Reflection: cold thoughts on the trillion LTL Market

The following article is from Hong Kong stock research society, by Hong Kong Stock Research Society (id:ganggushe)



In more than half of 2022, the logistics industry experienced ups and downs.



In March, deppon was acquired by JD logistics and entered the equity delivery stage in May. The former "king of less than carload" finally bid farewell. In early April, the official website of the State Council announced the "opinions on accelerating the construction of a unified national market", and the concept of logistics ushered in a small peak.





But then the epidemic rebounded, and the development of the industry was blocked at different stages. In May, a series of measures to ensure smooth transportation took effect, and the logistics "artery" was revitalized, and the data in some fields were close to the same period in 2019.





As the throat of social and economic activities, logistics is not a simple mode of transportation. However, no matter which form of express delivery, less than carload or finished vehicle, it conforms to certain basic rules. Therefore, through the targeted interpretation of the major strategic actions in the development of some logistics enterprises, this paper attempts to answer the following three questions:





1. The competition in the logistics industry and its subdivisions is fierce. What else deserves attention?





2. In the field of less than carload, why can Anneng logistics be the king when deppon exits?





3. As the logistics industry continues to develop, what core issues need to be addressed?





01




Discussion on the value of "blue ocean" vs "red ocean"




Logistics is the barometer of economy, the artery of life, and the throat of industrial resource flow... The status of logistics is indeed high, but it comes from its next specific fields. These fields constitute the "cells" of the logistics industry, which not only determines the boundary of the industry, but also affects the external cognition of logistics.





The most typical field is express delivery. Because e-commerce is too close to public life, coupled with the ideological brand of express price war, for most people, "logistics is a red sea" is a conclusion.





Is this really the case? I'm afraid not. Here I want to mention the slogan used by Debang: send it to Debang by bulk express. In our view, logistics is cargo transportation, but in the logistics industry, different standards such as the scale and mode of freight transportation make the industry divided into express delivery, small ticket less than carload, large ticket less carload and other different fields.





In addition to the traditional division methods, the market continues to undergo new changes, such as the growth of the large ticket and less than carload market, the influx of special line services serving the large ticket market into express enterprises, and the freight ecosystem is further reshaped.





At this time, looking back at the description of logistics Red Sea, a single understanding is indeed too narrow, which can be supported by two examples.





The first example is the acquisition of the former giant Debang. Deppon was listed in 2018. After listing, in order to differentiate, it took the initiative to move its business from express to express, which was once renamed deppon express.





Express has become the core business of deppon, but deppon failed to get a bargain from the red sea of express, but fell into a deep quagmire. In 2020, the market share of deppon express was only 0.68%. At the same time, the diversification of deppon's express business continued to shrink, and finally made a mistake.





The second example is Anneng logistics. In the 2021 top 30 list of China's LTL enterprises released by Yunlian think tank, the freight volume of Anneng logistics, the leader of LTL express, ranked first.





In contrast to deppon, Anneng logistics broke its wrists in 2019 and took the initiative to withdraw from the express industry - at that time, Anneng logistics was unable to compete with seven listed express companies, with a loss of more than 2billion yuan in 2018. Wang Yongjun, chairman of Anneng logistics, called it an "epic" retreat.





The financial report shows that the adjusted net profit of Anneng logistics in 2021 is 408 million yuan. This retreat has made it a vast exit.





These two examples express the same view: express delivery is a red sea, but there may not be other opportunities in the logistics industry.





In the case of fission, integration or other pattern changes in the industry, new entrants may also face fierce competition, but for players who already have advantages, integration is an opportunity.





In addition, the road freight market has grown with the overall economic growth, and the expansion of the scale has led to a series of adjustments, mergers and transformation trends within the industry, releasing structural dividends.





The LTL market is one of the typical beneficiaries. With the development momentum of network express enterprises such as Anneng logistics, more logistics demand flows to these logistics digital forces.





The growth rate of the express market exceeded that of the LTL market. At the same time, the shares of large tickets and small tickets began to concentrate on more powerful service providers. When their networking and large-scale capabilities became stronger, the original special line services and other fields were gradually won by express players.





As of 2020, CR10 in China's less than carload market is only 5.7%. CR10 refers to the market share of the top 10 companies in terms of business scale, which means that the current less than carload market is highly fragmented and its long-term value cannot be ignored. Of course, it cannot be misunderstood.





02




The value of less than carload is not the scale




The different destinies of deppon and Anneng logistics naturally come from their different choices. However, the share price of Anneng logistics in the secondary market has fallen by more than 70% since its listing. Why is it not favored?





Externally, the global situation and capital market turbulence are the reasons. From the perspective of industry, the market has doubts about the "beautiful myth" of LTL market integration. However, this is more likely because the market does not fully understand the value of LTL.





Carl Sagan has a famous saying: "we live in a society that depends on science and technology to operate delicately, but most people in this society know little about science and technology."





In the field of logistics, the market knows that digitalization and other scientific and technological means can indeed guide logistics to develop in a more efficient and orderly direction, but it puts the actual focus on the scale, and believes that neither Anneng logistics nor other enterprises have really achieved enough integration and leadership effect. At the same time, the actual scale of less than carload is not as large as expected.





The stable market that express companies can really cover may be only 250billion or even 150billion yuan. This is far lower than the trillion expectations of the market for logistics and its sub sectors.





However, the value of LTL is not the scale, but the business flow behind it. In other words, it connects many "businesses".





Jin Renqun, vice president of Zhongtong express group, once said that express is the foundation of the future flexible supply chain, and the silly and big black giant warehouse + vehicle transportation will gradually be replaced by the agile and fast way of a small number of batches of Direct stores + Express City distribution.





This is a new opportunity for aneng logistics. In this perspective, the value prediction of less than carload express needs to be based on two points.





First, the total scale of business flow is undoubtedly worth trillions. More than 70% of the less than carload online market comes from wholesale and retail customers, and the scale of the wholesale and retail market is huge. Second, the ability of logistics enterprises to divide the cake, that is, infrastructure construction, digital level and so on.





Debang's collapse lies in its "direct + diversified" plate spread too large, high cost and lack of focus, which makes it difficult to establish basic advantages in the logistics industry. On the contrary, its freight partner platform mode has more advantages in efficiency.





Anneng logistics is known as the "king of express". It has built a logistics network with a township coverage of 96.4% and has about 29100 freight partners. In 2021, aneng logistics added 15 distribution centers, about 400 trunk transportation routes, and invested 1.12 billion yuan to increase the scale of its self operated fleet.





As of December 31, 2021, the total distribution centers of aneng logistics have reached 162, the total trunk transportation routes have reached about 3100, and the self-supporting fleet has about 4000 high-capacity trunk trucks + more than 6000 trailers.





Just like jd.com invested in infrastructure for a better retail experience, in return for the appearance of low gross profit. But beyond this appearance, those moats built by basic investment can make competitors "look at the mountain and run away to death".





The reason why Anneng logistics has the first mover advantage in the field of LTL express is that it has seen the trend earlier than others. The supply chain tends to be flat and flexible, and orders also tend to be small batch, multi batch and fragmented. The growth of the express market is a foregone conclusion, and the scale is a representation, but not a reason.





Therefore, it is normal for the market to have doubts when the technology express force represented by Anneng logistics has not transformed the whole industry. However, often when the trend can be seen by everyone, the most magnificent value creation cycle has passed.





03




The demand of logistics for anti vulnerability is increasing




After reading typical cases, our eyes return to those external factors that have had an impact throughout the first half of the year. For logistics enterprises, external turbulence is the root cause of logistics vulnerability. As the logistics system becomes more complex, this vulnerability is rising linearly.





For example, when a manufacturing enterprise's supply chain becomes more and more complex and depends more on logistics, the greater the loss of a node's problems.





During the epidemic in the first half of the year, the supply chain problems in the automotive industry occurred because the core suppliers were concentrated in the Yangtze River Delta, but this node was interrupted, and materials could not be delivered to factories and auto enterprises across the country. Similarly, natural disasters such as floods and snowstorms lead to traffic disruption, which will affect the normal operation of express delivery, retail, fresh food and other industries. It is the same truth.





Business flow has a strong dependence on logistics, but logistics enterprises themselves cannot put external risks in a cage. They should focus on dismantling risks, and then adopt the operation method of applying the right medicine to the case.







The essence of anti vulnerability is to understand your weaknesses and then defend against them. It can not only provide more logistics methods, but also strengthen the monitoring of logistics status and adopt corresponding operation methods.





Fragility and anti fragility are twins. The fragility of logistics comes from networking. The anti fragility of logistics is that the closer the networking is, the deeper the digitalization is. Only by going deep into the capillaries can we know the galloping state of every drop of blood.





At the stage of resumption of work and production in Shanghai, Anneng logistics has a corresponding practice. Anneng logistics has set up a temporary drop off center near Shanghai, which improves the transportation efficiency and epidemic prevention effect by replacing the centralized vehicle with the Shanghai vehicle head. In addition, as the first franchising express enterprise in the industry, Anneng logistics also provides franchisees with support measures that are detailed to the distribution of network fees.





Digital capability is not only an insurance under extreme conditions, but also can bring higher benefits in daily operations.





Lin Disheng, CFO of Anneng logistics, said, "in the past 10 years of development, we have developed more than 50 sets of information systems, which can connect all our full link operation processes and enable our management to see our costs in real time, but this is only the first step. Now we need to monitor our costs by week and day, and we can monitor our delivery and costs by hour."





Therefore, for network line LTL companies such as Anneng logistics, the overall impact of the outside world should be more controllable. Coupled with the large number of service industries, it has dispersed the logistics pressure of specific industries, and has more advantages in combating economic cycle fluctuations. On the whole, the pressure resistance of the logistics industry is also stronger than that of the commodity industry because of its characteristics of no production and no inventory. The anti fragile construction of the logistics industry itself is also more important to ensure the normal operation of the commodity industry.





Taleb, the author of "black swan", believes in his book "anti vulnerability: benefits from uncertainty" that anti vulnerability can not only keep things firm in the impact, but also make themselves better in the opposite direction. The guiding operation of digitalization in different situations is a reflection of this concept.





In any industry that involves the national economy and the people's livelihood, ensuring stability always coexists with seeking development. In the future, the logistics industry must "repair both inside and outside". It should not only step on the rhythm of external benefits such as the unified market, but also strengthen its ability to resist potential risks.





In the long run, the competition and annexation between the participants will continue, whether it is the LTL express or the logistics industry as a whole. However, from the example of the self reform of Anneng logistics to its return to the fast track, the right strategy will eventually lead the company to the right result. Perhaps this is the development focus brought by strategy.





Source / Hong Kong Stock Research Society (id:ganggushe)