A China Post employee supervises the loading of medical supplies at Nanjing Lukou International Airport on April 28. (Photo: China Daily)
BEIJING - Pricing pressure in China's express-delivery sector intensified in the first quarter of 2020 as slower economic activity caused by the novel coronavirus outbreak weighed on demand and express-delivery companies cut prices to win orders, according to a recent report by Fitch Ratings.
Major players will become more aggressive in pursuing economies of scale and technological advances to drive down costs, making the sector more capital-intensive, the rating agency noted.
It expects rising investment needs to push up express-delivery companies' leverage.
"Rising capital expenditure will hamper major companies' cash flow, while mergers and acquisitions for business expansion and diversification will also reduce cash balances," said the report.
Major players have been raising funds since the latter half of 2019, largely through bond issues. Fitch expects them to raise more funds in 2020.
The pandemic will have a long-lasting impact on Chinese consumer behavior, by accelerating the shift toward e-tailing that sends goods by express delivery and new retail that relies on on-demand delivery, Fitch said.
Express delivery volumes dropped by 10.1 percent year-on-year in the first two months of 2020 amid quarantine measures to contain the virus, but rebounded strongly in March and April, rising by 23 percent and 32 percent, respectively, according to the report citing industry data.
Strong monthly growth is likely to be sustained through the year as COVID-19 fears linger and consumers become more accustomed to the convenience of online shopping, it predicted.
"Sector revenue growth, however, is likely to be slightly lower because of the intense competition, even after the pandemic was brought under control in China in the second quarter," said the report.