Founded in 2004, we have grown from a freight forwarding company to an integrated cross-border seaborne logistics service provider in China. The cross-border logistics service market in China is fragmented with the top 15 service providers holding only an aggregate 12.2% market share in terms of revenue in 2022. We ranked 15th with an approximately 0.2% market share in terms of revenue in 2022. In the early stage of our development, we gradually set our footprints in key ports in China and established branches in cities on the east coast to carry out our cross-border logistics service business. Being customer-centric, we closely follow customer demand and industry trends to expand our business scope and geographical coverage regions.
We focus on cross-border logistics services as our primary business line, and have accumulated vessel operation-related resources and capabilities through our time charter operation to strengthen our ability to provide cross-border logistics services. Our services cover all major aspects of the cross-border logistics process, including cargo pick-up and sorting, customs clearance, cross-border seaborne transportation, warehouse transit and last-mile delivery. Cross-border seaborne transportation is the key step in the cross-border logistics process. We offer cross-border seaborne transportation services that are operated by us or provided by third parties. For cross-border seaborne transportation services operated by us, we deploy our self-owned vessels or chartered-in vessels to provide services to our customers directly. For cross-border seaborne transportation provided by third parties, we cooperate with third-party shipping carriers to procure shipping space for our customers.
The cross-border logistics service industry is highly cyclical and characterized by a high degree of volatility in market freight rates. In addition, fluctuations in the general macroeconomic environment typically have a material impact on the cross-border logistics service industry. See “Industry Overview—Global Cross-Border Logistics Service Market—The Market Size of Cross-border Logistics Service Market—Discussion of Shipping Volume and Freight Rates from 2023 to 2027” for details. In addition, we have made substantial capital commitments on vessel purchase during and after the Track Record Period. Our purchases of vessels and containers involve significant upfront capital expenditures and there is a risk that we may not be able to generate or raise sufficient funds to meet such capital requirements as and when required. Please see “Risk Factors—We require a substantial amount of working capital to sustain our business” for details. In light of the current volatile market conditions, we may experience great fluctuations and uncertainties in our operations and prospects in the next two or three years. In particular, if the market conditions significantly deteriorate, our revenue generated from both cross-border logistics services and time charter operation as well as our profitability are expected to decline, primarily because it is likely that the market freight rates will decrease and there will be reduced demand for vessels, which affects both of our business lines.
As of April 30, 2023, we had purchased four second-hand container vessels to gain vessel operation–related resources and capabilities. In June 2022, to further expand our fleet of vessels, achieve economies of scale and enhance our competitiveness and profitability, we entered into two shipbuilding agreements to order two first-hand ultra large container vessels, each with a capacity of 14,700 TEUs, at a total consideration of US$281.0 million, which, upon expected delivery in 2025, will be able to operate on a variety of major routes given their good adaptability. In July 2023, we entered into a memorandum of agreement to purchase another second-hand vessel with a capacity of 13,802 tons to further expand our shipping capacity and to take advantage of the favorable vessel prices in light of current market downturn. The vessel was delivered in August 2023. In view of the diverse needs of our customers, we have procured containers with different specifications and functions to provide different transportation services. Please see “Business—Our fleet of vessels” and “Business—Our containers” for details. In addition, we have established stable cooperative relationships with a number of overseas supply chain companies to integrate their warehousing resources and transportation network to support the warehouse transit and last-mile delivery process.
With the rapid development of internet technology, cross-border logistics customers continue to have increasing demand for online services. In 2015, we established Lcang.com (樂艙網) as an internet service system for our cross-border seaborne transportation service and further enhanced our service coverage by acquiring Shanghai Sijin in 2019. Our internet service system is centered around our central interface containing Lcang logistics data and synchronizes data from our internal ERP system and external third parties, therefore capturing and fulfilling customers’ and suppliers’ needs. In addition, our internet service system has enhanced our operational efficiency by enabling us to gain timely insight into customer and market demand and adapt our service offering strategy, which help us improve service solutions, attract new customers continuously and grasp the future development trends in the industry.
With the increased penetration of internet services, the global e-commerce market has experienced rapid growth in recent years. The outbreak of COVID-19 has also changed consumer habits in overseas countries significantly and accelerated the transition of consumption pattern from traditional offline shopping to online channels and platforms, promoting further development and expansion of the global e-commerce market. In addition to maintaining our traditional customers, we actively engage in attracting cross-border e-commerce customers in response to the rapid growth of China’s cross-border e-commerce industry. Relying on our internet service system and our professional understanding of cross-border logistics, we provide cross-border e-commerce customers with professional transportation and visualized tracking services. Our integrated cross-border logistics services are in line with the industry trend of Chinese brands’ going overseas and can effectively meet the transportation needs of cross-border e-commerce customers.
Due to the changing market conditions, which are not within our control, we need to promptly adapt our service offering strategy and adjust our business focus accordingly, i.e., we may need to be flexible and cautiously allocate our shipping resources between our two business lines based on market conditions from time to time. For example, we commenced self-operated cross-border logistics services when market freight rates went up in 2021 and 2022 to capture the market opportunities resulted from a shortage of shipping supply. As a result, we were able to achieve significant growth in revenue and gross profit in 2021 and 2022 in large part due to our expansion into such service offering taking advantage of conducive market conditions at that time. Our revenue grew from RMB781.5 million in 2020 to RMB4,195.4 million in 2021, and further to RMB4,607.9 million in 2022; and our gross profit increased from RMB63.8 million in 2020 to RMB456.8 million in 2021, and further to RMB545.3 million in 2022. Our gross profit margin also increased from 8.2% in 2020 to 10.9% in 2021, and further to 11.8% in 2022. However, as market freight rates decreased significantly since the second half of 2022, we have paused the offering of self-operated cross-border logistics services. Our last shipment through self-operated cross-border logistics services arrived at its destination in Mexico in December 2022. We did not provide self-operated cross-border logistics services in 2023 up to the Latest Practicable Date, which we do not consider to be a material change in our business model (our fundamental business as a cross-border logistics services provider has remained the same), but instead an adaptation of our service offering strategy and a timely adjustment in our current business focus in response to the significant changes in market conditions. According to Frost & Sullivan, such timely adjustment in business focus in light of the drastic changes in the recent market conditions is not uncommon in the logistics service industry; for example, other peer companies in the logistics service industry have also scaled down their self-operated cross-border seaborne transportation services or similar operations in 2023. We will continue to monitor the prevailing market freight rates, proactively assess our customer demand and remain open to offer our self-operated cross-border seaborne transportation services as and when the conditions are favorable for us to do so. Our revenue and gross profit decreased from RMB2,011.1 million and RMB259.0 million, respectively, for the four months ended April 30, 2022 to RMB453.8 million and RMB113.7 million, respectively, in the same period in 2023; while our gross profit margin increased from 12.9% to 25.1% between the two periods mainly because of the increased proportion of revenue generated from time charter services, which had higher gross profit margins.
We will not be able to maintain our growth through our self-operated cross-border seaborne transportation services as we did in the past. In 2022, we recorded revenue from self-operated cross-border seaborne transportation of RMB2,603.1 million, which accounted for 59.3% of our revenue from cross-border logistics services in the same year. We also recorded gross profit from our self-operated cross-border seaborne transportation of RMB366.4 million with a gross profit margin of 14.1% in 2022. The gross profit margin of the self-operated cross-border seaborne transportation was generally higher than that of the cross-border seaborne transportation provided by third parties, and our overall gross profit margin of cross-border logistics services was 9.4% in 2022. As we have paused the offering of self-operated cross-border seaborne transportation so far in 2023 and will resume as and when the market conditions are favorable, we may not generate any meaningful revenue from this business line this year as the market conditions are beyond our control. Furthermore, solely for the purpose of illustration, based on the assumption that prevailing market conditions for the rest of 2023 will remain unfavorable for us to provide any self-operated cross-border seaborne transportation services, we expect that our overall gross profit margin of cross-border logistics services in 2023 will moderately decline from that in 2022 and return to the level in 2020, which was 6.9%, when we had not yet commenced any self-operated cross-border seaborne transportation services.
For the four months ended April 30, 2023, our overall gross profit margin of cross-border logistics services was 10.4%, representing a moderate decline from 12.1% for the same period in 2022. Additionally, our overall service volume of cross-border logistics services in 2022 was 355,663 TEUs, including a service volume of 255,613 TEUs of cross-border seaborne transportation provided by third parties and a service volume of 100,050 TEUs of self-operated cross-border seaborne transportation, which accounted for 71.9% and 28.1% of our overall service volume, respectively. For the four months ended April 30, 2023, our service volume of cross-border seaborne transportation provided by third parties was 78,862 TEUs, which was lower than the 88,086 TEUs in the same period in 2022 primarily due to favorable market conditions in early 2022, and our service volume of self-operated cross-border seaborne transportation was nil. Therefore, we expect that our overall service volume of the cross-border logistics services in 2023 will be lower than that of 2022. As a result, we expect that our revenue, gross profit and net profit will experience considerable decrease in 2023 as compared to our exceptionally strong performance in 2021 and 2022.
Source: LC Logistics (02490) Prospectus (IPO Date : 2023/09/13) |