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Logistics companies are seeking to hitch a ride on China's e-commerce boom, but thin margins in a crowded market are boxing in operators

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Packages are on the move on the mainland, but profits aren't.

Anita Lam

Published: 4:30am, 16 Dec 2013Updated: 6:22am, 16 Dec 2013

The explosive growth of e-commerce on the mainland has made logistics the next big thing for investors. But low profitability and fierce competition between online retailers means some of these investments could be on shaky ground.

China is set to replace the United States as the world's biggest online shopping market this year, with transactions of 18 trillion yuan (HK$22.8 trillion) likely by 2015. To cater for that growth, companies are keen to expand and upgrade logistics facilities including warehouses and freight-forwarding fleets.

But while China's ecommerce market racked up 1.3 trillion yuan in transactions last year, few online retailers were profitable. Their ambitions in the logistics sector may only lead to bigger capital expenditure and greater financial stress.

JD.com Suning Appliance, Gome.com.cn and Wal-Mart's Yihaodian - some of the most prominent e-commerce retailers on the mainland - still struggle to make a profit despite billions of yuan in annual revenue. Although JD.com's total sales amounted to 60 billion yuan last year - nearly triple that of 2011 - its net losses snowballed from 1.3 billion yuan in 2011 to 4.8 billion yuan. The red ink is set to keep flowing.

The group, which had an estimated worth of US$7.3 billion last year, has raised funds five times with private investors over the past three years. It has obtained more than US$2.2 billion in an attempt to cover the costs of a 10 billion yuan mega logistics plan that could allow JD.com to deliver a parcel anywhere in China within 24 hours.

But analysts said it would become increasingly hard for the group to bridge its huge funding gap, if it did not go public soon. The concern is that the firm's dismal financial results are apparently holding back its initial public offering plans.