UPS plans major investment in China after ending Sinotrans pact
United Parcel Service Inc plans major investments in China’s fast-growing parcel delivery market as it prepares to part company with its long-time partner Sinotrans, UPS Asia Pacific president Ken Torok said.
UPS, which is paying Sinotrans USD100m to end its relationship, will add 500 more UPS vehicles by December 2006 and build an aviation hub in Shanghai by 2007.
‘We will greatly increase investment in China,’ he said without giving details.
Under the agreement announced today, UPS will take direct control over agency operations from Sinotrans in five major cities by January. It will then add another 18 locations which cover over 200 cities by the end of next year.
While UPS said it will maintain some form of cooperation with Sinotrans Group, which includes the listed Sinotrans Air Transportation Development Co Ltd (SHA 600270), it is closing the door on an agency agreement established in 1988.
A UPS joint venture with Sinotrans in Beijing is also covered in the pact and will be absorbed into the new wholly-owned network.
‘The deal is historic for UPS in China,’ Torok said.
‘With more control, we will greatly increase our investment, not just in hiring people but also in terms of investing in equipment, infrastructure and technology.’
When UPS first teamed up with Sinotrans to forge its agency relationship, Beijing forced all foreign players to find a domestic partner.
But UPS is ending its ties with Sinotrans as the China market expands rapidly and Beijing opens up access to the domestic market as part of its World Trade Organization obligations.
Under China’s promises to the WTO, it must allow foreign delivery services to operate independently by the end of 2005.
UPS showed 45 pct growth in its outbound deliveries volume from China last year, up from 35 pct growth in 2002. Year-on-year growth hit 129 pct in the third quarter and climbed 90 pct for the first nine months.
Torok did not give a forecast, but said he is ‘extremely optimistic’ about the company’s China operations over the long term.
UPS is one of several American carriers that has benefited from a landmark US-China air service deal inked in July, which allows the maximum number of weekly flights by each side to rise to 249 by 2010 from the current 54.
Last month, the US freight carrier added 12 weekly flights to Shanghai, tripling its earlier weekly frequencies to China from six to 18, and will offer six weekly non-stop services to Guangzhou as of next April.
But UPS is not the only foreign cargo airline looking to the China market for future growth.
FedEx, DHL, TNT are stepping up their presence to capitalize on the China mainland’s foreign trade, which surged 37.1 pct to 851.21 bln usd in 2003 and is expected to rise another 17 pct to 1.0 trln usd this year.
Lufthansa Cargo is also aiming to build an air hub in Shenzhen through its venture with Shenzhen Airlines, connecting the south China boomtown with other points in Asia as well as Europe and possibly the US in the years ahead.
Torok said he is aware of the increasing rivalry, but remains sanguine on UPS’s prospects because of its strength.
‘We are a top-tier play here and will remain so in the future.’
