JD Logistics: Inside JD.com’s Most Promising Unit

12/09/2019

According to JD.com’s impressive Q2 results, its logistics unit represents the fastest growing sector within the company’s business. But JD Logistics does not only provide more efficient and fast delivery. It turned to be a total game-changer

 

JD.com is mostly known for being the world’s leading company in hi-tech delivery through autonomous technology, owning the largest drone distribution infrastructure in the world. But China’s e-commerce giant does not only master both drones and unmanned ground vehicles (UGVs) delivery. At home, it also rules semi-automated warehouses, supermarkets, and robot-run restaurants.

Partly owned by the Chinese behemoth Tencent, JD.com is, no doubt, a real game-changer in the logistics sector. Indeed, while the company has just delivered impressive second quarter’s results, its logistics unit keeps improving efficiency.

 

JD Logistics - JD.com - warehouse - cifnews

© JD.com Corporate Blog. JD.com operates the largest e-commerce logistics infrastructure in China, which includes hundreds of warehouses and thousands of delivery stations.

 

Last August, JD.com released its earning results of the quarter going from April to June 2019. According to the company, the revenue growth rate experienced a 22% year-on-year increase while the $90 million profit sent the share price up over 12% on the release day.

In particular, as reported by JD.com, during the second quarter of the year, net revenues accounted for $121.9 billion, an increase of 22.9% from the same quarter of the previous year. And this growth was predominantly driven by net service revenues, which contributed 11.2% of overall revenues. Among these services, logistics and some other services managed to record a shining 98% growth, marking the fastest growing sector within JD.com’s business.

Moreover, compared to a loss from operations for the 2018 second quarter, income from operations for the same period this year was $330.2 million. April, May, and June were, therefore, great months for JD.com as almost every of its business line experienced substantial growth on a year-on-year basis. In particular, JD Logistics is the company’s unit that saw the most interesting growth in both revenues and expenses to improve efficiency.

 

Currently, JD.com Inc. – also known as Jingdong 京东 – is the leading technology-driven e-commerce company and one of the two largest online retailers in the Middle Kingdom.

 

Founded by Liu Qiangdong in 1998, JD.com is now partly owned by the Chinese giant Tencent, which helped the company to gain over 300 million active users and over $22 billion in revenue during the last Single Day on November 11.

As mentioned before, today, Jingdong is the world’s leading company in hi-tech delivery through autonomous technology, owning the largest drone distribution infrastructure in the world and many semi-automated warehouses, supermarkets, and robot-run restaurants in the PRC. According to the company’s Vice President Xiao Jun, JD.com operates more than 100 drones and 50 UGVs in China claiming to have racked up 400,000 minutes of delivery flight time.

The world’s first commercial drone delivery was launched in some Chinese rural areas in 2016. At that time, JD.com was the only company with a regional license to deploy drones for logistics in the country. On the ground, instead, its UGVs are commonly used and tested in many China’s urban areas such as the provinces of Sichuan, Shaanxi, Jiangsu as well as in Beijing, with also two smart delivery stations in Changsha and Hohhot, respectively in Hunan and Inner Mongolia.

The history of the company’s logistics unit, instead, is way more recent. Founded in 2007, JD.com’s subsidiary began operation in April 2017. Since then, JD Logistics has been in charge of all the logistics-related businesses for JD.com. Moreover, in addition to managing the delivery of goods ordered on the main platform, it also provides third-party logistics services to other players.

 

JD Logistics - drones - cifnews

© JD.com. Recently, the Chinese firm started to test not only unmanned delivery services but also drones delivery airports.

 

Although JD.com remains the major shareholder, in early 2018, JD Logistics raised $2.5 billion from many investors such as ICBC International, China Merchants Group, and Tencent. JD Logistics was worth $10.9 billion before this latest funding round, which rose the unit’s evaluation up to $13.5 billion. The company thus took the chance to invest the funds in robotics, automation, and drones.

“Over the decade that we have built out our operations, initially to support our own e-commerce business, we have created the most efficient, integrated and user-friendly logistics network in China,” said CEO of JD Logistics, Zhenhui Wang. “This financing will enable JD Logistics to further enhance its smart supply chain network with openness and integration. It is a major step, which will speed up our collaborative efforts with leading industry partners and build China’s next-generation commercial infrastructure ecosystem.”

However, in June, JD.com reported that the logistics arm has raised other $218 million to invest in logistics-related companies and technology. The fund’s limited partners include JD Logistics and the JD.com mother company, in addition to “several listed companies and government-led funds,” the company said. According to Jingdong, this fund will focus on smart logistics and smart supply chain technology.

JD Logistics has indeed been the key cog for JD.com’s business since its foundation. Today, it is one of China’s largest logistics networks and the most valuable asset of the country’s second-largest e-commerce company.

 

JD.com has a nationwide network of automated fulfillment centers, hundreds of warehouses and thousands of delivery stations, covering 98% of China’s population. In this framework, JD Logistics is playing to be the next logistics game-changer.

 

Since 618 – JD.com’s shopping festival on June 18 – in 2017, JD.com has carried out the normal distribution of drones in Shaanxi, Jiangsu, Qinghai, Hainan, Guangdong, Fujian, and other places. It accumulated a large amount of operational experience and the continuous development and large-scale application of drone operation scenarios were explored. During the 618 last year, the company’s large-scale original cargo drones completed the final assembly line in Shaanxi and the development of super-heavy drones was simultaneously established.

However, JD.com has also been actively expanding in other related areas of logistics. Not only its drones and UGVs joined Japans’ unmanned delivery squad of Rakuten last February, JD Logistics and Dada-JD Daojia also joined to build a global intelligent supply chain network late last year.

Dada, which is China’s leading on-demand logistics and omnichannel e-commerce platform, recently cooperated with JD Logistics to provide fast intra-city delivery services for merchants and consumers, with the majority of goods delivered within 30 to 60 minutes, which represents one of the world’s fastest delivery services.

 

JD Logistics - JD.com - nespresso - cifnews

© JD.com Corporate Blog. A Nespresso drinker is scheduling a JD courier to recycle used coffee capsules. Even major international companies now leverage JD’s nationwide in-house logistics network.

 

JD.com has, therefore, demonstrated to have been working hard, both alone and by forming joint ventures, to develop and improve its own logistics network. And thanks to its in-house logistics function, the e-commerce giant was able to manage the expenses with great ease and intelligence. Indeed, although building up an own logistics network is expensive at first, it is bringing unbeatable advantages, especially in the development of new technologies for the fulfillment of orders. Indeed, executives recently said technological improvements have allowed the carrier to handle more orders.

With its drones and UGVs spread both in China and abroad, JD.com is revolutionizing the logistics sector, as well as the whole online retail. It does not only provide more efficient and fast delivery but the investments in new technologies are also improving the entire supply chain.

In this modern revolution, it is JD Logistics the one that plays the game-changer role, helping the e-commerce company to grow even further and increase its revenues despite last year’s losses. Probably, the logistics arm is what keeps JD.com competitive in the online retail sector, considering the fast rise of social-commerce platforms such as Pinduoduo. Given the second-quarter growth, JD.com is pursuing the right path with JD Logistics.

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