Amazon runs a rapidly growing airline, but Chinese e-commerce platform JD.com has gone a step further exerting control over its supply chain: hiring pilots to fly cargo jets and haul freight for third-party customers.
Welcome to JD Airlines, the latest evolution in online retailers building their own transportation and fulfillment networks to meet customer expectations for rapid, reliable delivery of their orders.
Mercado Libre, South America’s version of Amazon, and Alibaba, another Chinese online marketplace, also have logistics divisions supported by in-house airlift.
JD Airlines also faces stiff competition from domestic air express companies SF Express, Alibaba-backed YTO Express and Cainiao, Alibaba’s logistics division, which are also rapidly building up global delivery networks.
In 2016, Amazon (NASDAQ: AMZN) launched an indirect airline by leasing aircraft and hiring other companies to fly them under its brand. Amazon Air now has about 90 aircraft of various sizes under management repositioning inventory around the U.S. and Europe to ensure warehouses are stocked, with next-day delivery supported by a handful of turboprops to smaller communities.
Mercado Libre and Cainiao also leave the flying to partner airlines and focus on airport facilities and getting shipments on and off all-cargo aircraft.
JD.com’s logistics arm similarly began developing its air cargo business in 2017 by cooperating with other airline companies to transport goods after souring on passenger airlines because of unreliable service that undercut delivery commitments.
JD Logistics did so well supporting the online retailer and branching into a pure third-party logistics provider five years ago – with e-commerce, cold chain logistics and last-mile delivery capabilities – that JD.com spun it off in 2021 as a separate company.
“They were doing their own logistics long before Amazon started. They are the leader among online retailers in having full control over the online experience because that’s how you ensure [satisfaction.] Until you deliver you haven’t met the customer’s needs,” said Satish Jindel, founder of parcel consultancy ShipMatrix, in an interview.
Last week, JD.com announced that it had received an air carrier certificate for JD Airlines (Jiangsu Jingdong Cargo Airlines) from the Civil Aviation Administration of China and launched domestic operations with its own crew. The airline has not disclosed details about its fleet, but according to flight tracker Flightradar24 and photos provided by the company it operates two Boeing 737-800 converted freighters. Chinese media accounts say authorities have authorized a third standard cargo jet and Cargo Facts reports the plane will soon be delivered from lessor China Southern Airlines Leasing.
The new airline is based at Nantong Xingdong International Airport and currently employs more than 100 technical personnel, including maintenance staff, dispatchers and drivers. It is officially owned by a company controlled by JD.com founder Richard Liu, with Nantong Airport Group contributing 25% of the capital, according to Reuters.
Liu stepped down as CEO of JD.com in April, but is still chairman.
And JD Logistics isn’t just moving orders for JD.com or companies that pay for integrated logistics services. It is opening its airline capacity to the market as a contract carrier, just as it previously made technology and logistics infrastructure available to businesses as part of its retail-as-a-service strategy.
JD Airlines’ network serves major economic zones in eastern China, with a focus on the cities of Nantong, Beijing, Shenzhen and Wuxi. The company said it will soon extend its reach to Chengdu and Chongqing, large cities in central China followed by service to major cities in Southeast Asia, Japan and Korea. The goal is to have long-range aircraft serving Europe and North America by the end of 2025.
JD Logistics plans to have at least 100 aircraft, a mix of owned and leased, by 2030, CEO Yui Yu said in an interview with Bloomberg last October.
In March, JD.com launched dedicated twice-a-week cargo service from Hong Kong to Sao Paulo, Brazil, operated by Angola Airline. Capital Airlines, a Beijing-based low-budget passenger airline, also began flying three times per week between Xinzheng International Airport in Zhengzhou province and Cologne Bonn Airport in Germany. Outbound flights carry a mix of e-commerce goods such as apparel, cosmetics, digital accessories and furniture while imports include milk powder, food and auto parts. The flights support JD Logistics warehouses in Germany, Poland, the U.K., the Netherlands and France.
In both cases, the outsourced providers are employing passenger aircraft as dedicated freighters.
Tianjin Air Cargo, a unit of HNA Group, also flies Boeing 737 aircraft with the JD Logistics livery.
JD Logistics’ global expansion
An internationally capable cargo airline enhances JD Logistics’ ability to provide service around the world. It raised $3.2 billion from its initial public offering and is putting the money to work building out a warehouse network, especially in China’s lower-tier cities and overseas, and technology, Yu told Bloomberg News in May 2021.
JD Logistics has yet to reach profitability. Yu said the strategy is to keep focusing on expansion for several more years, adding that the net margin is expected to improve over time.
In its first year as a stand-alone company, JD Logistics pulled in $15.5 billion in revenue, a 42.7% annual increase. External customers account for 60% of its business, lessening dependence on the parent company. The company has more than 1,400 warehouses, including 90 located overseas, and access to more than 1,700 warehouses owned by small businesses linked through the cloud to its warehouse system, with a combined storage area of 280 million square feet, according to recent financial statements.
JD Logistics employs more than 200,000 in-house couriers, allowing it to provide same-day or next-day delivery to 93% of China’s counties.
Since 2020, the company has opened automated warehouses in Germany, France, Vietnam, the United Arab Emirates, the U.K., Australia, Malaysia and the Netherlands. The Netherlands facility fulfills online orders from the region for Hunkemöller, the maker of ready-to-wear apparel. It also launched cargo flights from China to Thailand, the U.S. and the U.K. to provide two-day delivery.
In June, JD Logistics launched its first automated warehouse in the U.S. and now self-operates 1 million square feet of warehouse space in the country. That followed the May opening of two service centers in Los Angeles and New Jersey that provide after-sales technical support and maintenance services for a wide range of products, including electronics and appliances, to cross-border merchants and local sellers. It is the first time JD.com’s logistics business has started such service centers in overseas markets.
Leqi, a manufacturer of web-connected scooters, has seen average repair time shortened to less than 72 hours compared to more than twice as long previously spent using a third-party service provider, according to JD.com
The company says it plans to start a European service center in Poland this year.
JD Logistics’ warehouse capacity in overseas locations has increased 70% year over year as of June 30 to more than 9.7 million square feet.
JD Logistics is heavily investing in technology, including 5G wireless for logistics parks and robots that support warehouse picking. Annual capital expenditure for technology between 2018 and 2020 averaged $780 million, said CEO Yu. It now deploys more than 400 autonomous vehicles for last-mile delivery in more than 25 cities in China and has been operating delivery drones since 2017.
The Chinese third-party logistics provider achieved a 21% gain in revenue to $8.4 billion in the first half of 2022, according to interim results released in late August.
Analysts say the buildout of Amazon’s U.S. air cargo network, including airports, opens the door to offering third-party logistics services to anyone. So far, the retail behemoth’s logistics network has focused on its own goods and sellers on its website that sign up for its fulfillment services, including warehousing and shipping.
SF Airlines, China’s largest all-cargo carrier, has added a Boeing 767-300 freighter, bringing its fleet to 75 aircraft. The new plane is being used on the Beijing-Shenzhen route to support shipments for peak season shopping, the Xinhua news agency reported.
Click here for more FreightWaves/American Shipper stories by Eric Kulisch.
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