Alibaba Takes Control of Logistics Firm Cainiao

Alibaba ownership in Cainiao rises to 51%

US-listed (SPY) Alibaba (BABA) invested an additional $807 million to take control of logistics provider Cainiao. Following the investment, Alibaba owns 51% of Cainiao, up from the 47% portion it owned previously.

Cainiao is a logistics platform that uses a combination of ships, trucks, and bikes to transport about 55 million parcels a day. At a time when delivery speed is reshaping e-commerce competition, Cainiao emerges as a strategic asset for Alibaba.

Alibaba Takes Control of Logistics Firm Cainiao

Delivering in the mainland within 24 hours

Alibaba is working toward a goal of accelerating its delivery so it could fulfill orders in China (MCHI) within 24 hours and globally within 72 hours. As part of the efforts to increase delivery speed, Alibaba plans to invest $15.2 billion over the five years to expand and strengthen its global delivery network.

In fiscal 2017 (the period ended March 2017), Alibaba’s cost of revenue increased 4.0% from the prior year to $8.6 billion. These costs consumed 38% of the revenues generated in the period. Alibaba’s cost of revenue includes logistics expenses.

Taking control of delivery system

From Alibaba to Amazon (AMZN) to JD.com (JD), e-commerce companies are seeking to take control of their delivery systems. This is partly intended to cut shipping costs and to reduce the risks of relying on third-party shipping services.

A few years ago, Amazon had to issue refund customers whose orders failed to arrive on time for the December holidays. Amazon relies on courier companies such as FedEx (FDX) and United Parcel Service (UPS) for some of its delivery operations.