C2C platform Taobao and its B2C platform Tmall hit a gross merchandise value of 19.1 billion yuan ($3.l billion) from a 24-hour sale. It easily topped the 2012 sales for Black Friday ($1.0 billion) and Cyber Monday ($1.98 billion) in the US. However, when the tide went out, it was discovered that the enormous volume (nearly 100 million) of orders were more than what the current logistics network was capable of handling. Various delivery problems arose consequentially. Lots of parcels were damaged or lost. A large portion of customers did not receive their order within two weeks or even longer. Tons of orders were cancelled because retailers were inexperienced and their supply chains were unprepared to produce and deliver the promised volume. For example, a furniture retailer on Tmall, QuanU, cancelled 13,976 4

5 orders, out of which 85% were due to the retailer s insufficient inventories resulting from poorly managed supply chain. 2) High operating costs. Most logistics companies in China are facing the major challenge of high operating costs. The ratio of the logistics cost to GDP of China remains much higher than its counterparts in developed countries. Heavy tax burden, high toll fees, expensive fuel costs, and rising labor wages are trimming the profit margin of logistics enterprises. Local provincial regulations also add to the logistics costs. For instance, expensive road tolls imposed by local governments could account for 30-40% of the transportation costs. Due to high toll charges, trucks overloading becomes a common practice, which causes the potential road accidents, the resulting traffic jams, and the delivery delays. 3) Low efficiency. The fragmented nature of logistics industry makes central coordination across logistics network not realistic, causing low resource utilization rate, low network efficiency, and high costs. Online retail is a demand-oriented business. The ultimate goal of logistics is to efficiently deliver products to final customers with professional last-mile delivery service. Ideally, online retailers need to take a systematic view of the manufacturer warehouse distribution center customers supply chain, so that resource allocation can be optimized and inventory level can be reduced along the process. Yet even for the largest online retailers in China, central planning and coordinating is not feasible when both the retail market and logistics industry are highly fragmented. Most logistics firms only operate in their immediate regions and take very little initiatives to develop more comprehensive and efficient networks. This multi-layered distribution system has low efficiency and limited visibility. The average utilization rate of vehicles and warehouses are both under 80%, lower than similar records in developed countries. 4) Sub-standard infrastructure, especially warehouses. Although more and more highways, railways, airports, and ports are being constructed in China, rural regions and inland lower tier cities still lag behind in terms of infrastructure development, especially in the quantity and quality of warehouses. As online retailers attempt to reach consumers across a wider geographical region, warehouse locations and optimal specifications become crucial, especially in the rural regions and lower tier cities. Chinese warehouse area per capita is only about 7% of which in the United States. Warehouse density is especially low in central and western China. Logistics firms have to outsource their delivery orders to western regions to China Post, the national postal network infamous for its service quality. Besides the insufficient geographical coverage, over 70% warehouses were built before 1990s and are sub-standard in many ways, such as facilities, technologies, and management. Only less than 2% of the total warehouse facility meets international standard. The designs of most warehouses do not suit the needs of high efficient logistics needed by online retail business. There are not enough temperature-controlled warehouses for goods that require a given temperature range in storage. Modern management technology is not implemented in most warehouses. Intelligent inventory control and real-time information sharing among warehouses are extremely rare, so both the operational efficiency and inventory visibility level are very limited. 5) Shortage of capital. Lack of financial support hampers the logistics growth in China, especially after the global financial crisis in It is very difficult for small and medium logistics companies to secure loans from commercial lenders to expand their businesses by upgrading facilities, adopting advanced 5

6 technologies, and expanding delivery networks. Investments from retailers, private equity firms, or financial institutions into E-commerce logistics industry were very limited too, especially before The stagnant investment into logistical equipment and infrastructure has become one major obstacle for the rapid development of the E-commerce logistics industry. 6) Complex regulations and taxations. China's logistics industry remains one of the world's most heavily regulated areas, with regulating rules existing at national, regional, and local levels and varying from city to city. Regulations are complicated and even chaotic. Several government departments are responsible for regulating and monitoring logistics industry. Lack of coordination among government departments from a higher level could lead to multiple jurisdictions or myopic decisions, which create obstacles for market entry and hinder the development of the industry. For instance, to apply for various operating licenses in order to provide logistics services in China, logistics companies do not have a clear guidance of where to send their application, since licenses could be issued by multiple government departments. The license application procedures are usually very costly and time-consuming. Local protectionism also limits the network expansions of logistics companies. Despite a significant reduction in national level regulations since China s entry into the World Trade Organization (WTO) in 2001, local governments of all levels still set up bureaucratic barriers to protect local business and prevent the entry of outside competitors. Local protectionism is usually driven more by the desire to maximize local economic growth, tax revenues, and employment, than by the intention of efficient utilization of regional resources to build up an integrated large-scale or national logistics network. Excessive taxation monitored by different levels of tax bureaus is another complicated obstacle for logistics companies. Tax policies could be controversial and ambiguous. A logistics firm could easily be exposed to compliance risks, heavy surcharges and penalties, multiple taxation, loss of tax benefits, and reputational risks. Case II: China Post s controversial plans to levy a tax on express delivery companies (Montlake, 2013). On December 28th, 2012, Shanghai s First Financial Daily reported that China s State Post Bureau and Ministry of Finance were planning to subsidize the postal services in rural regions, by raising a fund of 1 billion yuan from express delivery companies which have over 20 employees or annual revenues of 2 million yuan or more. It is estimated that, under this taxation scheme, an express delivery company needs to contribute roughly 20% of its profits to this so-called Universal Postal Service Fund. This proposal has sparked tremendous opposition from logistics industry. Courier firms argue that such unreasonable tax hike is nothing but a form of double taxation or another money-making scheme. The State Post Bureau is a profitable organization, although it is supposed to be a non-profit public service according to China s postal law. Its subsidiary, China Postal Express & Logistics Company, is the biggest player in China s express delivery industry and has around 30% market share. On one hand, it has not been adequately demonstrated that extra subsidy is needed for far-flung deliveries to rural regions. On the other hand, private couriers have already been having a hard time competing with China Postal Express & Logistics Company, which has the advantage of using China s national postal network. This proposed tax hike will benefit China Postal Express & Logistics Company and hurt private couriers. It has a negative impact on China's fast-growing logistics and online retail sectors. Logistics cost will be increased and such increase, unfortunately, will be transferred to consumers. 6

7 IV. APPROACHES TO OVERCOME THE LOGISTICS BOTTLENECK OF CHINA S ONLINE RETAIL INDUSTRY A commonly-recognized early obstacle to China s online retail was the lack of quick and reliable payment method, because credit card usage is not prevalent in China. This was quickly solved by Taobao s Alipay system, an escrow account introduced in 2003, and also by the cash-ondelivery (COD) solution. Another early barrier was consumers' lack of trust in the quality of products or services from online retailers, which could sell counterfeits or poor-quantity products. This barrier was taken down with the introduction of sellerrating system by Taobao and other major E- commerce players. Seller-rating system allows a potential consumer to check the reliability of online sellers and the quality of their goods before the placement of the order. Now that these two early obstacles have been removed, under-developed logistics is believed to the biggest bottleneck of online retail business. In order for China s online retail industry to grow sustainably, logistics insufficiency must be confronted quickly. But to break down the logistics bottleneck, online retailers, logistics companies, and government regulators need all to get involved and take action Strategies of Online Retailers Online retailers always have the motivation to make continued improvement to logistics so that they can benefits from solid delivery of their goods. They also want to differentiate themselves on logistics services so that they could stand out from their competitors. Most online retailers in China are offering similar products with competitively low prices, so they have to compete on service such as fast and reliable delivery and returns. Realistically online retailers can build their own logistics networks and facilities, or partner with existing logistics companies. Building its internal logistics team, network, and facilities is theoretically the best approach for an online retailer to control the supply chain, in order to guarantee the shipping and delivery quality of its customer orders, and to improve customer experience. Having its own logistics system, it can optimize resource allocations to increase logistics efficiency and to cut cost. Inventory can be controlled more accurately so that just-in-time replenishment of stocks can be realized. However, not every online retailer can afford the huge initial capital investment and high maintenance costs. Only the largest online retailers, who have enough daily transaction volumes, can take advantage of economies of scale, so that the cost can be reduced and its logistics operations are sustainable. Given the vast geographic spread of the market, even these very few largest online retailers are not able to build a gigantic logistics network with national coverage to address all the logistics demands internally. They have to be wise enough with regard to where and how to deploy their logistics capabilities and to allocate their resources. They also need to hire enough E- commerce logistics professionals who have expertise in warehousing, sorting, picking, and packing. For example, 360Buy has established its own logistics system since 2009, headquartered in Shanghai. It has four distribution centers in Beijing, Chengdu, Shanghai, and Guangzhou. Based on these distribution centers, same-day or next-day delivery services are provided. It offers same-day delivery service for orders placed before 11am in over 30 cities. So far 360Buy has built a combined inventory space of over one million square meters. In 2012, it invested 3.6 billion yuan into logistics system. It has also obtained a Chinese express delivery license, allowing it to accept cash payments on delivery. Another example is VANCL, an online apparel retailer, who has set up its own logistics company called Rufengda. With a network covering 1200 cities in China, it claims to be 7

8 able to provide door-to-door delivery within 24 hours. Other big online retail players that have built their own logistics networks include Suning, Mecox Lance, Amazon China, and so on. Partnering with established successful logistics companies is another approach for online retailers to actively address the issues of logistics. In fact, this might be the more feasible approach for online retailers, because building their own logistics system could be very costly due to the requirement of large initial capital and high maintenance, and due to their lack of logistics know-how. A solid logistics partner is not just a shipping and delivery service provider, but a reliable partner that can help the online retailer succeed. It should be able to think about the retailer s business and how it can help improve it. For example, it should be able to customize logistics network for the retailer to improve efficiency, optimize inventory management in distribution center to reduce costs, build operations to reflect the retailer s business and cultural values, and provide flexible service to meet the retailer s changing needs. Therefore online retailers should choose a high-performing logistics partner and build trust through such partnership, so that both partners in the relationship can excel. Case III: Alibaba s ambitious plan to partner with multiple firms to build China Smart Logistics Network (Reuters, 2013). On January 24, 2013, Alibaba Group announced a 100 billlion yuan first phase investment in an unprecedented project, China Smart Logistic Network (CSN) program. Led by Alibaba, this project is joined by several major express delivery companies like Shunfeng, Yunda, and financial institutions like China Yintai Holdings, Fosun Capital, and Fuchun Holdings. Jack Ma, founder and chairman of Alibaba group, will be the president. According to Ma, CSN will become the infrastructure of China s E-commerce business in the future. Once completed, CSN will be able to support an average daily transaction volume of 30 billion yuan, and will allow customers across China to receive their online orders within 24 hours. The project is estimated to be finished in eight to ten years. The plan is to choose eight places in China to be the first-hubs. Sub-networks will be formed around these hubs, so that the entire network could cover the whole country. The existing and future participators need to agree to keep investing into this project in the coming years. Unlike 360Buy, Alibaba has never wanted to build a logistics system on its own. Instead it wants to take advantage of the existing logistics networks and capabilities. Therefore it invited companies from different industries to participate in the project. Manufacturers, online retailers, logistics companies, and third-party service providers can all participate to build the end-to-end chain. Based on this idea, logistics efficiency can be improved through optimized infrastructure. "This is consistent with what we've said in the past that logistics is a key industry bottleneck for E-commerce growth in China and that everyone involved in this sector needs to work together to drive rapid development," an Alibaba spokeswoman said in an to Reuters. It is widely believed that by leading the CSN project, Alibaba wants to compete with 360Buy s self-owned logistics network Strategies of E-commerce Logistics Companies China s E-commerce logistics companies have benefited from the boom of online retailing. To continue enjoying this benefit, they are competing for market share in the highly fragmented market. In order to stand out from hundreds of competitors and build their creditability and brand images, they first need to improve their service quality and make sure that deliveries are quick and reliable. Especially they need to address the last-mile delivery and customer interface issues, such as delayed delivery, damaged or lost parcels, negative attitudes 8

9 from delivery staff, unprofessional operations, and poor return procedures. They need to raise capital from investors or financial institutions to expand their businesses wisely. For instance, they may need to add more services such as warehousing, customized delivery, scheduled returns/exchanges, and collect-ondelivery (COD) of payment. They may need to expand and optimize their logistics networks by selecting cities where they could be enough parcel volume so that delivery cost can be reduced by economies of scale. They may need to upgrade their infrastructure, such as facilities, equipment, and technologies. They may need to hire or train more professionals as well. More importantly, E-commerce logistics companies need to watch online retail industry closely and find out whether retailers need any new service. They should be able to customize services based on the requirements of online retailers and help online retailers improve the shopping experience of their customers. For instance, it should be able to customize logistics network and optimize warehouse inventory management for retailers, and be flexible to meet the changing needs of retailers. One example is the development in reverse logistics, which happens when customers return or exchange the products they ordered online. In China, online retailers are adopting much more generous and efficient return policies than before; therefore the volume of reverse logistics is growing rapidly. Large online retailers usually have dedicated staff to handle returns, exchanges, and refunds, but smaller business owners may find it a major challenge to manage returns efficiently, due to short of staff and other supporting resources. This is a good opportunity for logistics firms to come into play. They can offer reverse logistics solutions to small online retailers so that these small companies will not lose competition to large retailers due to the lack of the service. More specifically, logistics firms can help small retailers provide customers with return pickup scheduling, return parcel packaging, return labels printing, and online tracking of return shipment What Government Regulators Should Do to Help Break Logistics Bottleneck As China s economy is speeding up its transition from export-led growth into domestic consumption-led growth, E- commerce and its logistics has gained more attention from government regulators. Chinese government views E-commerce as a key industry to boost domestic consumption growth. It has spent billions to construct and upgrade the nation s high-speed rail, railway, highway, bridges and other components of transportation system. This is encouraging but a lot more capital and efforts are needed to further improve the infrastructures. As mentioned earlier, China's logistics industry has been one of the world's most heavily regulated areas. Local protectionism still prevails in some areas and prevents outside logistics operators to expand their networks. Government regulators need to eliminate those unreasonable regulations and taxations, simplify and standardize the administrations, and overcome regulatory barriers. China also needs to open its logistics market to foreign operators, which might have expertise to alleviate the logistics issues and become benchmarks of service for China s fragmented and sub-standard E- commerce logistics industry. In September 2012, China granted Fedex and UPS the permission to provide intra-china express package services, but their services are limited to only a few major cities, i.e., eight cities for Fedex and five cities for UPS. This is certainly an important step to open China s express delivery market, but considering China s vast geographic spread, eight or five cities is indeed a pittance. More market should be made accessible, and regulations that restricting foreign logistics operators should be relaxed. 9

10 V. CONCLUSION This paper presented the overview of China s booming online retail market and its supporting industry, E-commerce logistics. It has been shown from multiple perspectives that the development of logistics industry has been lagging behind the rapid growth of online retail. We have discussed not only how and why that logistics has become the bottleneck of the online retail industry, but also how the online retailers, the logistics firms, and government regulators can contribute to the breakdown of logistics bottleneck. Several cases are used to illustrate our points. It could take a long while for E-commerce logistics to be developed into such a sustainable stage that it will dynamically enhance the development of online retail business, but it is worthwhile to keep a close track of this industry and any study in this field. Future research includes constructing quantitative or quasiquantitative models to analyze the interaction of online retail and E-commerce logistics industry, and to improve the logistics efficiency, such as by optimization of the supply chain and resource allocation. VI. REFERENCES Ba, X.i, Study in Achieving Rapid Response Logistics in E-commerce Environment, Sci. and Tech. Management Research, Vol. 30, 2010, CNBC, Move Over Amazon - Here Comes a Chinese Online Juggernaut, Move_Over_AmazonmdashHere_Co mes_a_chinese_online_juggernaut, December 11, CNNIC, Abstract of the 30th Statistical Report on Internet Development in China, wnloads/201209/t _36586.ht m, September 28, Feng, W., The Bottleneck & Solutions for B2C E-commerce Logistics and Distribution, J. Chendu Univ. (Social Sci.), Vol. 4, 2010, Gu, Z., Research on Development Countermeasure of Express Delivery in An Age of under E-commerce in China, Logistics Engineering and Management, Vol. 32, 2010, Internet World Stats, Asia Internet Use, Population Data and Facebook Statistics, August 28, iresearch Consulting Group, China Online Shoppers Create Miracle on Singles Day, /4625.html, December 19, iresearch Consulting Group, Q China E-Commerce Report, iresearch Consulting Group, China Online Shopping Report, html#b, Jinghua Times, Aftermath of Tmall s Sales Pike on Nov 11 th, 21/ shtml, December 21, Lahouasnia, L., Prediction: Tmall will Overtake Amazon by 2015 to become the Largest Internet Retailer in the World, Euromonitor International, prediction-tmall-will-overtakeamazon-by-2015-to-become-thelargest-internet-retailer-in-theworld.html, Li, J. and Y. Chi, The Collapse of Star Express and Alibaba s Cloud Logistics Hit Rock Wall, The Economic Observer, March 10, Li, Y., Discussion about Distribution Issues and Strategies in Logistics under E- business Environment, China Management Informationization, Vol. 12, 2009, Lin, H. and H. Lin., To Establish and Perfect the Logistics Distribution 10

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