New Thinking for Cost Reduction and Efficiency Gains in the Era of Smart Logistics

The fundamental strategy for developing the logistics industry is: one central focus and two basic pillars.

01 The biggest misconception in the logistics industry

China’s logistics costs are higher than those of developed countries.

China is a major power in the real economy, with its manufacturing output surpassing the combined total of the United States, Japan, Germany, South Korea, and India. China is also the world’s largest trading nation. In 2022, China’s total value of goods trade—imports and exports—reached RMB 42.1 trillion, ranking first globally. China also remains the world’s largest e‑commerce market, with online retail sales of physical goods exceeding RMB 12 trillion, again the highest in the world. From 2019 to 2021, the annual growth in China’s express delivery volume surpassed the combined total of all countries outside China, and its e‑commerce trade in physical goods has consistently held the top position worldwide. China has moved beyond the phase of expanding the sheer scale of its real economy and has entered a stage focused on improving quality and boosting efficiency. The rapid development of China’s manufacturing, trade, and e‑commerce has been largely driven by its logistics sector.

With costs lower than those in developed countries, low logistics expenses have long been a core competitive advantage for China’s manufacturing sector and e‑commerce.

From a micro perspective, China’s warehousing costs and ton‑kilometer transportation expenses are significantly lower than those in developed countries; in terms of e‑commerce express‑delivery rates, Chinese parcels can be delivered at a cost lower than… The ultra-low cost of 1 yuan per person nationwide is, even at average cost, far below that of developed countries. From a macro perspective, Chinese unit China’s GDP‑related logistics operations are at least six to seven times the size of those in the United States, yet its logistics costs are less than twice as high as in advanced developed countries—something even an elementary school student could calculate. Yet a handful of prominent Chinese logistics experts inexplicably conclude, in a rather misguided manner, that China’s logistics costs are far higher than in developed nations—a truly absurd claim. In short, China’s express‑delivery and parcel‑logistics expenses are less than one‑tenth of those in developed countries, and both warehousing and transportation costs are significantly lower as well. The rise of China’s manufacturing sector has been underpinned precisely by its low logistics costs. To assert that China’s logistics costs exceed those of developed countries is the logistics industry’s biggest misconception.

02 Staying true to our original aspiration—what is the logistics industry’s original aspiration?

Stay true to our original aspiration, and we will see things through to the end! What is the logistics industry’s original aspiration? Is it reducing logistics costs and charging less? Is it cutting-edge logistics technology? Or simply delivering faster? Above all, logistics is a service industry, and at its core, it must excel in service. Providing excellent service is the logistics sector’s original mission, the development philosophy it most urgently needs to embrace, and the very essence of the industry. Unfortunately, today, few in the logistics sector still prioritize service. I have previously outlined the fundamental guiding principle for China’s logistics industry: one central focus and two key pillars. The central focus is service, while the two pillars are cost and efficiency. I believe that the logistics industry should adhere to this fundamental course. Unwavering for a century. To deliver exceptional service, we must first understand and meet our customers’ needs, providing satisfaction that exceeds their expectations. Customer demand for logistics services is hierarchical, and our offerings must reflect that same tiered approach. In the past, as China’s economy was in a phase of quantitative expansion, logistics services could primarily focus on the basic function of delivery while striving to minimize costs. However, with the advent of a new era of high‑quality development, modern logistics must also be high‑quality, emphasizing improved performance and efficiency. The service landscape in the logistics sector is undergoing profound transformation. Historically, logistics was reduced to a bare‑bones offering—cold, impersonal, and marked by poor customer experience: rough sorting, careless handling, widespread overloading, severe cargo damage, and delayed deliveries—all centered on cutting costs at the expense of profitability. Even the express‑delivery industry has relied on smart‑logistics big data to push service levels to the absolute limit, operating on the edge of compliance and engaging in cutthroat price wars. As we enter this new era of high‑quality development, such practices can no longer be tolerated.

In the new era, logistics services should evolve toward high quality. The goal is no longer simply to cut logistics costs; rather, as the saying goes, “to make the horse run, you must let it eat more grass.” High‑quality logistics requires higher operating costs and fees. However, by leveraging smart logistics technologies and delivering premium services, we can help customers reduce other expenses—rather than focusing solely on lowering logistics costs. At the same time, the path to improving efficiency should also involve boosting logistics fees through high-quality services, thereby enhancing the industry’s own profitability. This is precisely the new mindset for cost reduction and efficiency gains in the new era.

03 Logistics Cost Objectives

Optimal logistics system costs under a given service level.

To make the horse run, you have to let it eat more grass! At its core, logistics is about service; different levels of service inevitably entail varying logistics costs. Logistics costs account for… The level of the GDP‑to‑logistics‑cost ratio is merely a structural indicator and does not reflect the absolute magnitude of logistics costs. Logistics costs are distinct from distribution costs or economic costs; discussing the share of logistics expenses in GDP without considering the scale of logistics operations is simply misleading. The objective of logistics cost management is to achieve system‑wide cost minimization at a given service level—this is fundamental common sense in logistics cost management. Air freight and trucking costs differ, and door-to-door versus port-to-port pricing also varies. In the era of a self-sufficient, subsistence economy, people lived in close proximity yet rarely interacted; logistics costs accounted for… With a GDP share approaching zero, can such logistics truly be considered advanced? The essence of logistics lies in its system; modern logistics is not a fragmented set of functional operations, but rather a seamless logistics chain that links production to consumption. Logistics costs should aim for optimal system‑wide efficiency, rather than minimizing costs at isolated stages.

04 Functions of logistics

Connecting the Great Economic Cycle

Information Connectivity: Driving the First Transformation of Logistics Concepts: In the past, the concept of logistics did not exist; only fragmented, function‑specific operations such as transportation and warehousing were carried out. With the advancement of information technology, as data enabled seamless connectivity across warehousing, transportation, and other links, and as these functional processes could be systematically coordinated, the modern logistics paradigm emerged. Deepening Connectivity: Driving Integrated Logistics Transformation: Since the 1980s, the advancement of information technology has enabled the seamless integration and coordinated management of information related to the movement and storage of raw materials, work-in-progress, and finished goods—from supply sources to points of consumption—ushering in a transformative era of integrated logistics. Integration and Convergence: Logistics Enters the Supply Chain Era: With the advent of the 21st century and the advancement of information technology, it has become possible to integrate logistics, commerce, information flow, and capital flow into a unified system, enabling upstream and downstream enterprises to form functional network‑chain structures aligned with supply‑and‑demand dynamics. Consequently, modern logistics has entered the stage of supply chain management, with logistics becoming an integral part of the supply chain. Smart Logistics: Logistics Has Become the Infrastructure Connecting Economic Cycles. With the advancement of the Internet of Things, information connectivity has extended into the physical world, imbuing it with a sense of vitality and awakening. Meanwhile, the development of intelligent technologies—big data, cloud computing, artificial intelligence, and machine learning—has refined the “logistics brain,” giving rise to smart logistics. The boundaries of smart logistics are now ubiquitous; logistics has become the connector of the dual circulation model, linking production, distribution, circulation, and consumption. It facilitates seamless interconnection and integration across physical‑goods sectors such as agriculture, manufacturing, and commerce and trade, enabling their flows to operate in concert. As a result, smart logistics is emerging as a foundational pillar that underpins the broader economic and social ecosystem, acquiring both public and universal attributes. It has thus evolved into a core support system for national economic development and a new form of infrastructure.

05 Smart Development

Comprehensively advance the restructuring of the commerce and trade circulation system to reduce circulation costs.

The connectivity enabled by the integration of physical and digital elements in smart logistics transcends traditional industry and corporate boundaries, driving a restructuring of the economy and society and fostering innovative convergence between logistics, manufacturing, and the distribution sector.

Short-link direct connection: Internet platforms connect diverse stakeholders, aggregate vast information resources, and serve as the central hubs of information networks. They enable direct, short‑chain connections between merchants and consumers, leverage logistics to eliminate multi‑tiered wholesale channels, and significantly reduce distribution costs. As a result, these platforms have become the largest intermediaries in the digital commerce ecosystem. Compared with traditional trade and distribution, even with the addition of last‑mile delivery services, the overall reduction in circulation costs has substantially lowered both economic and social expenses.

Instant Delivery: Instant logistics and delivery services connect with local consumers, capturing the gateway to local‑life service traffic. By aggregating demand data and product resources, they build a borderless service ecosystem and extend upstream into the supply chain, thereby driving the growth of instant logistics, instant e‑commerce, and in‑store e‑commerce—key components of local‑life services—and securing control over local traffic. Although instant delivery increases last‑mile home‑delivery costs, it reduces traffic acquisition expenses for local merchants; further integrating these merchants’ supply chains can even lower overall supply‑chain costs. Looking ahead, the development of instant delivery and instant e‑commerce will hinge on supply‑chain integration and systemic cost reductions across the entire value chain. .

Group-buying production: Through group-buying models, it is possible to establish a social‑media‑driven community traffic gateway, aggregating fragmented, personalized demands and connecting them with China’s vast manufacturing capacity, thereby giving rise to the digital era. C2M has captured the gateway to social‑media traffic, as exemplified by Pinduoduo. This model also reduces manufacturers’ costs for brand promotion and customer acquisition—while simultaneously driving up logistics expenses. Product Connection: By leveraging widely accessible smart devices such as computers and smartphones as connective hubs, businesses can engage customer segments, establish traffic‑driving entry points, and cultivate new ecosystems—much like Apple’s iPhone. Going forward, as manufacturing becomes increasingly service‑oriented in the digital age, we can expect to see a host of novel business models, potentially giving rise to innovations such as “product‑as‑a‑service” and “scan‑to‑ship.”

06 New Approaches to Reducing Logistics Costs and Boosting Efficiency

Reduce costs for customers and boost profits for ourselves.

Reducing costs for customers: The biggest misconception in reducing logistics costs is focusing solely on cutting direct logistics expenses such as freight and storage fees. In the era of smart logistics, logistics has converged with financial flows, information flows, and commercial flows, while industrial chains and supply chains have achieved comprehensive integration. Logistics has now become an essential infrastructure, giving rise to a new approach to cost reduction and efficiency enhancement: delivering superior services to lower customers’ costs, while optimizing pricing to generate value for logistics enterprises.

Key to cost reduction: By leveraging the connectivity of smart logistics, we can establish short‑chain direct links between production and consumption, helping customers reduce distribution costs. Through advanced modern logistics technologies and standardized practices, we lower cargo‑damage expenses. Digital optimization of logistics systems minimizes inventory holding costs. Overall, we enhance logistics efficiency, cutting time‑related costs for our clients. Moreover, by integrating logistics with financial flows, we enable logistics‑based financing, thereby reducing customers’ capital‑cost burdens.

07 Analysis of Pathways for Smart Logistics to Reduce Costs and Enhance Efficiency

E-commerce logistics: E‑commerce logistics is primarily handled by express delivery companies, which has introduced a new category of logistics costs into the national economy. However, express delivery establishes a short, direct link between merchants and consumers, streamlining traditional supply chains and significantly reducing the distribution costs associated with multi‑tiered wholesale in conventional commerce. Home delivery also enhances consumer convenience, and the incremental logistics expenses are far lower than those of traditional trade‑based logistics. Online Wholesale: Development B2B e‑commerce was the original model of e‑commerce and remains the cornerstone of the digital commerce initiatives vigorously pursued by JD.com and Alibaba. Both Alibaba and HC360 originated in B2B e‑commerce; today, Alibaba’s 1688 platform serves as a next‑generation wholesale marketplace, while JD.com’s New Channels business is a key pillar of its operations. The overarching goal is to leverage these platforms to connect businesses with supply and demand, streamline logistics for efficient goods delivery and handover, and reduce overall distribution costs. Centralized warehousing and distribution: Many companies typically treat centralized warehousing and distribution as a standalone logistics service, hoping to attract distributors by lowering fees—only to find that even after repeated fee reductions, profitability remains elusive. Instead of viewing this model merely as a cost‑cutting strategy, it can be reimagined as a platform for integrating the commercial‑distribution supply chain. By leveraging centralized warehousing and distribution, such enterprises can build a regional network of physical distribution hubs, helping distributors consolidate their channels to drive incremental growth, while simultaneously reducing their distribution costs and boosting the logistics provider’s bottom line. The key to this approach lies in adopting a resource‑aggregation mindset: rather than simply offering a logistics service, these companies share store‑level resources with distributors and, conversely, make distributor‑level capabilities available to retail outlets. Alongside their core warehousing and distribution services, they bring together suppliers and retail partners, organize ordering and promotional events, and jointly provide shared sales representatives, inventory‑management staff, and coordinated, high‑value support tailored to each outlet. Logistics Standardization: Taking the fruit and vegetable logistics sector as an example, China is the world’s largest producer of fruits and vegetables, with a total annual output exceeding 1 billion tons. From farm to supermarket shelf, fresh fruits and vegetables endure significant losses due to handling, stacking, compression, loading/unloading, and transportation. According to available data, traditional logistics results in losses exceeding 35%, which translates to over 350 million tons of fruit and vegetable loss annually. By adopting standardized logistics containers—sorting and packing directly at the source and delivering them straight to supermarket shelves—logistics operations can avoid three rounds of container emptying. With standard containers as the primary handling unit, the risk of crushing or breaking individual items is greatly reduced, bringing overall spoilage rates down to around 3%. Based on these figures, this approach could cut losses by 320 million tons and reduce more than 320 million tons of waste, thereby significantly lowering product‑damage costs for customers, enhancing the visual appeal of fresh produce, and boosting customer profitability. This measure has become one of the most widely embraced initiatives in advancing logistics standardization. In recent years, the use of standardized logistics containers for fresh fruits and vegetables in China has expanded rapidly, leading to a substantial decline in post‑harvest losses. In manufacturing, high‑precision components can be worth hundreds of thousands of yuan; even minor impacts can result in substantial losses. Standardized transport units ensure that parts remain undamaged during transit, further slashing cargo‑damage expenses.

High-Quality Service: In the stage of high-quality economic development, enhancing logistics services, leveraging brand value, and achieving high‑quality growth in the logistics sector are indispensable pathways. Even when delivering the same batch of goods—under identical delivery distances and network configurations—the cost per unit remains comparable. In China, each item in such a shipment may cost only a few dozen yuan; yet once it bears a well‑known brand label abroad, its price can easily double. Tenfold—domestic and international logistics costs differ dramatically. High‑tech products, with their high value, also entail vastly different logistics cost structures. As the saying goes, “you get what you pay for.” For mid‑ to high‑end products, meeting logistics needs by enhancing product value and elevating the customer experience—delivering logistics that are both efficient and empathetic—can drive quality improvement and operational efficiency. Even if pricing rises, such an approach offers substantial room for growth and strong market competitiveness. With the advent of a stage of high‑quality development, demand for premium logistics services will continue to grow. By boosting quality and efficiency to strengthen brand equity while reducing relative logistics costs, we can achieve a new form of “cost reduction and efficiency gain.” In the era of smart logistics, with service at its core and the dual goals of lowering costs for customers and increasing returns for ourselves, adopting a fresh mindset toward cost reduction and efficiency enhancement allows us to leverage creativity, unlock innovative possibilities, and forge new models of logistics cost‑efficiency tailored to each enterprise. Smart logistics opens up entirely new avenues for cutting costs and improving efficiency; shifting our thinking expands these opportunities. At its heart, logistics service is paramount: reducing costs for customers is the means, while generating value for logistics providers is the outcome. Broadening our perspective unlocks limitless innovation. Beyond what I’ve outlined, there’s ample scope to explore and innovate in areas such as reducing channel costs, shortening delivery times, minimizing inventory expenses, and mitigating opportunity costs. Finally, let me emphasize: the central focus remains logistics service, with cost and benefit as the two fundamental pillars. We must steadfastly adhere to this basic principle of logistics cost reduction and efficiency enhancement—for the next hundred years and beyond.