After years of waiting, United Parcel Service Inc (UPS) (NYSE:UPS) and FedEx Corp (NYSE:FDX) have received licenses in China to extend domestic express package services to Beijing and other cities without needing joint-venture partners.
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The U.S. companies had been waiting for permission to independently courier packages from businesses to consumers (B2C) via their entire Chinese networks, since a 2009 postal law largely restricted foreign firms to delivering packages from abroad.
The licenses increase access to a market second in size only to the United States. Thanks to online shopping, the Chinese market is growing 60 percent annually and next year could be worth 280 billion yuan ($46 billion), said consultancy Deloitte.
"We now have 33 licenses," UPS President of Global Public Affairs Laura Lane told Reuters. "The government just approved them in May," Lane said, referring to UPS's latest 14 licenses for cities including Beijing, Wuhan and Hefei.
"We're really looking at developing those capabilities in those 33 cities, expanding our investment," Lane said. "But we haven't developed a concrete plan yet in terms of where we want to go beyond those 33 cities."
FedEx received 21 licenses in May, returning its total to the 58 it held before the 2009 law, a spokesman told Reuters. Each license permits the holder to operate B2C domestic express package services within a single city and between cities for which a license is also held.
"We have been working closely with the relevant authorities to obtain the express delivery services permits for our business," the spokesman said. "So far we have received all the permits for our domestic business."
Neither company has disclosed the size of their businesses in China, where since 2009 they have mainly handled documents and packages to and from overseas. But both companies have cited China as one of their fastest-growing markets.
UPS and FedEx had to reapply for licenses to offer domestic B2C services after the law changed. In 2012, the pair were granted their first five and eight respectively. FedEx was able to continue offering services by entering joint ventures with local peers.
But even at full strength, UPS and FedEx still face daunting competition in state-backed China Post and large, privately run rivals such as Shentong Express and S.F. Express.
Seeming willingness among private services to cut margins to win customers also constitutes a challenge. Deutsche Post AG's <DPWGn.DE> DHL courier service pulled out of its money-losing China domestic delivery business in 2011 citing a lack of cost advantage.
UPS's Lane said allowing greater competition would help improve standards across China's logistics industry.
"With greater competition there's always the beneficial effect of raising the professionalism and quality of services that consumers come to expect," Lane said.