Alibaba start-up delivers on its promise in shipping goods

The impediment to the growth of e-commerce is no longer consumer demand, which has soared in the past year as many shoppers have been unable or unwilling to visit brick-and-mortar shops because of the coronavirus pandemic.

The drive for efficiency has become even more critical as border closures and lockdown restrictions have made deliveries trickier. Brexit has been an added challenge for many shops in the UK.

The logistics companies that transport these goods from warehouses to our doors are vital to retailers, and even governments, as they look to transport coronavirus vaccines. But traditional methods of shipping goods are inefficient and wasteful.

There is now another option for merchants of all kinds.

Cainiao lives in the shadow of its parent company, Chinese internet company Alibaba. But it has quietly been building an unconventional logistics platform that could transform the distributionn of products.

The brainchild of Chinese tycoon Jack Ma and others, Cainiao does not own most of the warehouses or depots it cleverly leverages. Instead of buying lorries and fuel, it has built up a 3,000-strong network of “logistics partners” who do the actual deliveries.

Cainiao carefully curates and aggregates established logistics partners. This scale provides merchants with ample data to choose the most efficient delivery option through the Cainiao platform.

The company puts sensors on everything and is bringing about a digital revolution in distribution. After achieving strong growth at home in China’s $2 trillion e-commerce market, the company is starting to expand globally in Belgium, Malaysia, Russia, Thailand and Dubai without ever building a single warehouse. This has allowed Cainiao to piggyback off existing infrastructure and to scale up quickly while avoiding steep fixed costs.

At a time when logistics companies are vital to e-commerce and vaccine delivery, this resilient model strengthens supply chains. If a logistics partner goes bust or leaves the platform, it will not compromise the stability of the wider network because the slack can be absorbed quickly.

Technology and data are at the heart of the model, which streamlines deliveries. Cainiao tracks all the transactions in its ecosystem and crunches the data to produce actionable insight that benefits everyone, including consumers who are offered greater availability of products. Cainiao uses predictive analytics to forecast consumer demand and help its partners allocate stock and pick warehouse locations. It also uses data from delivery fleets to optimise shipping routes, improving efficiency and trimming fuel costs. When more partners join, the efficiency of the whole network increases.

The company has also created more than 80,000 “Cainiao Post” stations where people can pick up their orders. These stations are embedded within local communities such as schools and create sustainable, viable job opportunities. This form of community entrepreneurship is reminiscent of the township and village enterprises that played a pivotal role in China’s transition to a more market-based economy after reforms in the late 1970s.

The company does not represent an existential threat to traditional delivery operators. Rather, Cainiao can be the rising tide that lifts all boats. Instead, the threat is levied at e-commerce platforms such as JD or Amazon, which has built vast fulfilment centres all over the world.

Since Cainiao is part of Alibaba, it can offer merchants a full suite of services. A retailer could sell their goods on Taobao, Alibaba’s e-commerce platform and process the transactions on its payment platform Ant Financial. Sellers are free to choose other providers. Increasingly, though, they will be tempted to be part of the Alibaba ecosystem for the efficiency gains.

However, China has launched an antitrust investigation into Alibaba, which it accuses of monopolistic practices. That came after the suspension of Ant’s $37 billion initial public offering. How such an investigation will hit Cainiao’s growth remains to be seen, but the open nature of its ecosystem appears to be prepared for the future.