Sinotrans in logistics push as express business wanes

Sinotrans, China’s largest freight forwarder, plans to spend HK$800 million to HK$1 billion annually over the next three years to strengthen its logistic business as margins of its express business have been shrinking.

Sinotrans’ management said it expects to establish regional logistics services centers in Shanghai, Qingdao, Tianjing and Nansha. The company currently doesn’t run any such center. Sinotrans also plans to use more than 50 percent of the planned investment for storage, warehouse facilities and terminal services, analysts said.

“Unlike the express business, the company’s other logistics businesses are more integrated and can therefore be run as a whole [to cut cost],” South China Brokerage analyst Ben Yang said.

Margins of Sinotrans’ supporting services in the logistic sector have improved in the first six months this year, Yang said. Storage and terminal services rose 4. 59 percent, trucking services rose 4. 45 percent and marine transportation edged up 0. 33 percent, he said.

However, the company is facing stiffer competition in the express courier sector from foreign rivals such as Federal Express and United Parcel Service. The situation is expected to worsen once the market is fully opened to foreign players at year’s end under the terms of China’s accession to the World Trade Organization.

Yang said the company’s logistic business would help offset the narrowing margins of express business like freight forwarding and shipping agency.

Sinotrans’ overall net margin slipped to 4. 9 percent from 5. 4 percent in the first half this year. Its express business was hit much harder _ margins fell to 15. 9 percent from 20. 3 percent.

South China Brokerage estimated the group’s operating margins for the next three years to be 5. 39 percent, 5. 12 percent and 4. 74 percent.

“Although the company has raised the surcharge on express tickets, profit margin will not have a significant improvement,” Sinotrans’ general manager Yao Jiawu said.

Sinotrans’ express business is in the form of a partnership with DHL for the overseas markets. President Zhang Jianwei said earlier it planned to enter the domestic express business, which is valued at 15 billion yuan and now dominated by state-owned China Post.