Courier Companies Are Raising Prices Before Singles' Day Again. What Has Changed in the Cost of Shipping a Package?

With Singles' Day a month away, the courier companies have again started raising delivery fees together. This time it is Shanghai.

YTO Express said in a notice on its website that, to cope with cost pressure, it would adjust fees on packages sent to Shanghai from anywhere in the country starting October 1, 2018.

Yunda sent its franchise outlets a notice saying that rising costs — the industry environment, labor, facilities — had put enormous pressure on delivery, and that the per-package delivery fee on packages arriving in Shanghai would go up by 0.5 yuan.

ZTO, STO and Best Express — which together with YTO and Yunda make up the group known as the Tongda couriers — soon said publicly that they would all adjust their fees for delivery into Shanghai on October 1 this year.

Tongda outlets are run by franchisees, and the delivery fee being raised is exactly the money they collect on each package. For now the price a consumer pays when ordering directly from a courier company has not changed. But the delivery fee is one part of that price, and if it keeps climbing it will eventually show up in the shipping fee customers see.

This is not the first time couriers have raised prices before Singles' Day. Last year, also just before the shopping festival, Yunda and ZTO announced increases for almost identical reasons: transport, labor and operating costs were all going up.

Singles' Day is the courier industry's big day. During Singles' Day 2017, 1.5 billion packages were shipped; over that whole year, couriers delivered 40.1 billion packages.

Yet their financial reports show profit margins falling steadily over the past two years.

Margins at the Tongda couriers have dropped two years running. The steepest year-over-year fall was at STO, from 26.56% in the fourth quarter of 2016 to 6.46% in the same quarter of 2017. Even ZTO, which fell the least, went from 37.82% in the second quarter of 2017 to 34.7% in the same period this year.

Revenue per package is falling too. STO's average revenue per package in the first half of 2018 was just 0.71 yuan, down 1.84% from a year earlier. YTO, SF Express and Yunda all slipped as well, by anywhere from 1.65% to 12.56%. The Tongda couriers all contract delivery out to their outlets and take a cut. Customers are not paying less to ship a package, so less revenue per package means it costs more to move each one.

So which costs along the chain have changed, and why is Shanghai hit so hard this year?

Shipping something bought online breaks down into roughly these steps.

The seller boxes the item up. A pickup courier from the local outlet collects it. A truck takes it from the outlet to a sorting hub, where it is sorted and sent on to the outlet nearest the buyer's home. A delivery courier carries it to the door.

Take a 2-kilogram package sent by road from Beijing to Shanghai. At an STO outlet in Beijing's Dongcheng district, the price for that package is 18 yuan.

Apply the cost breakdown in STO's 2017 annual report and 21.56% of that goes to transport, or 3.88 yuan. Sorting-hub costs are 6.25%, or 1.125 yuan. Together, transport and sorting come to 27.81% of the cost.

Delivery accounts for 61.08%. Of that 10.99 yuan, the courier who picks the package up takes 10% of the shipping revenue, or 1.8 yuan, and the STO courier who delivers it usually takes a 1.5-yuan delivery fee. The remaining 7.69 yuan or so goes to the franchise outlet, which pays for managing its delivery staff and for rent. Waybills, materials, taxes and depreciation come to about 1.295 yuan. STO's own average revenue per package in the first half of 2018 was 0.71 yuan.

This math covers only one-off individual orders; high-volume customers pay different rates, and merchants shipping their own goods get further discounts. Average revenue per package is also not the same thing as the shipping price, because companies keep their books differently. SF Express runs a directly owned network, so its revenue covers the whole system. The revenue STO, Yunda and YTO report is headquarters revenue; STO's and YTO's include delivery fees, Yunda's does not.

Over the past two years, top-tier cities have tightened environmental enforcement, land prices and rents have risen, cities have cleared out informal businesses, and fuel prices have gone up. All of it has changed what a package costs.

We took the cost items apart to see which ones moved.

Online Shopping: A Cardboard Box Costs Up to 70% More, and That Ends Up in the Shipping Fee

Couriers usually do not hand out free boxes when they pick a package up. Most of the cardboard you toss out was paid for by a Taobao seller.

Mr. Xing has run a Taobao shop for more than a decade. For the past few years he has rented a bungalow on the outskirts of Beijing and sold outdoor travel gear from it; his shop has reached four-crown status.

His biggest headache lately has been the price of boxes. Since 2016, box prices have gone up and never come back down.

In 2016, a No. 6 box cost him 1.06 yuan. By October 2017 the same box cost 1.7 yuan. A No. 6 box, big enough for four 600-milliliter bottles of Mizone, is one of the most common courier boxes there is.

Price history from China Carton Net shows box prices starting to climb in the second half of 2016. In six months the raw paper used to make boxes rose as much as 50%, which pushed box prices up 40%. "In 15 years in this business I have never seen paper this expensive. In one year, corrugated paper went from 2,200 yuan a ton to about 5,000 yuan a ton, more than doubling," Cui Decheng, who runs Jilin Donghao Packaging, told Xinhua.

One reason for the increase is the sudden tightening of environmental inspections over the past two years.

Boxes are made from waste-paper pulp that box factories buy in, and small and mid-sized pulp mills produce a lot of wastewater. As inspections got tougher from 2016 on, orders telling box factories to cut or halt production came thick and fast. Even big events brought them: the Qingdao SCO Summit, for instance, came with orders restricting box-factory output. In the end a wave of small and mid-sized paper mills closed, merged or switched to other products.

The manager of a cardboard-processing plant in Langfang, Hebei, told QDaily the factory has 20 employees. It was still in Beijing last year and moved to Hebei because of the environmental clean-up.

"At the peak last year, box prices went up 1 to 2 yuan on average. They have come down a little these past few months," the manager said, adding that prices started rising once the box factories left Beijing. "About 80% of them moved out. Some people just quit the business — moving somewhere else costs too much."

Box output fell on one side; on the other, the whole country still needed packaging for its packages. The higher prices reached Taobao shops fast.

At 0.7 yuan more per box, the extra cost is bearable for Mr. Xing, who ships more than a thousand packages a month. But for a high-volume shop sending several thousand a month, "it's hard to swallow the cost yourself. Either you raise the customer's shipping fee, or you sign a longer contract with the box factory to get the price down."

Intercity Trucking Is Nearly a Third of Delivery Costs, and Diesel Is Up 63%

Once the package is packed, the courier comes to collect it.

In STO's 2017 annual report, the logistics portion of delivery costs splits into transport and sorting, which together account for 27.84% of what it costs to move a package. Couriers have generally been spending more on transport in recent years to keep up with growing volume.

In 2016, STO spent 222 million yuan on sorting; a year later the figure was 645 million yuan, up 1.9 times. STO explained that on top of the jump in volume, it had subsidized transport routes in 2017. YTO's transport and sorting costs in 2017 were 72 million yuan, 16.24% more than the year before. Yunda's transport costs rose 44.44%.

Mr. Deng, a driver at an STO sorting hub, told us fuel is close to 50% of transport costs. "At the start of 2017, 100 kilometers of fuel cost only 200 yuan," Deng said. "Now the same 100 kilometers costs 350 yuan."

Deng's estimate may not match the arithmetic. A 13-meter semi-trailer burns about 20 liters per 100 kilometers, and at Shanghai's diesel price of 7.48 yuan a liter that comes to roughly 150 yuan. His sense that fuel costs more may also come from mountain roads, traffic jams or overloaded trucks.

Still, fuel prices have trended upward in recent years. Data compiled by Tonghuashun iFind shows that since January 2016 the National Development and Reform Commission has adjusted fuel prices 59 times: 41 increases and 18 cuts. Over the same stretch, the ex-factory price of diesel went from 5,020 yuan a ton to 8,185 yuan a ton by early October, up more than 63%. Gasoline went from 5,965 yuan a ton on January 1, 2016 to 9,255 yuan a ton on October 1 this year.

At home and abroad, diesel and gasoline are goods whose prices rise and fall. But from 2016 to now, prices at Sinopec and PetroChina have been rising on the whole.

Diesel is up 63% over the past two and a half years, more than half again as expensive. Gasoline is up 55% over the same period.

Besides fuel, drivers' wages keep climbing, and that pushes transport costs up too.

Manager Cui of Shanghai Zhenlong Logistics started driving trucks around Shanghai 12 years ago and later set up his own logistics company. He now manages more than a dozen truck drivers.

Prices are high in Shanghai, Cui says, and truck drivers' pay has climbed fast with them: from 7,000 yuan three years ago to about 10,000 yuan today.

"What we ask for is 50 trips a month, and that's 10,000 yuan. If a driver wants to run more, each extra trip is another 300 to 500 yuan. It's all negotiable."

Drivers of big trucks also take a share of what the vehicle earns. A 17.5-meter semi-trailer costs more than a million yuan. A driver and the logistics company can buy one together: put in 100,000 yuan and the driver earns an extra 5% of the fee on every trip the truck makes. Yunda explained the logic in its annual report — it "makes drivers look after the vehicles better and gives them more reason to haul freight."

Cui quoted us a price: Shanghai to Beijing, 430 yuan a ton, loading and unloading not included. That is 16% above the 370 yuan a ton he charged in 2014. "It's gone up some, but we don't earn what we used to."

Freight demand in China is tied to the real economy and to private business. When growth in a region slows or factories cut output, they need less trucking. As the real economy and the private sector have slowed in recent years, logistics prices have had a hard time rising.

Road transport still carries 77% of all freight in China, and for ordinary packages it remains cheaper per unit than high-speed rail or air.

Big-City Redevelopment Has Pushed Up Both Rent and Wages at Franchise Outlets

After 3.38 yuan of transport, the 18-yuan package reaches an STO first-tier sorting hub; after another 1.125 yuan of sorting, it lands in a franchise outlet's warehouse.

An outlet is usually responsible for pickups and deliveries in one area, and its income comes from the delivery fees and subsidies headquarters pays it.

Warehouse rent and labor are its two biggest costs, and the two that have grown most in the past two years.

Take Shanghai, where fees are now going up. At an STO outlet in Heqing township, a courier said warehouse rent had gone from about 25 yuan per square meter a month in 2016 to about 45 to 50 yuan today. Rent has roughly doubled.

Manager Wang, in customer service at Toodc, a platform that brokers warehouse space, told QDaily that as land prices have risen, warehouse prices have risen quickly with them.

A mid-sized logistics transfer station needs about 300 square meters of storage, which means rent alone adds 90,000 yuan a year to an outlet's costs.

Part of the reason rent has risen is stricter inspection. The manager of the Heqing outlet told us Shanghai runs an environmental assessment or a fire-safety check on warehouses nearly every month.

The environmental review mainly checks whether a courier warehouse's fire-safety equipment is adequate; fail it and you are shut down until you fix it. Passing usually means installing sprinklers.

Wang of Toodc said warehouses that pass fire inspection and already have sprinklers have been in demand in recent years, renting for about 0.3 yuan per square meter a month more than the rest.

"If you're renting for a long time, I'd still suggest putting in your own fire-suppression system, or at least buying a batch of extinguishers. You will definitely have to pass the environmental review," Wang said.

Couriers Quit Too Fast, So Outlets Have Had to Raise Delivery Pay

The person who finally hands over the package works for a franchise outlet. Delivery is 61.08% of STO's operating costs; of the 18-yuan package, 10.99 yuan goes to the outlet and the courier.

Couriers at YTO, STO, Best Express and Yunda told QDaily that apart from the directly owned outlets, most couriers in the country are managed by franchisees. Pay at the Tongda couriers is calculated almost entirely by how many packages you pick up and deliver; base pay for not working is rare.

On a package from Beijing to Shanghai with a 20-yuan fee, the courier who picks it up generally earns 10%, or 2 yuan. Deliveries far outnumber pickups, so they pay less per package.

Mr. Li, a ZTO courier, started three years ago, when delivering a package paid about 0.8 to 1 yuan. Now he gets 1 to 1.5 yuan. Couriers at other companies have seen about the same increase.

"If the delivery rate doesn't go up, nobody wants to be a courier in Shanghai," Li said. He delivers around 5,000 packages in a typical month; during Singles' Day, with several days of overtime in a row, he can get close to 10,000.

Another 0.5 yuan a package means courier pay in Shanghai has generally risen by 1,500 to 2,500 yuan, to about 7,500 yuan a month take-home. In second- and third-tier cities, couriers make about 4,000 yuan.

Even after repeated increases, that is not competitive pay in a top-tier city. What pulls couriers away is food delivery. At Ele.me or Meituan, riders generally earn more than couriers do.

In our reporting, food-delivery riders were making 7,000 to 8,000 yuan a month or more. Two Meituan riders told us they used to deliver packages. "The money was worse and there was more hassle. A meal, once I hand it over, is done. With a package, if nobody's home, I have to go back a second time."

But almost everyone who switched to food delivery brought up the "five insurances and one housing fund", China's mandatory social-insurance and housing-fund package.

A front-page article in Southern Workers Daily on August 13 listed the absence of those benefits, unstable income and fear of customer complaints among the leading reasons couriers quit. In our interviews, couriers said their outlets do not pay into the five insurances and housing fund, though some buy an accident policy costing 100 yuan a month.

"That's mainly in case something happens on the road, a car accident. If a courier dies in a crash, the outlet owner pays out a lot more."

STO's 2017 annual report shows 36.6 million yuan spent on social insurance for short-term employees. With about 24,000 outlets and roughly 5 people each, that is 305 yuan per person a year — clearly not enough to cover every courier.

Heavy work and low pay keep turnover high. Couriers told us the worst period is right after Chinese New Year, when at least 40% leave.

Nearly half the staff walk out over a year, but the packages keep arriving every day. To stay open, an outlet has to replace them, which is not easy. STO's 24,000 outlets employ about 5 people each, or 120,000 in all. At 50% turnover a year, running the same operation for three years means hiring 300,000 people, and recruiting costs money too.

The Cost Problem Shows Up Most in Big Cities — Shanghai, and Beijing, Which Raised Prices Earlier

Rising outlet and labor costs bite hardest in top-tier cities like Shanghai and Beijing.

For two years those cities have kept squeezing the land available for warehouses, while large migrant populations have driven up housing rents. Per-capita disposable income in Shanghai and Beijing was close to 60,000 yuan in 2017, and the cost of living has risen with it.

Housing rent is one expense that outlets in these cities did not carry before.

Couriers used to live in dormitories converted out of warehouse space. As the clearing of informal businesses accelerated last winter, Beijing and Shanghai stepped up fire-safety checks and inspections of subdivided rentals. Most franchise outlets now have to find their couriers a bungalow in town or near the warehouse.

A courier at Wanxiang Logistics told us that in August this year his company's outlet on Liaoyuan East Road in Shanghai was sealed off. "There were far more inspections than before. In the end the fire department said flammable goods were mixed in with the living quarters and there was no fire separation, so they shut the outlet down."

A logistics outlet near Shanghai's Tangzhen found its employees a bungalow at the end of last year, at 4,000 yuan a month. "We didn't have this expense before. Now we not only have to house people outside, the warehouse has to spend more on security staff too," the outlet's manager said.

Shanghai was also among the first cities to keep electric bikes and electric tricycles off the road. The Shanghai Regulations on Road Traffic Administration took effect in March 2017, with a 200-yuan fine for any electric tricycle caught on the street. In the sweep that followed, traffic police in Xuhui district alone ticketed 103 courier vehicles in a single day.

On some downtown Shanghai streets, couriers now have no choice but to push a hand cart, which is far slower inside a residential compound than a tricycle. Delivery fees in compounds like these have risen past 2 yuan a package.

Large trucks, meanwhile, can no longer enter downtown Shanghai or Beijing. They have to unload first in places like Heqing and Minhang on Shanghai's edge, or outside Beijing's Fifth Ring Road, and box trucks then carry the goods into the city through second-tier transfer points. That raises delivery costs in both cities.

A report Cainiao published in 2017 found that Shanghai's Pudong New Area takes in more packages than any other district, followed by Bao'an in Shenzhen and Chaoyang in Beijing.

Because the volume is already so high there, the number of second-tier transfer points has grown. Subcontracting is also common in Shanghai. A Wanxiang Logistics courier explained: "Head office contracts Pudong to you, you cut Pudong into 10 pieces and contract them out again, and the people below you may contract them out once more. Each layer takes about 5% to 10%, and the price keeps climbing."

Warehouse space in Shanghai is shrinking as well, with more and more of it moving beyond the Outer Ring Road. A paper from Shanghai Normal University on the city's logistics nodes found that as of 2014, Hongkou and Jing'an inside the Middle Ring Road were dense with logistics operations.

After 2017, markets inside the Middle Ring Road were demolished — Shanghai's Hengda Aquatic Products Market, Yangnan Market, Xuhui's Guijiang Road Market — and the logistics nodes with storage attached to them disappeared from inside the ring. In October 2017 Shanghai launched a clearance campaign within the Middle Ring Road, tearing down numerous large markets totaling 400,000 square meters.

Beijing is the same. The manager of a Yunda outlet in Balizhuang told us that starting last winter, many courier warehouses moved outside the North Fifth Ring Road.

Losing those nodes makes delivery slower, because packages now start their run from the outer edge of the city. Longer runs also mean each courier delivers fewer of them.

STO's 2017 annual report puts delivery costs at 6.3 billion yuan, up from 5.1 billion, and attributes part of the increase to "higher delivery fees in certain core cities."

Beijing had already adjusted its fees. Beijing Business Today found that ZTO's within-city fee in Changping district had gone from 10 yuan last year to 12 yuan, and that at outlets in Dongcheng and elsewhere in the city, prices for shipping out of town had generally risen by 1 to 3 yuan.

Take Tianjin, the closest city to Beijing: the minimum fee at a ZTO outlet for shipping there rose 3 yuan, to 13 yuan and up; at a YTO outlet in Chaoyang it also rose 3 yuan, from 10 yuan to 13 yuan and up.

Raising fees in Beijing brings policy pressure, though. After ZTO, Yunda and YTO raised prices one after another around Singles' Day last year, Beijing issued its Rules on Pricing Conduct in the Courier Industry (Trial), which set out "12 prohibitions" governing how courier companies change prices and aimed at preventing coordinated increases.

Technology Has Made Delivery More Efficient, But the Turn Toward Better Service Brings New Spending

Not every cost is going up. Electronic waybills and an upgraded freight network have made delivery more efficient and brought costs down.

SF Express was the first company to use electronic waybills widely. Thermal-printed and self-adhesive, they cost 0.5 yuan less than the old three-part paper forms.

What mattered more was the time saved at many steps along the way. An SF Express courier told QDaily that when electronic waybills first came in, they saved at least 5 to 10 minutes on each pickup — over a day, enough to cover one more building.

Electronic information systems have also cut complaints about lost packages. STO lost 1.39 packages in every 10,000 in 2017. China Post's consumer complaint figures for June this year show 4,688 cases involving delivery-service problems, down 64.1% from a year earlier.

Automated sorting is another investment in efficiency. JD.com, SF Express, the Cainiao Alliance and the Tongda couriers have all installed automated sorting in their transfer and sorting centers in recent years. STO calculated in its financial report that the investment should cut labor costs at sorting hubs by 70% while leaving fewer packages sitting around.

For couriers, the growing number of self-service pickup lockers in residential compounds has sped things up too, since a package no longer has to be delivered twice when nobody is home.

Meanwhile, competition in a courier and logistics market growing 20% a year has sharpened since the Tongda couriers and SF Express went public one after another two years ago.

The main front is speed.

Road transport is still the first choice for shipping, but over the past year or two, buying aircraft has become a trend among courier companies.

YTO chairman Yu Weijiao has said publicly more than once: "A courier company without planes isn't a real courier company."

In September 2015, YTO Airlines flew its first aircraft, a Boeing 737-300 freighter named "Taobao.com." Within two years YTO had 8 planes carrying cargo.

YTO's financial reports show each Boeing 737-300 freighter costs an average of 145 million yuan to buy. Buying is not the end of it: in the March 2018 report, aircraft maintenance for a single quarter came to 12.69 million yuan.

Buying planes alone does not make delivery faster. Since the wave of courier listings that began in 2015, ZTO, Yunda, YTO and others have moved toward controlling their trunk lines, buying out the franchisees who ran transfer operations so that more of the network is directly owned.

Of ZTO's 82 transfer centers nationwide, 78 are its own — a directly owned share of 92.7% — while Yunda began buying all 54 of its transfer centers back into direct operation in 2016. That is spending too.

Having used franchising to expand fast in their early years, the Tongda couriers are now doing what SF Express does: raising speed by controlling the key trunk lines.

Even some first-tier outlets on the edges of certain cities have become company-owned. Around Beijing's Shunyi and Shanghai's Pudong, directly run outlets now handle transfer and delivery, which puts them close to SF Express's model.

The capital has indeed made delivery faster. A 2017 Cainiao report showed that in Zhejiang, Jiangsu, Shanghai, Beijing, Guangdong, Hubei, Anhui and Fujian, e-commerce packages were arriving in under 2.5 days on average. Shanghai was the fastest region in the country, at 1.7 days.

And costs, inevitably, went up along with it.

Charts in this article: Zheng Shuya

Cover image: Visual China Group