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Alibaba wants to build logistics network that can handle 1 billion packages a day

Chinese e-commerce giant says its 100 billion yuan (US$15.58 billion) investment aims to drive down logistics costs and bolster capacity from its current 100 million packages a day.

Alibaba Group says it needs to prepare for a future where a billion packages are processed a day, which means costs must go down and efficiencies must go up.

This also would require an investment of more than 100 billion yuan (US$15.58 billion), in order to develop the "technical backbone for a smart logistics network", said its co-founder and executive chairman Jack Ma.

Alibaba powers ahead in retail as Amazon plays catch up

While Amazon remains mum over its on-off-on-again Singapore launch, Alibaba's online-offline strategy has cemented its footprint in the Chinese retail space, with further growth targeted for Southeast Asia.

Specifically, Alibaba would aim to provide 24-hour delivery across China and 72-hour delivery for international markets. In addition, the Chinese e-commerce giant was targeting to drive down logistics costs to less than 5 percent of the country's gross domestic product (GDP). It currently accounts for 15 percent of national GDP.

Alibaba operates its own logistics business, Cainiao Network, in which it acquired a controlling stake last September for US$807 million. It then had unveiled plans to set aside 100 billion yuan over five years to boost its logistics network.

Currently processing 100 million packages a day, Cainiao had been able to bring down cross-border shipping time from an average 70 days to 10 days for some countries, according to Alibaba.

Noting that courier and food delivery companies employed some 5 million people in China today, Ma said the industry would need to prepare for growing demand for logistics services.

"Today, weekly package volumes exceed 1 billion. With that pace of change, it's not unreasonable [to expect] the peak handling during the company's 11.11 megasale will become the daily average a decade later," he said.

Alibaba's Singles Day shopping festival on November 11 last year, at its peak, clocked 256,000 transactions per second and US$1 billion (6.6 billion yuan) was processed within the first couple of minutes. In total, Cainiao made 812 million delivery orders, 23 percent higher than the previous year's 657 million delivery orders.

"We have to think clearly today [and] understand what infrastructure is needed to support a billion parcels a day. If we can use data to solve the problem of low transport efficiency and high logistics costs, we can create huge profit margins for the manufacturing industry and logistics sector," Ma said.

Alibaba and Cainiao earlier this week led a group of investors to fork out US$1.38 billion for a 10 percent stake in Chinese express delivery company, ZTO Express. The deal aimed to further boost Cainiao's logistics network and support Alibaba's "new retail" strategy, which was touted to meld both offline and online shopping experiences.

The investment would focus on beefing up first- and last-mile delivery capabilities, as well as warehouse management and cross-border logistics.

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