UPS is expanding its health-care shipping services in China, as it pursues a larger foothold in a lucrative market with limited access to foreign delivery companies; The largest distributors in the U.S. control approximately 90% of the health-care logistics market

June 11, 2013, 12:36 p.m. ET

UPS Bulks Up in China

Delivery Firm Seeks Deals to Broaden Health-Care Shipping Efforts

By LAURIE BURKITT

SHANGHAI—United Parcel Service Inc. UPS -0.81% is expanding its health-care shipping services in China, as it pursues a larger foothold in a lucrative market with limited access to foreign delivery companies.

Atlanta-based UPS is seeking acquisitions to broaden its health-care supply chain in China, enabling it to transport medical devices and pharmaceuticals in China to companies such as drug maker Merck & Co., said Jim Barber, the president of UPS International. The company operates a facility in Shanghai as well as a new 237,000-square-foot storage and distribution center in the coastal city of Hangzhou, China.Mr. Barber said the company aims to move westward and inland, expanding amid the Chinese government’s push for broader health-care access. “One of the biggest challenges in China’s health-care sector is delivery,” said Mr. Barber, who added that UPS is considering multiple acquisitions of domestic competitors that have regional advantages. He declined to disclose further details.

UPS’s ambitions come as it attempts to create more profitable routes for delivery services. Shipping vaccines, pharmaceuticals and medical devices requires a more complex system to deliver medicines that need to be kept at precise temperatures, but such deliveries offer many shipping and logistics companies higher profit margins than other daily or express shipments.

China’s health-care sector is booming, and pharmaceutical companies and medical-device makers are expanding rapidly there. The government said in March that it plans to raise spending on health care to 260.25 billion yuan ($42.44 billion) this year, up 27% from last year to expand hospitals and access to care and pharmaceuticals.

Total consumer spending on health care in China is poised to triple to $1 trillion by 2020 compared with 2011, according to management consultancy McKinsey & Co.

Expanding in the health-care space will help UPS broaden its presence in a delivery market to which the company has historically had limited access. China’s government allows UPS to deliver express packages to 19 cities in China, a fraction of a huge market where state-owned China Postal Express & Logistics Co. dominates.

Mr. Barber said UPS executives also will hunt for opportunities to expand its express-shipping business in China, aiming to open in new cities or potentially acquire local companies that would provide new delivery routes for the company.

Industry watchers said that homing in on the health sector would benefit UPS in China’s health-care logistics market, which is fragmented in comparison with the U.S., with many competitors holding market shares that are 2% or smaller and the largest pharmaceutical distributors holding a total share of 30% to 40%, according to McKinsey. The largest distributors in the U.S. control approximately 90% of the health-care logistics market, McKinsey said.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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