GUANGZHOU -- China's largest package deliverer SF Holding will soon operate the nation's first cargo airport to serve as a hub for overseas operations.
Huahu Airport, located in the inland city of Ezhou, is rapidly undergoing construction and is expected to open for business at the end of the year. SF Holding and the surrounding Hubei Province are jointly developing the airport, with the company contributing 18 billion yuan ($2.7 billion), or about 60% of the total costs.
Not only will the airport serve as a throughway for packages destined abroad, but it may be the answer to SF Holding's struggle to survive the lopsided price competition at home.
The airport will house two runways, as well as a terminal building for passengers. Nearby will be 670,000 sq. meters of logistics facilities, covering an area that can fit 14 baseball stadiums.
Ezhou is roughly equidistant from Shanghai in the east, Beijing in the north, and Guangzhou in the south. In addition, it is an hour's drive from the provincial capital of Wuhan, a key location of China's Belt and Road cross-border economic initiative. Wuhan is filled with parts factories belonging to large liquid crystal display makers such as CSOT and Tianma Microelectronics.
SF is building an air cargo hub in Ezhou to leverage the city's geographic advantages and capture the logistics demand. The airport will connect China to the rest of Asia and support exports by Chinese component and electronics makers.
Huahu Airport is set to handle 3.3 million tons of cargo in 2030, which would put it in fourth place globally behind counterparts in Hong Kong and the U.S. city of Memphis.
"I look forward to fully demonstrating SF Holding's network and technical capabilities upon the construction of the airport," said Chairman Wang Wei.
Wang founded SF Holding in 1993. While rivals stationed collection depots at affiliated outlets, SF developed a network of depots it directly controlled, boosting the speed and quality of service. The company eventually overtook the state-owned enterprise China Post Group in terms of delivery revenue.
At this stage, SF has started to look for growth opportunities overseas -- an ambition that goes beyond building a cargo airport.
The company said in February it will spend 17.5 billion Hong Kong dollars ($2.25 billion) to buy Kerry Logistics, a Hong Kong-based logistics service provider whose global reach extends to nearly 60 countries and territories, primarily across Southeast Asia.
In 2019, SF purchased a stake in a Myanmar cold-storage transporter, and established a logistics company in Singapore.
Driving this network buildup offshore are competing trends in China's logistics industry.
Last year, delivery volume across the country soared 31% to 83.3 billion pieces, according to data from the State Post Bureau. Demand has grown consistently with the rise of online shopping.
On the other hand, the delivery fee per package stood at roughly 10 yuan last year, dropping by more than half over a decade.
Cutthroat competition from rival deliverers has undercut prices. For SF, the biggest headaches come from YTO Express Group, Yunda and other companies backed by Alibaba Group Holding, China's e-commerce leader. Such players are able to offer low fees since they are guaranteed business from Alibaba.
The unit prices at YTO and sister companies are just above 2 yuan, according to China's Industrial Securities, which is well below the industry average. SF in particular, which has poured resources into value-added services, charges unit prices hovering at 18 yuan.
SF has determined it will be difficult to maintain high-quality services as things stand. To reduce its exposure to the price competition at home, the company will pivot heavily toward developing markets abroad.
Building an international logistics network also aligns with the national strategy. The State Council, China's cabinet, unfurled a plan in September 2019 to turn the country into a transportation power which includes the "Global 123" express logistics network. The concept calls for delivering parcels domestically within a single day, between neighboring countries within two days, and to major cities in the rest of the world in three days.
If realized, Global 123 would revitalize imports and exports within a developed logistics infrastructure, and further project China's influence over the global economy.
At the same time, SF has run afoul of China's anti-monopoly police. Last December, the State Administration for Market Regulation fined its subsidiary Hive Box for failing to properly report past acquisitions. Antitrust regulators are mostly focused on the tech industry, but if the crackdown spills over in force to the logistics sector, SF will find itself in choppy waters.