Alibaba Spends Big To Upgrade Logistics Network

Forty-three percent of Chinese consumers lived outside urban areas in 2016, many in remote, rural areas challenging to access via road, estimates The World Bank. To reach these consumers, e-commerce and logistics companies need to invest heavily in new logistics infrastructure.

That’s why Chinese e-commerce giant Alibaba will pour $720 million into Huitongda Network, a subsidiary of Jiangsu Five Star Appliances, to build new logistics and supply chain networks in rural China, reports Nicholas Shields, Business Insider Intelligence Transportation and Logistics Briefing. The investment is part of Alibaba’s larger effort to spend aggressively to upgrade its logistics capabilities and access millions of potential new customers.

While the companies didn’t release specifics, they could potentially build new fulfillment centers and warehouses, as well as order more delivery trucks, to help Alibaba tap into Huitongda’s largely rural customer base. Huitongda operates more than 80,000 franchised stores, which cover about 200 million rural residents.

That’s why Cainiao, the third-party platform that coordinates Alibaba’s deliveries, is aggressively piloting drone deliveries—it hopes this effort can grow its customer base, currently concentrated in urban and suburban areas. Chinese logistics companies handled 13.9 million parcels in the second half of 2017 alone, and Alibaba’s expanded operations will drive volume higher in the years ahead.