Chinese giant AliExpress boosts Korean delivery amid domestic retail squeeze

Industry

Chinese giant AliExpress boosts Korean delivery amid domestic retail squeeze

Published: 05 Jan. 2024, 07:00

KIM JU-YEON
kim.juyeon2@joongang.co.kr

Pictured is an AliExpress advertisement displayed at a subway station in Seoul. [ALIEXPRESS]

AliExpress's aggressive expansion in Korea is boosting the country's delivery industry while spooking domestic retailers by chipping away at their market shares.

Chinese e-commerce giant AliExpress announced last March its plans to invest around 100 billion won ($76.4 million) into the Korean market, which it entered in 2018, to expand its range of cost-efficient products and better optimize user experience.

Some industry insiders predict that the number of items shipped to Korea through AliExpress will increase to 50 million next year, up from the 30 million shipped this year.

CJ Logistics, Korea’s largest parcel delivery firm and the main delivery operator for AliExpress shipments to Korea, has been a direct beneficiary. The number of CJ Logistics shipments made for AliExpress in the third quarter of last year is said to have increased by about 2.5 times from the first quarter, from 3.5 million shipments to 9 million.

The delivery company’s outlook wasn’t so great before the “Ali effect.” The end of pandemic lockdowns delivered a blow to online shopping, and e-commerce platforms with their own delivery systems such as Coupang had been decreasing their shipment load.

But AliExpress’s sudden rise in popularity has analysts predicting that the decrease in work will be offset this year.

“CJ Logistics’ total delivery shipments will increase by 3.1 percent this year,” Hi Investment & Securities analyst Bae Se-ho wrote in a report published Wednesday.

The market’s expectations have been reflected in the company’s stock prices. CJ Logistics’ shares, which had at one point slipped down to 69,000 won last year, rose to finish at 125,200 won on Wednesday. Daishin Securities researcher Yang Ji-hwan proposed the target price of 160,000 won, saying that “though the short-term rise was large, the upward trend of rising stock prices is likely to continue.”

Hanjin, which has been delivering for Temu, another Chinese e-commerce platform, also benefited from the rise in demand for Chinese retailers. Temu recorded 2.4 million monthly active users in Korea last year, beating Chinese e-commerce fashion giant Shein's 450,000 monthly active users, showing rapid growth. Should AliExpress and Temu maintain their growth rate this year, Hanjin could expand its share in the domestic delivery market where it currently places third or fourth, with 12 percent.

Pictured is CJ Logistics' sorting system Autostore. [CJ LOGISTICS]

Yet increases in shipments from China do not lead to an immediate increase in Korea's delivery volume. Shipments coming in from overseas must go through customs clearance checks at ports and airports. If the amount of allowed imports is small or the waiting line for customs clearance becomes too long, the courier’s profitability becomes that much more restrained.

There are limits to speeding up the customs clearance process for direct purchases from China as investigative authorities have singled them out to be Korea's main window for smuggling drugs.

Contrary to the delivery companies’ optimistic expectations, domestic e-commerce platforms face concerns over drops in users.

According to mobile application market researcher WiseApp, only Coupang saw an increase in its app users among all domestic e-commerce operators in the two years since 2021, when the online shopping industry largely grew. Coupang mobile app users increased from 23.67 million users in 2021 to 28.46 million as of October, 2023.

11Street, Gmarket and Wemakeprice all lost users. That's in stark contrast to the rise of AliExpress, which reached 6.13 million users in October last year, placing AliExpress’s mobile app on the list of Korea’s top five most-used e-commerce apps.

“Based on its growth rate, Ali is expected to rank second for its number of users sometime during the first half of this year,” Bae, the Hi analyst, said.

BY CHOI SUN-WOOK, KIM JU-YEON [kim.juyeon2@joongang.co.kr]