The year 2025 is set to be a pivotal time for the development of the low-altitude economy in China, with significant advancements predicted on the horizonA specific governmental body dedicated to the advancement of low-altitude economic activities has been established, underscoring the level of priority that this sector holds at the national levelThis effort reflects a larger trend towards harnessing new technologies, particularly in the fields of aerial mobility and logistics, which are poised to revolutionize both urban and rural service delivery frameworks.

One of the most groundbreaking developments in the field has been the achievement by EHang Intelligent of the world’s first production license for electric Vertical Take-Off and Landing (eVTOL) aircraftThis milestone not only accelerates the commercial viability of aerial travel solutions but also paves the way for mass adoption of such technologiesAccording to forecasts, between 2024 to 2035, the market for low-altitude economic activities in China could see an impressive growth from approximately 670 billion yuan to 3.5 trillion yuanSuch an expansion is anticipated to catalyze growth across the entire value chain, far beyond just manufacturing.

The conversation around low-altitude economic activities cannot be complete without addressing the exciting prospects around logistics, which are seen as particularly promisingIndustry experts project that by 2025, the low-altitude logistics sector in China alone could burgeon into a market worth between 120 billion to 150 billion yuan, thereby accounting for over 10% of the overall logistics marketA leader in this evolving landscape is SF Express Holdings, distinguished by its strong competitive edge and innovative approaches to logistics operations.

But what makes SF Express stand out amid fierce competition? First and foremost, the company possesses a significant first-mover advantage in this nascent sectorTheir foray into the realm of drones began as early as 2013, and they garnered the world’s first pilot license for drone operations in 2018. Today, their logistics operations, including the deployment of the Fengyi logistics drone, have successfully integrated into the Guangdong-Hong Kong-Macao Greater Bay Area, managing an impressive volume of daily operations — with between 800 and 2,000 flights and exceeding 12,000 parcels transported each day

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This operational scale underscores SF Express’s trailblazing status in the logistics arena.

Moreover, SF Express is not just a pioneer in technology; its performance metrics reflect an unmatched scale within the industryBetween 2019 and 2023, the company grew its revenue from 112.19 billion yuan to approximately 258.41 billion yuan, representing an ambitious compound annual growth rate of around 23.19%. Impressively, for the first three quarters of 2024 alone, SF Express reported revenues of 206.86 billion yuan, surpassing the combined figures of its closest rivals in the "Tongda system" (comprising ZTO Express, YTO Express, Shentong Express, and Yunda Holdings).

The company’s financial health continues to shine, with net profits hitting 7.617 billion yuan during the same period, marking a year-on-year increase of over 21.59%. These figures demonstrate a record-setting trajectory for both revenue and profits, indicating robust operational healthThe company is also on track to achieve further high marks in 2024, with projections suggesting a total revenue of 282.5 billion yuan for the year — a feat that echoes its commitment to expanding market share and profitability.

An equally important metric of success is profitabilityThe gross margin of SF Express has exhibited a consistent upward trend, jumping from 12.37% in 2021 to an impressive 13.96% in the first three quarters of 2024. This performance starkly contrasts with competitors like YTO, Shentong, and Yunda, emphasizing SF Express's enhanced competitive positioning.

So, what enables SF Express to maintain and even improve its leading gross margin over time? One answer lies in its strategic focus on the mid- to high-end market segments, diverging from the franchise model that other companies in the Tongda system employIn contrast to franchises, where partners handle collection and delivery, SF Express manages every segment in its logistics chain, which not only ensures better service quality but also reinforces the price premium it can command for its services.

A case in point is the company’s average revenue per shipment, which in 2023 stood at 16.06 yuan — a significant leap above the industry average of 9.1 yuan

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Additionally, substantial capital expenditures have allowed SF Express to fortify its position in mid to high-end markets, notably through the acquisition of parcel sorting centers and aircraftThis strategic investment is vital for maintaining the company’s operational capabilities, especially in air freight services.

In the first half of 2024, the company operates a fleet of 99 cargo planes, significantly outpacing its competitors like Postal Service and YTO ExpressSF Express operates 139 air routes, commanding a remarkable 32% of the total volume of domestic air transportWhat’s more, with such operational capacity established, SF Express has also embraced a feedback loop for its shareholdersThe free cash flow of the company surged from a negative 4 billion yuan in 2021 to a positive 12.655 billion yuan in 2023, which enabled extraordinary dividends within that timeframeThe dividend payout ratio improved from 20.48% to 35.09%, and the dividend yield climbed from 0.26% to almost 1.49%.

Looking into the reasons that SF Express continues to enhance its gross margin, two major strategies come to lightFirstly, the company has proactively detached itself from low-margin business operationsContrary to many of its competitors who engage in fierce pricing and market share battles, SF Express’s deliberate choice to minimize low-margin offerings is noteworthyThe company reduced the scale of its discount logistics offerings starting in 2021, phasing them out entirely by the following yearIn 2023, further strategic decisions led to the sale of underperforming segments, channeling focus toward high-value “e-commerce premium services.” Remarkably, this pivot in strategy has driven an increase in average income per shipment and boosted overall business volume, with both metrics showing positive year-on-year growth.

Additionally, the implementation of a multi-network approach has played an instrumental role in cost efficiencySince 2021, the company has utilized shared sorting facilities, which has effectively reduced transportation and transit costs—leading to a discernible decline in logistics costs from 34.79% of total revenue to 32.84% by the first half of 2024.

In summation, the strategic deployment focused on mid to high-end direct operations has allowed SF Express to maintain a gross margin that eclipses its competitors

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