China's packaging makers see profits squeezed as e-commerce boom draws new competitors

Nine Dragons Paper (Holdings)

10/11/2016 07:43

By Jackie Cai 
    SHANGHAI, Nov 10 (Reuters) - Chinese packaging makers are 
bracing themselves for Singles' Day on Friday, stocking up on 
cardboard and taking on staff ahead of an online shopping 
bonanza that shifts more goods than Black Friday and Cyber 
Monday in the United States combined. 
    Sun Jingyun, owner of Kunshan Jiaze Packaging in eastern 
Jiangsu, has added a third extra staff since early October to 
meet a threefold jump in demand ahead of a day of discounts led 
by internet retailer Alibaba Group Holding Ltd  BABA.N . 
    Yet the packaging business gets slightly less lucrative with 
every Nov. 11. More packagers have emerged in answer to China's 
e-commerce boom which began around 2010, squeezing profit 
margins as the cost of cardboard and tape rises while output 
prices fall. 
    "It seems everyone is now making express delivery boxes, and 
price competition is pretty fierce," said Sun, who entered the 
market for delivery boxes early last year. "Lots of people are 
jumping into the business which is pushing down profits." 
    The trend is reflected throughout the e-commerce industry as 
players such as sellers and couriers settle for tiny profit 
margins in a massive online market that is redrawing the retail 
landscape to the detriment of physical stores.  urn:newsml:reuters.com:*:nL8N12Z1XN 
     
    SHARP GROWTH 
    But the attraction is clear: In packaging, China used 9.9 
billion cardboard cartons and 17 billion metres of adhesive tape 
last year, each almost 50 percent more than a year earlier, 
showed a report last month from China's State Post Bureau. 
    On Singles' Day alone this year, the Post Bureau expects 
demand for 1 billion boxes, up 35 percent from last year. 
    To meet that demand, firms both big and small - such as Nine 
Dragon Paper Holdings Ltd  2689.HK  and Sun's Jiaze - are 
expanding into the sector. The exact number is unknown, but the 
steep growth in e-commerce has attracted enough entrants to 
squeeze margins, Sun said. 
    The story is similar one step up the chain, with the number 
of large firms making the base for adhesive tape jumping over 60 
percent in the past three years, showed data from petrochemicals 
website Chem99. 
     
    CONNECTED CUSTOMERS 
    Package makers sell their boxes and tape to couriers such as 
U.S.-listed ZTO Express (Cayman) Inc  ZTO.N , which box up 
sellers' goods and deliver them to shoppers. 
    "In 2007 China's express delivery market had around 1 
billion parcels," Post Bureau deputy head Liu Jun said this 
week. "This year it will break though 30 billion and be the 
number one market in the world." 
    The growth is being driven by increasingly internet-savvy 
consumers who want to pay online for items as varied as clothes, 
cosmetics, meals and cinema tickets through platforms such as 
Alibaba's Tmall and that of rival JD.com Inc  JD.O . 
    On Singles' Day last year, these shoppers ran $14 billion 
worth of transactions through Tmall - a number most company 
watchers expect to be surpassed on Friday.  urn:newsml:reuters.com:*:nL3N1362AR 
    One such shopper is 28-year-old accountant Zhang Yuting from 
Shanghai. In the run up to Singles' Day, Zhang has been filling 
her online shopping cart on a daily basis with goods such as 
nappies, tea, motor oil and a Japanese electronic toilet seat. 
    "I've got loads of e-commerce apps on my phone," said Zhang, 
listing apps from Alibaba, JD.com, Suning Commerce Group Co Ltd 
 002024.SZ , Amazon.com Inc  AMZN.O  and fresh produce retailer 
Beijing MissFresh Ecommerce Co Ltd. 
    "I probably place one order a day. If its available online, 
I won't buy it from a high street store," said Zhang. 
    "For this year's Singles' Day, I'm going to spend at least 
10,000 yuan ($1,473)," she said. 
 
($1 = 6.7911 Chinese yuan renminbi) 
 
 (Reporting by Jackie Cai; Writing by Adam Jourdan; Editing by 
Christopher Cushing) 
 ((Jackie.Cai@thomsonreuters.com; +86 021 6104 1775;)) 
 
Keywords: CHINA ECOMMERCE/PACKAGING