JD.com invests $55 million to foster connected vehicle fleets

The launch of logistic service has begun to reap early rewards regarding cost saving.

The long-time rival of Alibaba and Amazon, JD.com, has reportedly announced to invest 376 million yuan (around $55 million) in Jiangsu Xinning Modern Logistics to further modernize its logistics network. The e-commerce company will secure 10 percent share in Xinning, as per the investment deal.

According to a recently released filing by Xinning, the company has signed a strategic collaboration with JD logistics, the loss-making arm of JD, to create a big system which will enhance efficiency and reduce cost by optimizing matches between vehicles and cargos. The digital solution targets to reach 200 thousand vehicles by the year 2020 and more than 2 million eventually. This will fulfill JD’s inhouse and its third-party call but will prioritize the former.

Reportedly, JD has a logistics unit and its own inventory which separates itself from its rivals. This is an expensive strategy which the firm promotes as an assurance for better quality control and user experience. By comparison, ecommerce upstart Pinduoduo and Alibaba outsource their logistics requirements to third-party partners.

The hefty spending of JD on logistics has long tested investor patience, but the company started to vigorously monetize the massive infrastructure network in recent years which was firstly constructed for its in-house business. Toward the end of the year 2016, JD opened its logistics service to third-party merchants and further expanded it to customers to enable mailing packages through JD.

The launch of logistic service has begun to reap early rewards regarding cost saving. The fulfillment cost ratio was down 0.5% year-over-year to 6.7% in the first quarter, driven by better deployment of logistics infrastructure and better unit economics as a result of third-party logistics service businesses, cited reliable sources.

On a larger scale, net income of JD set a record high of 7.3 billion yuan ($1.06 billion) in the first quarter, mainly attributed to ordinary stakeholders and driven by the fair value change of investments.    

Source credit: https://techcrunch.com/2019/05/14/jd-connected-car-fleet/