"FedEx China is losing money to grab market shares by lowering its prices of domestic express service in China by more than 70 percent in a year to the level set by domestic private companies," Chen Ping, former president of the ZJS Express Co., a private express company in China, told Xinhua.

Chen is among many executives of China's private express companies grumbling over the foreign rival's price cuts as they planned to raise service prices to offset rising cost pushed up by oil and labor prices hikes.

They accused FedEx of conducting unfair competition, or dumping, as they said FedEx's cost was much higher than theirs.

Experts said FedEx's move had caused great pressure to the domestic private express companies. However, Chen said there were also other factors that could be blamed for their troubles such as institutional restrictions and their own defects.

PANIC FROM PRICES CUTS

FedEx China slashed its prices for domestic delivery service four times in between October 2007 and August of 2008 to a much lower level nearing the prices set by the domestic private companies.

For example, next morning delivery of a 2 kg package from Shanghai to Beijing in 2007 was 135 yuan (19.74 U.S. dollars) and the price after cuts was reduced by more than 70 percent to 31.2 yuan.

FedEx China charges 21.6 yuan for next-morning express of a 1 kg package from Shanghai to Beijing, according to its Web site. The prices of a similar service from domestic rivals, the private Shenzhen-based S.F. Express, state-owned China EMS Express and ZJS, were set at 22 yuan, 60 yuan, and 16 yuan, respectively.

The price cuts incurred complaints -- and even panic -- among Chinese private enterprises because they believed the prices adopted by FedEx were lower than cost, especially against the backdrop of soaring energy and labor prices last year.

The company didn't dwell on the cost or whether it was losing money to seize bigger market shares in a statement to Xinhua on Feb. 12. The statement said "by quoting more preferential prices, we hope we can offer our services to more clients to help them improve their supply chain."

FedEx's strategy took effect as its market share of domestic express rose dramatically from 0.8 percent at the end of June to 4.8 percent at the end of September, according to the China Federation of Logistics and Purchasing.

The rise of FedEx's market share in China made private companies afraid that their foreign rivals would squeeze them out of the market.

Currently, FedEx is the biggest holder of the China's domestic express market share among the four foreign giants, namely FedEx, UPS, DHL and TNT.

DHL and UPS declined to comment on the FedEx's price discount strategy when contacted by Xinhua. However, experts said that when the economy recovers, these international express titans would probably set foot on the Chinese domestic express market.

He Liming, vice chairman of the China Federation of Logistics and Purchasing, told Xinhua many domestic express firms suffered from the shrinking market share and rising labor cost.

"If this situation continues, some companies will have to cut the payroll," he added.

Chen Ping said China Post EMS and high-end private express firms like S.F. Express, the country's largest private express company, bore the brunt of FedEx's low price strategy.

The Chinese express shipping industry, which started late in the 1980s, posted rapid growth pace in recent years with total business revenue surging more than 20 percent to 40.8 billion yuan last year.

Experts held that the financial turmoil cast grave adverse effects on the international express business, and that was partly the reason why so many foreign-funded express giants were so eager to get a slice of the Chinese market.

Now the four foreign-funded companies have clutched 80 percent of China's international express delivery market. It's a matter of time before they will embark on the domestic express service, the expert said.

FedEx entered China in the 1990s and started domestic express services in June of 2007 after the acquisition of the express assets of the Tianjin Datian W. Group Co. in 2006.

A top executive of a private express company, who declined to be named, said several other events added to the woes of the domestic express enterprises, such as the severe winter weather in early last year, the devastating Sichuan earthquake in May, the transport restriction in the Olympics period, the financial crisis starting in September.

INADEQUATE REGULATIONS

The express industry enjoyed a robust growth in China with the number of registered express companies hitting about 5,000 in 2008. Industry insiders estimated the actual figure would be more than 10,000.

Most of them were small- and medium- sized companies offering undesirable services due to the country's inadequate industry regulations, said experts.

Private express companies in the country were previously seen as illegal units and therefore lacked protection until the complete separation of government administration from enterprises management in 2007 in the country's postal reform.

The unnamed executive told Xinhua that private express companies gained legal identity after the reform and were still in the infancy period. Hence, they were in no position to compete with the foreign giants.

An analyst said on the condition of anonymity that laws, regulations and industry standards in the sector failed to keep pace with the rapid development of the express industry, which hampered the healthy development of the private companies.

The issue of FedEx price cuts was a good example of insufficient regulations as domestic companies could not find evidence to justify their accusation of dumping by their foreign competitors. There was no industry standard about price limits.

FedEx's move dragged domestic companies in dilemma, he added, noting that no matter whether they raise or ax their service price, they would likely face losses.

The China Federation of Logistics and Purchasing and the Ministry of Commerce jointly established an early warning system for logistics industry on July 2 -- a step to protect the industrial safety and the country's economic security.

At present, China's Postal Law, laid down in December of 1986, is going through revisions and will probably effected later this year.

Both Chinese private express companies and foreign-funded counterparts show great concerns over the amendments as they expect the revised law would grant them equal rights and create an environment for equal competition.

The Postal Law in China gives China Post's express arm EMS the sole authority to handle documents weighing under 150 grams, which deprived other express companies of small-mail delivery.

The unnamed analyst said domestic and foreign companies would conduct legal businesses by law and compete on an equal terms, which would help stimulate their development.

Yao Xin, chief Beijing representative of Conference of Asia Pacific Express Carriers, echoed the view, saying fair competition could encourage express companies to offer better services at reasonably lower prices.

He expected the Chinese government and industrial organizations would enhance management and supervision over the industry, further open the market to all players and promote fair competition. That would benefit the country's express industry and the whole economy in the long run.

Yao said the government had made great efforts by having issued several regulations in a bid to improve the industry. A rule about entry permits for express companies will be issued this year.

He added the government should continue to offer more support to the country's private express companies, especially the small- and medium- sized ones, by increasing financial aid, simplifying the custom clearance procedure and easing restrictions of freight vehicles to downtown areas.

SELF-UPGRADE

China vowed to open its express market after joining the World Trade Organization. Therefore, it is certain that foreign express companies will come and share the market of domestic delivery service.

Experts said domestic express companies currently held more than 95 percent of the market of domestic express service, so panic among them was unnecessary. However, they would face growing pressure in the future.

Chen Ping said private express companies were less competitive than their foreign peers in terms of facilities, and capital flow and service. This makes it difficult to predict future trends.

The unnamed analyst said the domestic private enterprises should enhance their core competitiveness: The service, which, according to a survey conducted by the country's State Post Bureau about domestic express companies' service, had large room for improvement.

The consumer complaint hotline and Web site for the country's post industry handled 2,811 cases last year, about 80 percent of which involved the express sector.

He said private express companies should compete for market by better service rather than by lower prices.

"Domestic companies should upgrade their equipment. They should also learn from their foreign peers about management."

Source: Xinhua