JD.Com, the Chinese Amazon-like online marketplace, has invested further into its logistics network with a 376 million yuan (about $55 million) investment in Jiangsu Xinning Modern Logistics for a 10 percent stake, according to a report by TechCrunch.
The China-listed logistics company offers supply chain services for consumer electronics. Xinning said it also has a strategic partnership with JD Logistics to create a big data system to boost efficiency and cut costs. The planned system will match cargo with vehicles.
The service wants to reach 200,000 vehicles by 2020 and eventually more than 2 million. The move is to fulfill both JD’s logistics needs and those of its third-party partners.
One of the main things that differentiates JD from rivals is that it has its own logistics arm, although the endeavor is costly. The company does it to assure the market and customers that it can provide better quality control and a more satisfying user experience.
The heavy investment in logistics has been trying for investors, but after opening services to third-party merchants in 2006, the company started seeing some benefits, as other companies can now mail packages through JD as they would with FedEx.
The endeavor has also proved to be paying off in the cost-savings department. In Q1, JD’s fulfillment expenses ratio was down 0.5 percent year-over-year, to 6.7 percent. This was due to “better utilization of logistics infrastructure and improved unit economics as a result of the third-party logistics service business,” according to CEO Sidney Huang.
Huang added that the cost improvement came before the recent benefit and wage changes for its delivery unit. The company announced in April that it was going to remove minimum wages for couriers and offer per-piece incentives. Many analysts worried that the move would hurt courier morale, but many delivery drivers saw income boosts, and JD doesn’t “expect to realize any meaningful cost savings,” Huang said.