From bikes to drones, how JD Logistics built its delivery network

 JD Logistics, the delivery arm of Chinese e-commerce giant JD.com, uses electric bikes as just one last-mile delivery solution. The delivery drivers pick up goods as local "delivery stations" for final delivery.

JD Logistics, the delivery arm of Chinese e-commerce giant JD.com, uses electric bikes as just one last-mile delivery solution. The delivery drivers pick up goods as local "delivery stations" for final delivery.

Amazon has nearly mastered e-commerce deliveries in the U.S. Sure, there are occasional hiccups, particularly due to surges at the holidays, but the company has built a solid network of partners – particularly UPS, FedEx and USPS – that have large logistic networks that have gotten the job done.

While Amazon was able to lean on established partners in the U.S., JD.com did not have that luxury when building its logistics network in China, a country of some 1.4 billion people covering 3.7 million square miles. Consequently, if JD.com wanted to become a major e-commerce player in Asia, it needed to build its own network.

“One [factor] is that the 3PLs in China are pretty fractured,” Josh Gartner, vice president of international corporate affairs, explained to FreightWaves. “That is why we decided to build out our own system.”

JD.com built its logistics operation, JD Logistics, which is now a subsidiary of the e-commerce company. JD Logistics was just infused with $2.5 billion in investment, led by Tencent Holdings and Sequoia Capital China, to help to further develop its logistics operations, which already include everything from warehousing to packaging and last-mile delivery. It is also now offering services to third-party companies as well. There is also rumors that some of that money will be used to develop a U.S. operation to support online sales in this country.

JD Logistics is working with vehicle suppliers in China to develop all-electric autonomous delivery vans.

The funding valued JD Logistics at about $11 billion. JD.com holds 81.4% of that after only starting the logistics business in early 2017.

Gartner walked FreightWaves through the company’s logistics operations, but like Amazon’s, it all starts with providing quality service to the customer, and that means last-mile efficiencies. According to Gartner, the last-mile services cover 99% of China’s population and it is done through a variety of methods, from vehicles, to drones, to electric bikes.

Gartner says that final mile delivery for much of China is handled by electric, three-wheeled vehicles. These vehicles collect packages from local facilities for home deliveries.

“We have what we call ‘delivery stations’ and those are in neighborhoods,” Gartner said. “We deliver by truck from warehouses to these smaller stations and they have about 50 to 100 last-mile delivery drivers (based on the size of the city) making the final delivery.”

To JD Logistics, the value of having its own drivers make those final deliveries is important. “When people look at our logistics, they see our couriers,” Gartner said.

Like all e-commerce companies, JD.com has learned that to deliver goods quickly requires proper positioning of product. JD Logistics uses technology to help predict where product will be needed.

“Most of the efficiency and speed is done at the warehouse level and predicting where [product will be needed],” Gartner said. Full truckloads of freight are loaded at the warehouse level and brought to the delivery stations for final delivery. This keeps the larger trucks running set routes back and forth and speeds the delivery process.

JD Logistics also offers a “white glove” service for shoppers, complete with specially-trained JD employees wearing white gloves. These drivers deliver special luxury brands that qualify for the service in electric vehicles rather than the tricycles and scooters often used.

Technology plays a big role in JD Logistics’ efficiency, and that includes automation, drones and more, both on vehicles and in warehouses.  

Last year, JD Logistics opened the world’s first fully automated B2C warehouse in Shanghai. The warehouse can reportedly process over 200,000 items a day at full operation. Technology in general helps JD Logistics plan where product should be located and helps ensure that customers are receiving one delivery a day with their complete order, regardless of where any individual product is sourced.

A look inside JD Logistics' fully automated Shanghai warehouse.

“A few months ago, we had a logistics expert come through and order a few things and he was really impressed [with the operation],” Gartner said, adding that the expert ordered items from several locations and received a single order with all items.

Gartner credits the network design – larger trucks moving products from warehouse to delivery station – for that delivery success.

“It’s a much more efficient process, otherwise you would have more vehicles,” he said.

On the vehicle equipment front, the company has been utilizing electric vehicles and entered into an agreement last year with SAIC Maxus and Dongfeng Motor Corp. to develop autonomous delivery vehicles. JD Logistics has jointly researched two models of autonomous light electric vans with SAIC Maxus and Dongfeng, respectively, for delivery of goods from JD’s distribution centers to delivery stations in the future.

The company began testing autonomous delivery via robots at Renmin University and Tsinghua University among other schools last June. The autonomous robots deliver goods to a designated location and customers receive a unique passcode to open the robot’s secure locker to retrieve their packages.

“With technology as the driving force, JD operates the most advanced retail operation in the world,” said Zhenhui Wang, CEO of JD Logistics. “Our extensive in-house logistics network provides the ideal real-world scenario in which to test autonomous vans. Working with our partners, we will continue to enhance our smart logistics and push the bounds of traditional logistics solutions.”

Like Amazon, JD Logistics is also venturing into drone delivery. Currently, the company is using drones to make deliveries to remote areas of China, bringing online shopping and quick delivery to residents of these areas.

JD Logistics' drone service brings e-commerce delivery options to remote villages in China.

The program works by dispatching orders from regional delivery stations to JD’s network of dedicated “village promoters” in each village, who then distribute the orders directly to customers, significantly shortening delivery times and reducing logistics costs. JD.com currently has more than 300,000 village promoters across the country.

“The focus is one rural areas that have lower order densities,” Gartner said.

On a larger scale, the company has also started testing “heavy-load drones” capable of carrying 1 ton of goods at a time. Gartner noted these drones will move product traditionally carried by truck between warehouses.

JD signed a strategic cooperation agreement with the municipal government of Hangcheng, in Shaanxi Province, to set up the first urban drone delivery platform in the world. JD will explore the model and plans to test city drone delivery in Hancheng to evaluate its viability. Additionally, the company will also test its automated delivery vehicle and logistics facilities and hopes to build Hancheng City into a model city for smart logistics.

Having conquered China delivery – more than 92% of products sold by JD.com are delivered within one day, including many that are delivered same day - JD Logistics may be looking abroad, specifically the U.S.

According to a report by Bloomberg in January, the company is planning U.S. operations later this year and will use some of the $2.5 billion in funding to do so. Gartner declined to confirm any U.S. plans, saying only that “we’re still focused on China and Asia.”

The Bloomberg article quoted founder Richard Liu as saying the company will begin selling online to U.S. customers in the second half of this year.

“This year, Vietnam, India, Philippines, Malaysia - every Southeast Asian country - we will come by the end of this year,” Liu is quoted as saying. “Our future is we will invest in U.S. and build a warehouse fulfillment center in U.S. so you can get same-day delivery.”

The story noted that JD.com could leverage its relationship with Walmart Stores, which is an investor in the company, for help in building a U.S. logistics network.

The approach to last-mile delivery in China is very different than it is in the U.S., so it remains to be seen how JD Logistics would handle that operation in America. If the stories are true, we may find out very soon.