EMS, known in China as a high-end express delivery service, slashed its prices by 60% in some areas to expand its market share in the increasingly crowded industry. (Photo/Xinhua)

After Shenzhen-based SF Express (Group) Co launched its first economic-class delivery service, Express Mail Service, a high-end express delivery company, also announced a 60% cut in prices in several provinces of China, indicating that a price war among firms operating in the express delivery market was in the offing.

A source familiar with the matter said that EMS had launched its low price scheme earlier this month, which will spread to major cities across the country.

EMS is offering a special price of 8 yuan (US$1.25) per kilogram for e-commerce enterprises, a 60% cut lower than its original price. This rate change has brought EMS's product pricing at par with the rates charged by several delivery companies in China.

It was reported that EMS had not modified its pricing of 20 yuan (US$3.16) per package for several years, while it had once adjusted slightly the price for two or more packages in April 2010.

Industry insiders said that EMS's low-price strategy was aimed at creating a favorable response to the company when it got listed on the stock market. Currently, EMS has received approval for getting listed. However, due to a weak overall environment, it is still biding its time before it goes public.

Also, EMS's slashing prices will help increase its market share and is further expected to boost its share price and help the company avoid risk.

Reducing prices to gain market share has been a frequently adopted strategy by high-end express delivery companies. As the main competitive rival of EMS, SF launched its first economy class express service called "4 pieces," to expand its market share. The low-cost service mainly catered to off-site distribution, including products such as cosmetics, compact discs, milk powder and alcohol.

Industry insiders pointed out that the price adjustments carried out by domestic high-end express delivery companies were also in response to the entry of FedEx and UPS into China's express delivery market. Due to the high operating costs involved, the two international courier service providers will not be involved in ordinary express delivery services, but will focus on medium to high-end express delivery services.

Though EMS and SF have enjoyed several advantages in the domestic delivery market, such as healthy market share and sizeable personnel, they cannot afford to ignore the strong competition posed by these foreign express delivery giants.

Industry insiders said that EMS price cuts were expected to trigger a series of chain reactions. The owner of an express delivery company said that compared with EMS, most domestic express delivery companies were lagging, as far as penetration of service center networks and service standards were concerned.

EMS's price cuts to expand market share could result in greater pressure on domestic private courier service providers.