YTO Employees' Action: a glimpse into China's fast-growing, yet sweatshop-like delivery service sector

Employees of logistics giant YTO Express have staged multiple protests in cities across China after the company announced its “reorganisation” of its high-end business service OTP Express in early October. Since 12 October, 7 collective actions broke out in cities such as Beijing, Chongqing and Shanghai. The largest-scale protest took place in Shanghai, hundreds of employees staged a sit-in on the staircase in front of YTO's headquarters, demanding the company to compensate its newly dismissed employees.  

It started with YTO stopping the operation of its so-called B-network “OTP Express”. On 12 October, it required OTP workers to either resign or transfer to a position in YTO’s core business, also known as the A-network, a move that would result in a lower income. In other words, it was a de facto dismissal. Workers were upset and protested at the YTO logistic centres in their cities, to demand compensation and provide them with labour contracts. 

The expeditious emergence of delivery service

YTO's industrial actions can be seen as symptoms of China's delivery service sector. As internet shopping becomes a trend, Taobao, Tianmao act as the major shopping platforms, delivery service also grows significantly and expeditiously. Major logistic enterprises such as ZTO Express, Yunda Express, YTO Express and STO Express have made up more than a half of the market share. 

Fierce competition due to low-added value and similar services

YTO Express was founded in 2000. Through its collaboration with Taobao, it grew rapidly in the beginning and became a flagship brand in the sector, However, the competition in the low-end market has become fierce in recent years and most delivery service providers have no choice but to lower than their price to maintain its market influence. To keep abreast with this trend, YTO aimed to conquer the middle & higher-end market and established its B-network OTP in 2016. B-network's target customers are those who are willing to pay more, for quicker, better services. YTO hoped that B-network could help it to build up its own brand, distinguish it from other low-end service providers and increase its competitiveness.

Yet, it also means that it entered direct duel against SF Express. SF Express has played a leading role in the business for years, serving mainly business customers, instead of individuals. Its service quality and profit are therefore far better than other logistic enterprises. In the developed cities, the market of express delivery service is saturated, the existing major players Fengniao, Meituan, New Dada have almost taken over the whole express delivery service of fresh food and groceries. B-network OTP was in an awkward situation to enter the new market. On one hand, it cannot compete with SF Express to win the high-end customers over; on the other hand, it cannot operate as efficient as other existing providers. Therefore, OTP had a hard time to gain market share in the first- or second-tier cities and failed in the end.    

A sizable but fragile sector: significant growth, meager profit

The true winners of the growth of delivery service sector are the internet shopping platforms and customers. The delivery services providers are trapped in the middle and exploited by the two ends of the supply chain and have little bargaining power. The price war introduced by the delivery services providers has a direct impact on the enterprises' profit. Starting from July 2018, YTO has reduced its order price for nine successive months. Just in the first half of 2019, its order price has dropped from 3.44 yuan to 3.26 yuan, a cut throat competition to further endanger its profit . Though it was considered to be a major service provider, it charged the lowest order price at 2.72 yuan, while SF Express charged 8 times higher at 21.65 yuan. Such a development model leads to the peculiar proportion between turnover and real profit. 

Due to market saturation and its nature of low sustainability, small- /medium-scale enterprises find it difficult to survive. Express delivery company Rufengda collapsed in mid-March, with debts of  70 million yuan. In April, several hundred of its employees and agents blocked its headquarters in Beijing. It shows how intense the competition in China’s express delivery business is and how smaller companies have already fallen by the wayside, when compared with major players like YTO. As the successive listings of SF Express and STO Express in recent years, the market is dominated by only a handful of major players and business climate is hostile to small-/medium-scale enterprises. They have no choice but to transform or to be taken over. 

Employees are the perfect victims of price war

To keep profitability in the midst of the price war, the enterprises must control the costs strictly. New technology, such as electronic ordering, automatic logistic centre is introduced to cut labour cost and further exploitative means are adopted. The most direct way is to pay extreme low wages to workers. Most delivery services suppliers do not offer basic wages, they pay workers by orders. Workers would be held accountable and lose their wages when an order is lost or when a customer complains. Through cutting workers' wages, enterprises minimize the fixed labour costs.

Undefined labour relation and unprotected workers

The labour dispute at YTO Express also illustrates the complexity of labour relation in the logistic and delivery service sector. The recruitment is either conducted by the station manager (an agent) or via online recruitment platform, it means the labour contracts are signed by an agent or an online platform, instead with the logistic company. The innovative model of online recruitment is a double-edged sword. It allows workers to simplify the job application procedure and to enjoy certain flexibility at work. However, it also gives way to enterprises to avoid their responsibility as employees and workers are often left unprotected.

Employed by an agent or an online platform, workers often encounter backpay and when they are involved in labour disputes, it is difficult for them to prove the legal responsibility. Furthermore, through labour agencies and online platforms, an employer could avoid paying pension insurance, unemployment insurance, work injury insurance, medical insurance,maternity insurance and housing fund for his employees. It means, an employee would encounter enormous difficulties when s/he claims compensation. Workers in this sector often face higher risk of work injuries. According to Shanghai Government's release on “Work injuries of logistics and express delivery industry occurred in the first half of 2019 in Shanghai”, 325 traffic accidents related to this industry happened in Shanghai between January and June 2019, killing 5 people and injuring 324. In 2017, a worker was killed in a traffic accident when he was handling an order for Meituan. However, the court ruled that the worker had no official labour relation with the delivery company and his employer could walk free from the court. So far, there has been no formal authority to regulate the complicated employment relation of delivery workers and the enterprises. The industry union has been very weak. Without genuine engagement from employers and effective collective contracts, workers often lose their cases at the labour arbitration.

Conclusion

China's delivery services industry might have witnessed an impressive growth in the last decade. However, many enterprises engage in a price war, sacrificing their profitability to earn market dominance and eventually lead to a race to the bottom. In recent years, many delivery enterprises went bankrupt and wage theft has become common. The relevant authority must act, strength its control to protect workers.