May 28, 2015 / 9:21 AM / 2 years ago

Alibaba's logistics arm to expand warehouse space

HANGZHOU, China, May 28 (Reuters) - The logistics arm of Chinese e-commerce giant Alibaba Group Holding Ltd is lining up a major warehouse expansion to streamline deliveries across the nation, devoting a large slice of long-term $16 billion investment plans to adding new space.

The business, called Cainiao, will nearly quintuple warehouse space it owns now to around 5 million square metre (54 million sq ft) next year - easily big enough to hold New York's Central Park - President Judy Tong said in an interview on Thursday.

Founded two years ago, Cainiao seeks to give Alibaba a driving role in China's fragmented package delivery industry. In partnership with delivery businesses, it crunches reams of data on everything from order trends to delivery routes and weather patterns to increase efficiency.

"People may think that an Internet company shouldn't have property but Cainiao cannot just be a pure data company," Tong said, referring to Alibaba's ownership of warehouses.

"It has to be an integrated company with data and an efficient logistics network. An app can't solve the problems of logistics."

Cainiao's warehouse space will be concentrated in eight to 10 cities and form the top tier of a network of warehouses. The lower tiers of this network will be entirely run by Alibaba's partners and businesses that sell on its platforms.

At Cainiao's launch in May 2013, the company announced plans to invest 100 bln yuan ($16.1 billion) over the next five to eight years. Wan Lin, vice president at Cainiao, said on Thursday that "quite a large portion" of that would go toward warehousing.

Tong said the crowded courier industry would likely face consolidation in the coming years with about three leading companies. A subsidiary of Fosun International Ltd bought a 10 percent equity interest in Cainiao, formerly known as China Smart Logistics Network, when it was founded.

Earlier this month Alibaba took a minority stake in YTO Express (Logistics) Co Ltd, one of Cainiao's 14 logistics partners. Tong said there were likely to be similar investments in the future, declining to give details.

$1 = 6.1996 yuan Editing by Kenneth Maxwell

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