Image source: Hive Box official website

Both Hive Box and Cainiao have lessons to learn

Written by Chen Dengxin

Edited by Li Ji

Typeset by Annalee

The express delivery industry is once again in turmoil.

Recently, Hive Box Holding Co., Ltd., a provider of smart express lockers, submitted a prospectus to the Hong Kong Stock Exchange. The funds raised will be primarily used to expand and optimize the Hive Box smart locker network, enhance the service capabilities and scope of value-added services, among other things.

This marks the official start of Hive Box's journey to list in Hong Kong.

High return rates in e-commerce have unexpectedly "fattened" Hive Box? What grudges did Hive Box and Cainiao have in the past? What's the current status of Cainiao, which halted its IPO?

High return rates in e-commerce hurt merchants and fatten smart lockers

To address the problem of last-mile delivery, smart express lockers emerged.

On June 6, 2015, SF Express, STO Express, ZTO Express, Yunda Express, and GLP co-founded Hive Box, marking the beginning of the smart locker battle.

At that time, Hive Box, SuDiYi, and eStack formed a tripod of competitors.

Instead of engaging in a head-to-head battle with its competitors, Hive Box, with capital support, successively acquired eStack and SuDiYi, raising its market share to over 70%, achieving a dominant position.

According to data from Cintell, as of May 31, 2024, Hive Box's smart locker network consists of 330,000 smart lockers, totaling approximately 29.9 million compartments, serving 209,000 communities nationwide.

Hive Box's Business Scope

As a result, Hive Box has become virtually synonymous with smart lockers.

More importantly, Hive Box's prospectus shows that the demand for parcel drop-offs at lockers is growing much faster than pickups, supporting the high return rates in e-commerce.

Since 2021, mainstream e-commerce platforms have increased investment in shipping insurance to improve consumer shopping experiences. With the prevalence of shipping insurance, consumers have fewer worries, inadvertently driving up return rates.

From 2021 to 2023, the number of parcels shipped through Hive Box's smart delivery services grew from 114 million to 233 million, an increase of 104.39%. Revenue from this service grew from 149 million yuan to 1.02 billion yuan, an increase of 584.56%.

Smart Locker Operation Process

It's not hard to see that high return rates in e-commerce hurt merchants but benefit Hive Box.

Nevertheless, Hive Box cannot rest easy.

Firstly, high return rates are detrimental to the healthy development of merchants and fair competition in the e-commerce platform market. A return to normalcy is likely, limiting the growth potential of Hive Box's consumer smart delivery services.

Secondly, the "Measures for the Administration of the Express Delivery Market," which took effect on March 1, 2024, stipulates that smart lockers cannot be used without the user's consent, and violations will be punished. This poses a significant risk to Hive Box and the entire smart locker industry, casting a shadow over business growth.

Thirdly, while Hive Box has ventured into storage lockers, community group buying, and local lifestyle services in recent years, its diversification efforts have not yielded significant results, and profitability remains elusive.

In practical terms, Hive Box's net losses from 2021 to 2023 were 2.071 billion yuan, 1.166 billion yuan, and 541 million yuan, respectively. Breaking free from the "loss-making" cycle remains a daunting task.

Hive Box IPO in Hong Kong, Cainiao takes a different path

It's worth noting that Hive Box's Hong Kong IPO inevitably evokes comparisons with Cainiao.

On June 1, 2017, tensions between Cainiao and SF Express erupted when Cainiao accused SF Express of unilaterally closing its data interface with Hive Box, while SF Express countered that Cainiao was deliberately stirring up trouble. "Based on its own commercial interests, Cainiao demanded that Hive Box provide customer privacy data unrelated to it. Such information belongs to customers, and Hive Box, adhering to the principle of 'customer first,' refused this unreasonable request," SF Express said.

The confrontation escalated rapidly.

A market observer told TechNode that while Cainiao had integrated logistics information from multiple smart locker providers, including SuDiYi, it encountered resistance from SF Express-controlled Hive Box. Cainiao could only access logistics data within its own ecosystem, unable to serve users across the entire platform.

According to QCC, STO Express, ZTO Express, and Yunda Express, which sided with Cainiao in the dispute, collectively withdrew from Hive Box, further strengthening SF Express's influence. Wang Wei, the founder of SF Express, holds the largest voting rights in Hive Box.

Image source: QCC

Ultimately, Hive Box became a thorn in Cainiao's side.

More crucially, following Alibaba's "1+6+N" restructuring, Cainiao's IPO became the biggest focus in the express delivery industry, only to be withdrawn and replaced by a tender offer for the equity of Cainiao's minority shareholders and vested employee shares."This means that there will be no further updates on Cainiao's IPO." Alibaba Group Chairman Jack Ma directly stated, "The Group's primary goal is to win in the e-commerce sector, requiring the restoration of market share to drive business growth." In other words, maximizing Cainiao's own development is no longer the sole evaluation criterion. Instead, collaborative development and expansion with Taobao, Ali Group International, and other sibling departments to maximize overall business value has become the top priority. In short, Cainiao cannot go it alone. As a result, Cainiao cannot leverage the power of capital markets and has slowed its pace. This is evident in its performance. In the second quarter of 2024, Cainiao's revenue growth rate was 16%, down significantly from 30% in the first quarter. Adjusted EBITA (Earnings Before Interest, Taxes, Amortization) was 618 million yuan, a year-on-year decline of 30%. In contrast, SF Express, J&T Express, and JD Logistics continue to show upward momentum. For instance, JD Logistics reported a net profit of 2.0256 billion yuan in the second quarter of 2024, a year-on-year increase of 475.95%, marking its fifth consecutive profitable quarter with a record-high operating profit margin since its IPO. Similarly, SF Express reported a net profit of 2.895 billion yuan in the second quarter of 2024, a year-on-year increase of 17.87%, marking its sixth consecutive profitable quarter. Is price war a good idea? Behind these figures lies the severe challenge Cainiao faces as it targets the mid-to-high-end market. On June 28, 2023, Cainiao launched its self-operated Cainiao Express, aiming at the mid-to-high-end express delivery market and competing head-to-head with SF Express and JD Logistics. However, the mid-to-high-end market demands higher quality, testing the supply chain efficiency and foundation of logistics companies. Cainiao still needs time to catch up in this regard. The express delivery market grows steadily Initially, Cainiao adopted an integration model to accelerate its development, entrusting heavy assets to "STO, ZTO, Yunda," and focusing on light assets. Later, it realized the importance of infrastructure and increased investments, but the gap remains visible. According to TechPlanet, a Cainiao Express deliveryman covers an area two to three times larger than that of an SF Express deliveryman, with a relatively sparse network of Cainiao Express outlets and larger coverage areas per outlet. Public data shows that as of June 2023, Cainiao operated over 230 warehouses and employed 53,000 delivery personnel nationwide. In comparison, JD Logistics had over 1,600 warehouses and over 410,000 frontline employees during the same period. Zhao Xiaomin, CEO of GuanShuo Capital, said, "Cainiao has transitioned from a light-asset to a heavy-asset operation model. It will take some time to develop vehicles, park construction, road systems, and network warehousing coverage." Against this backdrop, Cainiao chose to engage in a "price war." In the case of same-city delivery, Cainiao entered the market and achieved half-day delivery in core urban areas of Guangzhou and Shanghai, targeting only B-end merchants. The first-weight price is 6 yuan per order, with an additional 1 yuan per KG for subsequent weights, half the price of SF Express. It's important to note that a price war is a double-edged sword. When wielded well, it can be unstoppable, but once it spirals out of control, it can lead to a race to the bottom, where inferior products drive out superior ones. Image source: Heimao Complaints This is why the call for "fighting a value war, not a price war" is essential. Complicating matters further, the emergence of Cainiao Express has effectively stabbed its erstwhile allies, "STO, ZTO, Yunda," in the back, transforming their relationship from misaligned to direct competition. Balancing the interests of both parties will be a test of Alibaba management's wisdom. In summary, as Hive Box pursues its Hong Kong IPO, it must demonstrate the sustainability of its business model and its ability to navigate uncertainty. Meanwhile, Cainiao, with its historical ties to Hive Box, must hone its fundamentals and successfully establish a foothold in the mid-to-high-end express delivery market. Both Hive Box and Cainiao have lessons to learn.