ZTO eyes building cargo fleet as its overseas business expands

ZTO Express (Cayman) Inc, the Chinese delivery service that gets most of its business from Alibaba Group Holding Ltd, is considering options such as building its own cargo fleet or purchasing a stake in an existing carrier, as it expands operations overseas.

The Shanghai-based company, whose shares started trading in New York in October, had been debating the need to buy aircraft or charter flights for five years but couldn't justify the cost, Chairman and Chief Executive Officer Lai Meisong said in an interview on Thursday.

"But we definitely need to do this in the future as we build our international delivery service," Lai said at his office in Shanghai, declining to elaborate. "We are definitely going to have our own airplanes and airplane companies or buy a stake in airlines."

Faced with intense competition from local rivals such as SF Express Group Co, STO Express Co and YTO Express Group Co, Lai is setting the stage for ZTO's next phase of growth as he rolls out international services. Shares of ZTO have fallen 34 percent in New York trading since its $1.4 billion initial public offering on Oct 27.

SF and YTO have built their own fleet for air-cargo transportation. SF has 36 Boeing Co cargo freighters, while YTO has five freighters and expects to have 30 to 50 by 2020, according to data from the respective companies.

Alibaba, which uses ZTO to fulfill orders, accounted for 75 percent of the delivery company's parcel volume in the first half of this year. Volume rose about 51 percent year-on-year to 1.1 billion parcels in the third quarter of this year, driving revenue to 2.35 billion yuan ($338 million).