BEST Inc. (BEST) CEO Shao-Ning Johnny Chou on Q2 2020 Results – Earnings Call Transcript


BEST Inc. (NYSE:BEST) Q2 2020 Earnings Conference Call August 17, 2020 9:00 PM ET

Company Participants

Shao-Ning Johnny Chou – Founder, Chairman and Chief Executive Officer

Gloria Fan – Chief Financial Officer

Conference Call Participants

Baoying Zhai – Citigroup

David Ross – Stifel Nicolaus

Ronald Keung – Goldman Sachs (Asia) LLC

Thomas Chong – Jefferies

Eric Zong – Macquarie Research

Hans Chung – KeyBanc Capital Markets Inc.

Operator

Good morning, and good evening, ladies and gentlemen. Thank you for standing by, and welcome to BEST Inc’s Second Quarter 2020 Earnings Conference. At this time, all participants are in a listen-only mode. Following management’s prepared remarks, there will be a question-and-answer session.

With us today are Johnny Chou, BEST Inc.’s Chairman and CEO; and Gloria Fan, Chief Financial Officer. For today’s agenda, Johnny will give a brief overview of business and operational highlights. Then Gloria will explain the details of financial results. Following the prepared remarks, you may ask your questions.

Please note this call is also being webcasted on BEST Inc.’s IR website at ir.bestinc.com. A replay of this call will be available after the call and Investor Relation – excuse me, an investor presentation is also available on the IR website.

Before it begins, I will read the Safe Harbor statement on behalf of BEST Inc. Today’s discussion will contain forward-looking statements. These forward-looking statements are based on management’s current expectations. They involve inherent risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond the management’s control. The company does not undertake any obligation to update any forward-looking statements as a result of new information, future events or others, except as required under applicable law.

Please also note that certain financial measures that the company uses on this call are expressed on a non-GAAP basis such as EBITDA, adjusted EBITDA and non-GAAP net loss. The GAAP results and the reconciliation of GAAP to non-GAAP measures can be found in BEST Inc.’s earnings press release.

Finally, please note that unless otherwise stated, all of the figures mentioned during this conference call are in RMB.

Now I would like to turn the call over to Mr. Johnny Chou, Chairman and CEO of BEST Inc. Johnny, please go ahead, sir.

Shao-Ning Johnny Chou

Thank you, operator. Good morning and good evening, everyone. Welcome and thank you for joining our earnings call.

With the height of the COVID-19 pandemic in China behind us, we made a faster-than-expected recovery as we benefited from the deeper and wider trends of digitalization for merchants and online shopping for consumers.

In the second quarter of 2020, we strategically targeted both top line growth and profitability while enhancing efficiency across our businesses. As a result, we continued to gain healthy volume growth while lowering costs in our Express and Freight segments and improved our gross margin by 0.9 percentage point year-over-year, despite challenging market dynamics.

We also continued to make strong progress in Store+, which resulted in a significant reduction in losses. We are confident that we have developed the right business model for Store+ that would bring a positive impact to the company’s revenue growth and profitability.

Our momentum has also been strong for Global, driven by robust demand in Southeast Asia, and further boosted by our entries into the markets of Malaysia, Singapore and Cambodia during the second quarter.

Now let me share some insights on the business. First, our core logistics and supply chain units. Strategically, in line with our company-wide pursuit of balanced top line growth and profitability, we continued to emphasize business integrations, synergies and efficiencies. We promoted e-commerce-related transactions across all business units, and achieved strong business-to-consumer order growth during the quarter. We also made progress on enhancement of service quality through strengthening network flexibility, density of last-mile service outlets, and finally, the overall customer experience.

For Express, despite intensified market conditions, we were successful in maintaining our position as one of the top-tier players in the market. Through our continued efforts of cost reductions and enhanced quality of service, our parcel volume increased by 19.3% year-over-year to 2.3 billion, representing market share of 10.7% during the quarter, and improving 0.2 percentage point compared to the first quarter. We also achieved gross margin expansion of 0.9 percentage point year-over-year, as average cost per parcel decreased by 21.5% versus last year.

Going into the second-half of 2020, we remain focused on increasing market share, investing in automation and further integrating dynamic routing with Freight to enhance operational efficiencies and improve profitability.

Our Freight business achieved great results in the second quarter. We continued solidifying its leadership position and achieved delivery volume of over 2.2 million tonnes, growing 28.9% year-over-year, which was significantly higher than industry-wide average.

Average cost per tonne decreased by 21.1% year-over-year, leading to a strong gross margin of 8.9%, a record high and 2.5 percentage points higher compared to the same period last year. This was driven primarily by our focus on e-commerce products, economies of scale, and continuous network optimization and operating efficiency.

Let me provide a little bit more color on the LTL, or less-than-truckload freight market, and our positioning within this market. Overall, LTL is a large market. Traditionally, the demand for LTL freight services was primarily B2B for manufacturers and wholesalers. But since last year more demand has been e-commerce related.

Our LTL services have experienced robust growth driven by increasingly more large-sized e-commerce products, our network penetration into lower-tier cities to serve its strong consumption growth, as well as further market consolidation that has benefitted top-tier players such as BEST Freight.

In the second-half of 2020, we expect Freight to continue to grow in the 30% range. We are also confident we can continue to optimize our cost structure through economies of scale, automation, and transportation cost reductions by working on areas such as efficiency improvement of our hubs and sortation centers, while realizing additional synergies with our other businesses.

Moving to BEST Supply Chain Management. Strategically, we view it as a central component of our core supply chain and logistics units, and therefore, will continue deepening the integrated service model and promoting cross-selling between business units.

Operationally, we target expanding franchised Cloud OFC business and projects with higher margins and clients with strong credit profile. As a result, its second quarter gross margin increased by 0.8 percentage point year-over-year to 9.7%. The total number of orders fulfilled by Cloud OFCs increased by 28.5% year-over-year to 111.3 million in the second quarter, of which total number of orders fulfilled by franchised Cloud OFCs increased by 46.4% year-over-year to 53.7 million. The number of franchised OFCs increased by 25.9% year-over-year to 326 million. The number of franchised OFCs increased by 25.9% year-over-year to 326.

BEST UCargo, our fast-growing online full-truckload brokerage platform. Following the effort, we started in the first quarter, we further expanded our brokerage model and added more small and mid-sized enterprises. The number of registered drivers on the UCargo mobile app increased 141.9% year-over-year to over 244,000.

Total number of transactions on the trucking brokerage platform increased by 19.8% year-over-year. We plan to bring many more drivers and SMEs directly onto the platform in coming quarters, and consequently further increase the number of transactions.

For BEST Store+, we continued our strategic initiative of transforming this unit to be more asset-light by focusing on growing high quality membership and franchised stores through a partnership model. With ongoing acceleration of business moving online, merchants and store owners have strong demand for digitization and online business expansion, while improving the supply chain efficiency.

Earlier this year, we started adopting this strategy to accelerate the growth of membership and franchise stores onto Store+ platform, while addressing the margin improvement and efficiency in fulfillment cost.

During the quarter, we continued to optimize the operation of our branded stores and refine our centralized procurement model in order to achieve a better cost structure and higher margins. As a result – as such, gross profit margin of BEST Store+ improved by 2.5 percentage points year-over-year to 13% in the second quarter. We are confident that we have the right asset-light model for Store+ that would bring a positive impact to our group’s revenue growth and profitability.

For BEST Global, we achieved strong second quarter result, driven by continued growth in Southeast Asia. Parcel volume in Thailand increased by 95% quarter-over-quarter to approximately 10 million, while parcel volume in Vietnam increased by 54% quarter-over-quarter to 5.75 million. We also launched express delivery services in Malaysia, Cambodia and Singapore, marking another significant step forward in building an efficient logistics network with extensive coverage in Southeast Asia.

Looking ahead, we are committed to delivering high-quality growth in a challenging market environment. We will maintain a balanced growth strategy and strive for profitability by continuing leveraging our technology enabled integrated supply chain and logistics service model, through emphasizing e-commerce, investing in technology application and automation, capturing revenue and cost synergies across multiple business units, and enhancing service quality.

Now I would like to turn the call over to our CFO, Gloria, to walk you through our second quarter financials. Thank you.

Gloria Fan

Thank you, Johnny, and hello to everyone. As Johnny clearly laid out, we delivered a solid quarter through operational excellence and execution, with a difficult macro environment and intense competition of the industry. As we progress through this period of great economic uncertainty, we have ample liquidity, a strong balance sheet and a keen focus on cost management.

I will now provide a brief review of our second quarter 2020 financial results. Given the limited time on today’s call, I will be presenting some abbreviated financial highlights. I encourage you to read through our press release issued earlier today for further details.

We focused our efforts on sustainable growth during the second quarter. While our revenue contracted slightly by 4% year-over-year, we achieved non-GAAP net income of RMB11 million, higher than RMB6.5 million in the same period 2019. If excluding the interest expense of convertible bonds, our non-GAAP net income would have been over RMB 20 million.

Our Gross Margin was 6.8%, an increase of 0.9 percentage point year-over-year, due to improved operating efficiency which resulted in continued cost reductions. Adjusted EBITDA for Q2 was RMB158 million, compared to RMB148 million of the same period of 2019.

Q2 Adjusted EBITDA for core logistics and supply chain business was RMB291 million, compared to RMB298 million for the same period of 2019. Additionally, we generated net operating cash flow of over RMB700 million during Q2 compared to the RMB334 million of the same period of 2019, as we recovered from COVID-19 and our Express and Freight volumes have grown significantly from Q1 2020.

Our robust cash flow from operations led to a strong balance of cash and cash equivalents, restricted cash and short-term investments of RMB5.1 billion, which provides us a solid financial position for future growth.

Next, moving onto key financial highlights for our business units. On a year-over-year basis, Q2 revenue for BEST Express decreased by 5% to RMB5.2 billion, primary due to a 21% decrease in average selling price per parcel, offset by a 19% increase in parcel volume. The drop in ASP was due to competitive market dynamics. The cost per parcel decreased by 21%, mainly due to improved operating efficiency and network optimization, which resulted in lower last-mile, transportation, labor, lease and other costs. Adjusted EBITDA for BEST Express was RMB189 million compared to RMB216 million for the same period of last year.

BEST Freight’s Q2 revenue increased by 4.5% to RMB1.4 billion, primarily due to a 29% increase of freight volume and offset by a 19% decrease of ASP per tonne. Adjusted EBITDA for BEST Freight was RMB73 million, which was more than doubled compared to RMB31 million for the same period of last year.

Q2 revenue for BEST Supply Chain Management decreased by 15% to RMB510 million, primarily due to a decrease in transportation service revenue as we strategically target higher-margin customers. Adjusted EBITDA for BEST Supply Chain Management was RMB5.7 million compared to RMB14.4 million for the same period of last year.

BEST UCargo’s Q2 revenue decreased by 6% to RMB493 million, due to a shift from key accounts to small and medium enterprise business. Adjusted EBITDA for BEST UCargo was negative RMB17.5 million compared to positive RMB5 million for the same period of last year.

BEST Capital’s revenue decreased by 13% compared to Q2 2019 due to our more stringent credit control policy. Its Adjusted EBITDA was RMB41 million, compared to RMB32 million in the same period of last year.

Store+’s revenue decreased by 17% to RMB657 million, primarily due to ongoing efforts to enhance order quality to improve margins. Adjusted EBITDA loss for Store+ was RMB67 million, which was significantly lower compared to a loss of RMB102 million for the same period of last year.

Q2 revenue for BEST Global was RMB193 million, almost tripling from the same period of last year, as we continue our strong growth momentum in Southeast Asia. Adjusted EBITDA for BEST Global was negative RMB48 million compared to negative RMB32 million for the same period of last year as we continued our investment to ramp up operations in Thailand and Vietnam, and to launch our networks in Malaysia, Cambodia and Singapore.

Next, let’s look at major operating expense items. Compared to the same quarter of 2019, selling, general and administrative expenses increased by RMB28 million to RMB519 million. The increase was primarily attributable to losses on disposal of fixed assets due to upgrade of Express’s equipment.

R&D expenses decreased by RMB12 million to RMB48 million, which was primarily attributable to capitalization of certain R&D expenditure to intangible assets, as well as reduction in travel expenses. Please note, all of these expenses excluded share-based compensation. We will continue to optimize our SG&A and R&D expenses to improve our operating efficiency and we expect further benefit from operating leverage as our business grows.

CapEx in the second quarter was RMB424 million, or 5% of total revenue, compared to RMB381 million, or 4% of total revenue, for the same period of last year. In addition, we are working on cost improvement programs to streamline CapEx and reduce expenses. Our results in Q2 demonstrate that through consistently improving operating efficiency and expense management, we can well achieve balancing top line growth and profitability.

Despite this period of economic uncertainty, we are well positioned to grow our business and continue to drive value creation for our shareholders.

With that, we will now open the call to Q&A. Thank you.

Shao-Ning Johnny Chou

Thank you for joining the call, so we can open up Q&A right now.

Question-and-Answer Session

Operator

Thank you, sir. Thank you, ma’am. We will now begin the question-and-answer session. [Operator Instructions] And the first question we have will come from Baoying Zhai of Citi.

Baoying Zhai

Hi, good morning, Johnny and Gloria. Congratulations on the strong second quarter results. I have two questions. First is regarding the second quarter results on the Freight segment. I noticed a very strong transportation cost control in the second quarter. So, wondering besides the tailwinds from the toll waiver and the lower fuel costs, what’s the other reason behind the transportation cost coming down so much? Is it because of the product mix, leading to the lighter average weight, or anything else? Because it’s down almost 30% year-on-year in second quarter?

And my second question is regarding the competition strategy in the – for the Express segment, because we were intentionally slowing down a little bit in terms of the volume growth for better profitability and business sustainability. But looking forward, we are seeing more new entrants come into the battlefield. So, what’s our counter strategy? We still put the profit ahead of market share now? Or we are shifting our strategy to grabbing more market share in the next few quarters? Thank you.

Shao-Ning Johnny Chou

Thank you, Baoying. Thank you very much for questions. With regarding to Freight, yes, so second quarter, we actually benefited from multiple fronts, right? One is that, like, as you said, fuel pricing and also the government policy at earlier this year to combating the COVID-19 has waived the tolls for the highway. Even though it only benefited in April or few days of May, but that does give us a good cost reduction there.

But second, as you said, the product mix and the stronger growth also contributed to the cost reduction. We brought about 28% – more than 28% in the volume year-over-year, as well as our product mix. Our e-commerce-related product has increased. That typically has a lower weight on – and also have a higher income per kilograms in that. So basically, a combination of that.

And on second one for the Express, yes. So, we are continuing to drive for efficiency and the cost reduction, but meanwhile we want balancing the profitability and sustainability of growth rather than purely just for market share.

So, going forward, what we are going to do is, first of all, we continue to reduce cost, improve efficiency as we demonstrated quarter-by-quarter. Meanwhile, we want to see if we can have more synergies with our other business units such as Freight, that can share a lot of hot routes and a lot of other on costs. And so, synergies will be more applied to. In fact, that we already have saved a lot of money in last couple of quarters or last year for that reason. We’ve shared a lot of synergies with other business units.

So, moving forward, we continue to anticipate and expecting a strong revenue – stronger parcel growth, volume growth, as well as improved efficiency as well as the profitabilities.

Baoying Zhai

Johnny, thanks for your response. My follow-on the average weight of the Freight now in second quarter actually?

Shao-Ning Johnny Chou

Second quarter average weight is close to about 115 to 120. And typically, on the – yes, 120 – around 120. And typically, on the fourth quarter will be a little bit lower. Second quarter will be a little bit lower, third quarter will be a little bit higher. Reason is third quarter typically is a low season and….

Baoying Zhai

Yes.

Shao-Ning Johnny Chou

…we will probably give – get some heavier shipment to balancing our load on the truck. So [Multiple Speakers]

Baoying Zhai

How is the year-on-year trend on this?

Shao-Ning Johnny Chou

Last year, we – in 2019, we reduced that by about 10 kilograms in average for the Freight. This year, it’s probably going to be another 10. So, we are moving towards about 110 towards the end of the year. Yes.

Baoying Zhai

Okay, understood.

Shao-Ning Johnny Chou

Yes.

Baoying Zhai

And on the second question, may I further clarify with the target. So, in the next few quarters, we target to be in line with the industry growth, or we want to surpass the industry growth a little bit? I know we are very focused on the cost efficiency.

Shao-Ning Johnny Chou

Yes. So – okay. So, I think we have a – I guess what’s going to be industry growth, but we really don’t know exactly what’s the third quarter and the fourth quarter industry growth is going to be exactly. But presumably, it’s still going to be strong looking at the June number.

So yes, so our target for the third and fourth quarter is anywhere between 25% to 30% somewhere around – as we planned last year. So, we don’t exactly say we want to ahead of the market, because we don’t really know what’s the ahead of market is. But I think the 25% to 30% is fairly strong growth.

Baoying Zhai

Understood. Thank you so much for your time.

Shao-Ning Johnny Chou

Let’s put this way, we will grow faster than second quarter. Yes.

Baoying Zhai

Okay, understood. Thank you.

Shao-Ning Johnny Chou

Thank you.

Operator

The next question we have will come from David Ross of Stifel.

David Ross

Yes, good morning there, Johnny. Good morning, Gloria. On the Express business, I wanted to see what you think the floor might be on pricing. As the package volumes grown, we’ve been talking about this for the past couple of years. And again, in this quarter, average price per piece was down 21.5% year-over-year. How much lower can it go?

Shao-Ning Johnny Chou

Okay. Okay, good evening, Ross – David. I assume you’re in U.S.

David Ross

Yes.

Shao-Ning Johnny Chou

Yes. Okay. So, thank you for joining the call. You’re quite late there. Yes, good question. The Express floor – price floor, okay. So, this year, as everybody noticed, that’s like a much, much lower price comparatively from last couple of years. Last couple of years may have like price reduction in 10, 20 low teens. But this year, it’s quite large. Partially because because of COVID-19 – from the recovery of COVID-19 and people wanted to recover the network quickly, so probably lower the price.

Second is that also during the February, basically government gave the toll waivers and toll waiver – the toll waiver, basically, toll is about 30% transportation costs. Transportation is about 60% of the total – transportation – total cost for the parcel. So, you’re talking about 18% to 20% on cost saving on the toll waivers. And so they contributed also to the – lower the cost and some of the pricing – severe price reduction, which you have seen.

We anticipate pricing continue to go down, but it’s not going to be as steep as this, because essentially, all the – in end of the day, all your costs are going to be have a limitation, right, given that how much the fuel costs are going to be, given that how much toll, and everything else and that’s all going to be there, it’s not going to be disappear.

So yes, so that – so I think the cost reduction is still on going there. I mean, we’re still looking at the year-over-year cost reduction targets. But as it goes, the cost reduction is going to be diminishing return, right, because essentially, you perhaps hold out. But – and also, I think, the floor – the pricing floor is also going to be sorted out. I cannot tell you exactly what it is. Is that going to be $2 – below $2 or what it is?

But I can say is that cost reduction can continue. But – however, cost reduction is going to be slowing down. And I can say is that competition is still going to be there, but pricing is still going to be lower. But honestly, I don’t know where the floor is but I would anticipate that the floor is going to be lower than today’s, but not as much steeper as what we have experienced in the last quarter.

David Ross

That’s helpful. And then on the volume side at Express, it was up 19% year-over-year in the quarter. How did it progress through the quarter? Was April, not as good and then May and June are much stronger? And where do we sit here in July, just kind of frame that 19% for us? Is it actually better than that?

Shao-Ning Johnny Chou

Okay. Yes. So yes – so April, we actually grow about 14% or 13%. In June, we grow about 26%. So, looking at July right now, we are looking at about anywhere from 25% to 30%.

David Ross

Excellent. And then last question, just saw a headline about JD.com buying interest in Kuayue Express. Does that mean anything to the competitive landscape?

Shao-Ning Johnny Chou

Kuayue Express has no direct business overlap with us. They’re more on the high-end air travel, air-based parcels or the freight. So yes – so it will have a minimal impact to us.

David Ross

Great. Thank you very much.

Shao-Ning Johnny Chou

Thank you, David. Have a good evening.

Operator

And next, we have Ronald Keung of Goldman Sachs.

Ronald Keung

Thank you, Johnny, and Gloria.

Shao-Ning Johnny Chou

Hi.

Ronald Keung

So, few questions for me as well. Firstly, would be, just how – again on the Express pricing strategy. I mean, we’ve cut prices by 20% and parcel growth relatively was slower versus, say, the other Yunda’s and YTO that have cut prices by 30%, but kind of hanging in there with similar growth as ZTO in the second quarter. So, we could see how – what we’re choosing between kind of profitability and market share gains – and market share – in the second quarter?

I think into the second-half, given, I think, this is still quite a scale game, because we can’t grow materially slower. So, I think if you’re targeting in line growth with the industries, we expect kind of the ASP differential between you and the players to be more similar into the second-half.

So overall, price declines may be smaller for the others as well. But just that we will not be kind of pricing, kind of less – 10% less in pricing decline, maybe more – is that likely more that will be, kind of a bit following the rest in the second-half and then achieving kind of industry growth rates into the second-half is the first question?

And then for the second, could you kind of give us some metrics on your kind of franchisees – health of franchisees any kind of turnover ratios that you could share? And how are we seeing just these new entrants, including J&T that – that’s coming in? Do we see that could impact any of our kind of franchisees or the competitive landscape into the second-half? Thank you.

Shao-Ning Johnny Chou

Okay. So basically, you have two questions. One is about the second quarter pricing strategy and growth strategy. Yes, so as you rightly pointed out, our peer players, they actually had a steeper pricing reduction than what we had done partially, because we wanted to really improve the margin and have a profitability there.

Moving to the second quarter, we still wanted to maintain our strategy to balance volume growth, as well as the profitability. So, I don’t think we can – we aren’t going to meet the price just for the sake of share, because I think the more important currently is consolidating our ability to cost reduction and improve the quality in some other areas. This volume is always going to be there. If it is not here today, when you do a better job, you can always get it back.

So, I think, our strategy, to answer your questions, is not, we are not going to lower the pricing furthermore. In fact, if you look in the last couple of years, the sort of quarter end – towards the end of third quarter and fourth quarter, the actual price go up – goes up a little bit, because the high season everybody expecting huge volumes, much bigger than July. And July is typically the lowest season, July and August. So, fourth quarter, I think, the pricing is going to be not much lower, but I think it may be improved somewhat. That’s to my first question – your first question.

Second question is to the competitive landscape of new entries and – new entrants and these. As you all know, right, the market is very competitive. In the past 10 years, we are in this business. Every year, we have to invest a huge amount of money and efforts in upgrade automations and the sites and everything. And, in fact, if you build a site – if you’re looking for a new site, it take a long time as well. So, it requires time to build all the network and everything else.

So, I don’t really – I really don’t think that that new entrants will have a significant impact or – to our current business. Back to what you said about the stability of our franchisees, I think, of course, in this kind of competitive market when the pricing are lower, last-mile delivery fee are lower, some uncertainties or some kind of problems within the franchise network is anticipated.

However, we have done a good job in maintaining communication and actually working with the franchisees to make sure that they can also work with the company to weather through this competitive market. In fact, some of the franchisees through this – their cost reduction and efficiency improvements, they actually become stronger in competitiveness.

So, given that, I would say that the franchisees is really stable. We will see a few of them may have some problems in the May and June time when the delivery – last-mile delivery cost was lowered, but that was quickly stabilized. And so far, we don’t see major problems with the franchisee network.

In fact, as you said, new entrants comes in and we don’t see a – at least, I don’t aware a large amount of franchisees joining the new entrants, because they understood that it will take lots of effort to really get network up, so they rather be working with the company and BEST to further the develop of the – and the really to protect their investment in the past.

Ronald Keung

Thank you That’s very useful. Thank you for that.

Operator

Next, we have Thomas Chong of Jefferies.

Thomas Chong

Hi. Thanks, management, for taking my questions. I have a couple of questions regarding our domestic and international business. I think first, can management comment about our sorting hubs target in 2020? And also, our thoughts on increasing popularity, talking about the one hour delivery, any thoughts there?

And my second question is about our international business. How should we think about the next few years, KPI that we want to achieve, given a lot of geo-political tensions, as well as COVID? Thank you.

Shao-Ning Johnny Chou

Okay. Thank you, Thomas. I have a little bit difficulty to hear well on the first question. But I guess, your question is what’s our expectation of the number of hubs during the year, right?

Thomas Chong

Yes.

Shao-Ning Johnny Chou

If that’s the thing – yes. So, we right now maintain about self-operate about 87 hubs in all. There are some smaller hubs that we may want to consolidate, but we might want to open one or two [Technical Difficulty]

Shao-Ning Johnny Chou

So that’s the hub I answered. On the International front, I’ll give you a little bit color. One is that international actually growing very rapidly. So, like I just said, in the U.S., actually, the second quarter, we see our volume, both our volume and the bottom line actually improved much more than we expected.

Southeast Asia also growing very rapidly. As demonstrated on the second quarter, let’s say, our Thailand was growing about 90% quarter-over-quarter. Vietnam was like over 50% year-over – quarter-over-quarter. But we also see the new entry to the Malaysia, Singapore, they’re also growing very rapidly. So that’s the second front.

Thirdly is that what we really see is is that a big trend on the cross-border business. So, a lot of merchants, they open shops in Southeast Asia in Lazada shopping, et cetera. They actually purchased most of the products in China from Yiwu, from Guangzhou, Dongguan, et cetera, then we ship to the Southeast Asia.

And so our supply chain group – supply chain management group, they’re doing a lot of these works with, for example, with local government in Kunming, in Yunnan, Guangxi, Nanning to open the routes through the road transportation, through the land, through Vietnam and through the Thailand. Previously, most of these transportations are done through the sea freight or air freight, but now open another front through the land lines.

So, I would see – anticipate our supply chain is also going to be benefited lot over collecting products in China and over ship to land transportation or seas to the southeast Asia into the ground. So, we will continue to managing our cost structure. Initially, we have invested a lot of equipments and CapEx into Vietnam and Thailand, like we just did in China in the past. And actually, as the volume goes up, the per parcel cost goes down a lot. So, we’re anticipating two things, continue a fast growth on the top line and improvement on the per parcel cost to overall reduce the losses in the Global business. And hopefully, in the next year, we will see a much balanced result on that.

Thomas Chong

Thank you.

Shao-Ning Johnny Chou

Okay.

Operator

Hey, the next question we have…

Shao-Ning Johnny Chou

Thank you, Tom.

Operator

…thank you. The next question we have will come from Eric Zong of Macquarie.

Eric Zong

Hi. Joining management team, thanks for taking my question. I have two quick questions. So, one is regarding last-mile delivery fee in Express delivery business. So, we saw that last-mile delivery fee was 1.2 yuan per parcel, which was much lower than a year ago or so lower than the first quarter.

So just thinking about the longer-term, like I just want to know your view, like what’s the floor for last-mile delivery fee going for the second-half, or next year? And would you like maybe we can say last-mile delivery fee going below RMB1 per parcel over next year? Yes. Okay, that’s my first question.

And the second question is regarding your Store+ business spin off-plan. So, do you have any news on Store+ development?

Shao-Ning Johnny Chou

Okay. Yes, so last-mile reduced or compared quarter-by-quarter compared with last year, primarily driven by two, right? One is the volume growth, you get a more density for delivery. So definitely, your cost going to be – per parcel is going to be lower. Imagine the area where we’re getting one parcel or two parcel. So, cost-wise, it’s going to be improved.

The second is on – because of severe competition, more and more last-mile delivery is through the post, through the stores or some other kind of means, lockers, the parcel lockers and stuff like that. In the past, last year, I think only 35% of the parcel was delivered through the last-mile – other means of last mile, through lock box, through the other stores et cetera.

But this year, it already increased to 50% or 60% and, in fact, the portion is still increasing. But that has a much lower cost structure compared with delivery on the door-to-door, because think about a delivery person carry 50 parcels going to a lockbox, the cost is going to be much lower again, deliver 50 parcels into 50 families door-to-door. So that’s the thing.

So, your next – your question was where’s the floor? I think that has to continue lower. I cannot say that should be $1 or less. But what I’m saying the trend is continue to be gradually lower. As I said, the two last reasons or factors. One is increasing volumes lowered the cost, the second is more means of last-mile delivery versus in-person door-to-door type of delivery.

Would that be lower than RMB 1? It’s possible but I’m not going to guess when is it going to be. It also depends on the franchisees’ acceptance and stability. We want to maintain a healthy, stable last-mile delivery network and make sure that the franchisees are all stable and they can be of good services to our customers.

The second question you had was a spinoff of some of the business units. As you – we had said in several calls that the company, the management team continues looking for various ways to improve the shareholders’ value, as well as the business development, liquidity and the further development of business that we think is going to bring future growth opportunity for the company.

As we did for Freight, right, we’re the first one really in early 2012 started freight business. And we right now bearing the fruits of the six, seven years of development since last year, the Freight business is growing rapidly. It is also making profit and profitable. So, hoping that our international business, as well as our store business is going to contribute to our long-term growth and profitability.

Meanwhile, it created a lot of synergies between our – for example, our Store+ with our Supply Chains or the Global with our Supply Chain as well as Express and Freight. So hopefully, that’s the thing. So, we’ll continue to look at these opportunities. But we don’t have anything to report right now. I will certainly let you know when more is solid. So, Eric, thank you.

Eric Zong

Okay. Okay, thank you.

Operator

And next we have Hans Chung of KeyBanc.

Hans Chung

Good morning, Johnny and Gloria. And, George, thank you for taking my questions. So, I have two questions. First, still regarding our – the balanced strategy on the pricing and growth in Express. So, I think that your scale still matter a lot in Express industry. And then so my question is, how should we make sure – because I think going forward, it should be whether we can reduce our cost faster than the price decline, right?

So my – I think, going forward, how should we make sure we can continue to achieve the faster cost reduction without, I say, maybe just to keep the inline industry growth or maybe even slower and, as I say, in the medium to longer-term?

And then third question will be regarding the Thailand market. Can you give us like what kind of competitive landscape in the market, like what’s our market share now? What’s the unit economy so far? And what do we think about that in like, one to two years? Thank you.

Shao-Ning Johnny Chou

Okay. Thank you, Hans. You have two questions, I’m going to ask you – first question you had was on these strategy on pricing? Yes, so our pricing, as we said, we want to make sure that the pricing is in line with our cost reduction strategy, right? So, we want to make the margin improvement, as well as the profitability. So, we’re not going to say blindly follow the pricing on the market or the others.

As we demonstrate on second quarter, even though our volumes growth has been impacted somewhat 19% versus more than, market growth of more than 30%. But we have we’re maintaining a fairly healthy pricing. Our pricing is literally look at June number, second quarter, we’re pretty higher. We’re higher at the ASP than some of our peers.

So yes, so pricing side, we’ll maintain that strategy, right, doing the cost reduction, that means that we will improve our margin on that. So that lead to your second question, so what’s the cost reduction strategy, right? So, you say your pricing is based on your cost reduction.

Well, cost reductions from – mainly from four areas, right? Largest is transportation, because transportation, if you look at our second quarter, we have about less than RMB1 total cost, right? So, the transporting cost is about 60% of it. Given our third quarter, maybe even a little bit more than 60% of it, because the waiver for the toll everything is gone.

So, let’s say, transportation side. So, we have been doing a good job to continue to lower the transportation cost, primarily driven by three things, right, volume growth, of course, one of them, that’s most obvious. But second, really through a more dynamic routing.

We have R&D team for the industrial entering and they’re working on the system. We already have a system in place. So, they can dynamically really do a routing. So, make sure that our routing are most efficient. So that’s second. Use technologies, we’re using the automation for the routing efficiencies.

And the third is basically, synergies across with our other business units. For example, Freight volume is very large already. We are actually doing – currently, we’re doing like about 28,000 tonnes a day. That translates to, equivalent to a similar type of network of same sizable network as the Express.

So how do you combine some of these transportation routes, especially to remote area, a long-distance area, which timing or delivery of timing is not critical and you know what, you have two or three days to work on, how you’re combining them on some of the routing efficiencies to reduce the total cost for both Freight as well as for the Express.

So, we started a project last year for merging of Freight and Express on the transportation side. We just started. I think we have a lot more to go to make sure that the cost can be reduced. Meanwhile, the service level can be maintained, so not reducing the transit time or anything else and make sure our delivery time and transit time is going to be maintained. So that could be looking forward to – on reduce some more costs on that front.

Yes. So, story is on Thailand market, I’m sorry. The Thailand market, Thailand is actually, in the past, Thailand, actually the offline market it’s actually well-developed through like 30, 40 years of development. Off-market is well developed. But since a couple of years ago, I think I would say 2018, started the e-commerce growth very rapidly. Even though they only have 3% penetration online for the total consumption, but that’s growing every year, at 30%, 40% for the past couple of years.

So, I think that, that trend is only going to be accelerating. Our market position, we entered the market a little late, because there are several local players and some other international players already there. But however, our market share has been growing very rapidly. We entered the Thailand market in, I think, it was in early 2019.

So, we then basically landed the first group people of 2018 into Thailand, late 2018. We started building up the network in 2019 and start building on top of that. As on June, our peak volume already exceeded like 200,000 volumes and still growing very rapidly. So hopefully, by end of the year, we will be moving on much higher volume ground. Meanwhile, the market share is continued to be growing. We started 1 % towards the end of last year to now, it’s a little bit shy of 5%, but it’s still growing.

So, I’m sure that in next coupe of years, we will grow fast. Our basic philosophy or the strategy is that for the Southeast Asia market for every market we entry, we want to be on top three players in the next couple of years. So that’s our goal. And some maybe top two, some maybe top three and some maybe top one, but that’s just our strategy and target. Hans?

Operator

Well, at this time, we’re showing no further questions. We’ll go ahead and conclude the question-and-answer session. I would now like to turn the conference back – call back over to the management team for the closing remarks.

Shao-Ning Johnny Chou

Thank you for joining our call and we appreciate your support of BEST. Please reach out to our Investor Relations team if you have any further questions. We look forward to speaking to you soon. Thank you very much.

Operator

And we thank you, sir, and also to the rest of the management team for your time also today Again, the conference call is now concluded. At this time, you may disconnect your lines. Thank you again, everyone. Take care, and have a great day.

Shao-Ning Johnny Chou

Thank you.

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