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spk06: Good day and welcome to the ZTO Express Second Quarter 2023 Financial Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Sophie Lee, Company Secretary. Please go ahead.
spk05: Thank you, Operator. Hello, everyone, and thank you for joining us today. The company's results in the investor relations presentation were released earlier today and are available on the company's IR website at ir.cto.com. On the call today from CTO are Mr. Mason Lai, Chairman and Chief Executive Officer, and Mrs. Hui-Ping Yan, Chief Financial Officer. Mr. Lai will give a brief overview of the company's business operations and highlights, followed by Mrs. Yan, who will go through the financials and guidance. They will both be available to answer your questions during the Q&A session that follows. I remind you that this call may contain forward-looking statements made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based on management's current expectations and current market and operating conditions and relate to events that involve known or unknown risks, uncertainties, and other factors, all of which are difficult to predict and many of which are beyond the company's control. which may cause the company's actual results, performance, or achievements to differ materially from those in the forward-looking statement. Further information regarding this and other risks, uncertainties, and factors is included in the company's filings with the U.S. Securities and Exchange Commission. The company does not undertake any obligation to update any forward-looking statement as a result of new information, future events, or otherwise, except as required under law. It is now my pleasure to introduce Mr. Mason Lai. Mr. Lai will read through his prepared remarks in their entirety in Chinese before I translate for him in English.
spk03: with a growth of 23.8%. The market share has expanded to 23.5%. At the same time, through the optimization of the revenue structure and the strengthening of the process, we have refined the management and improved the overall operating efficiency. The operating efficiency has achieved a net profit of 25.3 billion yuan, with a growth of 43.9%. Compared to last year, the number of low-cost vehicles affected by the epidemic in the same period, the overall business volume of the express delivery industry in the second quarter of this year has increased by 20.9%. In the industry, the focus of each brand and group is different in terms of scale and profit. There is a difference in the amount of cars in the competition. The Chinese Communist Party's constant pursuit is to continue healthy development, focus on achieving long-term goals, and self-competitive advantages. In the second stage, we steadily recommended and implemented each specific work, and thus achieved good results. First of all, we strengthened the construction and talent development of the team. Through systematic assessment, we were able to achieve high-quality and fast delivery. The new power of the operation team in the audit management area has grown. In the context of academic fluency, the fighting power of the management personnel can be further improved. Second, we have improved the performance of our U本真校. In the second system, we continue to promote standardization operations, further optimize and optimize assessment systems, and improve the ability of process data tracking to catch up with people. In addition, we have found more effective abnormalities. with targeted optimization and modification to quickly solve problems. Thirdly, we will further plan and promote the application of quantum-type tools to resolve the rationality of the price and cost distribution between the selection center and the market, effectively increasing the level of profitability of the whole market, and further opening the gap of the leading industry. In the first half of 2023, With the recovery of the Chinese economy in the post-pandemic era, the express delivery industry has grown rapidly. Although low-price competition still exists, the pattern of the express delivery industry has changed dramatically. The market style brought by low-price competition is often unsustainable. At times, the recognition will not last. We can clearly see that high-quality service, stable network, efficient operation, to make the courier industry stronger and bigger. The competitive strategy of the CPC is to protect the economy, grasp the bottom line, focus on ourselves, and work hard. We will continue to advance the following four key tasks on the basis of safety operations, based on the stable and stable competition of the self-development rhythm of our own. First, to improve service capability, to improve the effectiveness of all networks, For a certain scale and above, in the infrastructure, safety and regulation, service quality, information management and other aspects, fully replenish, improve the business quality and responsibility of the end point. Fourth, accelerate the deployment of the end point agenda, build a public platform for service and the entire industry, reduce the cost of the industry, improve the service capability of the upper door, strengthen the connection with consumers. The trend of macroeconomic development is definitely going up. The gradual fluctuation has brought deep-dive potential and the wisdom to create and continue to establish. The development of the Chinese express industry and the evolution of competition are key points. We are very clear about what advantages we have, what we can do, and what we need to change. The spirit of innovation and entrepreneurship, accompanied by our shared industrial culture, will drive us to use it as a driving force for the local community, to use the technology to improve business efficiency, and to create absolute competitive advantages. To answer the questions of the people, to welcome the arrival of the couriers. Next, let's ask Director Yan to introduce the financial industry and the situation of the central government.
spk05: Hello, everyone. Thank you for joining today's conference call. In the second quarter of 2023, while maintaining a high level of service quality, ZTO grew its volume by 23.8% year over year with a total of 7.68 billion pesos, further expanding our market share to 23.5%. Meanwhile, Through enhanced revenue structure and process management, we improved overall operational efficiency and achieved an adjusted net profit of $2.53 billion, representing a 43.9% year-over-year growth. Relative to a pandemic-affected low base of last year, the express delivery industry's overall parcel volume grew 20.9% in the second quarter of this year. Depending on varied priorities for scale and profit, each brand implemented different competitive strategies. VTO has consistently pursued sustainable, profitable growth, focusing on long-term goals and competitive advantages. In the second quarter, we executed the following key task initiatives, which helped generating solid performance results. We revamped the talent reserve program, and through systematic evaluation, quickly replaced those who could not keep up. With a strong talent pool and pipeline buildup under a compete, emulate, surpass atmosphere, our team of provision managers are becoming younger, yet more prepared to take on greater challenges. Second, we exceeded expectations on cost optimization. In the second quarter, we continue to implement operating process standardization and further refine our evaluation matrix to be more detailed and quantifiable. Our ability to correlate process data to specific behavior of a workstation or individual task operator improved. This enabled us to flex anomalies properly and effectively rectify problems with precision. Third, we refined the value cost to profit tools and further the implementation across the operational network. We sort through the methodologies for pricing, revenue, and cost of sharing between sorting centers and outlets. This effectively enhanced the profitability of our entire network and further widened our industry lead. And fitted from post-pandemic recovery in the Chinese economy, The express delivery industry has resumed the healthy growth in the first half of 2023. Despite price for volume behaviors that are still present, the evolutionary trend of the industry's dynamic is very clear. Market share gains through low price competition is often unsustainable and in many cases lead to more detriments than gains. We are convinced that high quality of services, robust infrastructure, and efficient operations are crucial ingredients to a scaled and strong express delivery enterprise. ZTO's competitive strategy is to maintain flexibility to be offensive or defensive, locking bottom line and focus on developing our own capabilities from the long run. We will adhere to our own pace and effectively establish and strengthen our competitive barriers. With mindfulness on operational safety, we will keep digging deep trenches in the following four key areas. First, improving service capabilities by focusing on end-to-end timeliness. Streamline and improve operational efficiencies through process standardization. Establish more direct linkage among sorting centers, outlets, and last mile posts, ultimately reducing sortation frequency. Second, expediting the implementation of last-mile initiatives and encourage network partners to pass on market pricing to couriers so as to incentivize responsiveness for pickup and delivery. Increase non-e-commerce package volume. Hence, enhance the profitability of outlets and couriers. Third, for those outlets whose volume exceeds certain thresholds, We will increase attention and managerial support to help developing infrastructure, implementing safety measures, enhancing service quality, and digitizing information and management, improving operational efficiencies and last-mile connectivity. Fourth, expanding last-mile presence and transforming Two Seat Life Plus into a shared solution for every industry player to reduce last-mile costs. enhance in-person service capability and connection with consumers. Long-term microeconomic development will undoubtedly trend upward, and cyclical fluctuations only provide opportunities for long-term value seekers to explore potential and build endurance. The competitive dynamics of Chinese express delivery industry have entered into a critical development We are fully aware of our own strengths and advantages. We know what we can do and understand what needs to change. Innovation and entrepreneurial spirit are embedded in our shared success culture, propelling us to create value first for others and the society. Leveraging the power of technology, we aim to enhance operational efficiency. forge a distinct set of competitive advantages, formulate solutions for over 100 million a day puzzle volume, and usher in payback and prosperity for express delivery participants and investors. With that, let's welcome Ms. Yen to review our financials. Ms. Thank you, Chairman Lai.
spk07: Hello to everyone on the call. As I go through our financials, please note that unless specifically mentioned, All numbers quoted are in RMB, and percentage changes refer to year-over-year comparisons. Detailed information on our financial performance, unit economics, and cash flow are posted on our website, and I'll go through some of the highlights here. In the second quarter, DTO maintained profitable growth thanks to sound execution of our consistent corporate strategies. A parcel volume increased 23.8% to $7.7 billion, growing the quarterly market share by 0.5 points to 23.5%. The adjusted net income grew 43.9% to $2.5 billion. Total revenue increased 12.5% to $9.7 billion. ASP for the core express delivery business decreased 7.8% or 10 cents mainly driven by lower average weight per parcel, increases in volume incentives, and a mixed shift impact from decrease in KA volume, whose revenues are recorded to include delivery fees. Total cost of revenue was $6.4 billion, which decreased 0.3%. Combined unit cost of sorting and transportation decreased 15.7%, or 12 cents. Specifically, line haul transportation cost per parcel decreased 14.7% to 42 cents, mainly attributable to better economies of scale, optimized line haul route planning, improved load rate, and decreased fuel costs. Unit sorting costs decreased 17.4% to $0.25, driven by scale leverage, increased level of automation, improved standardization in operating procedures, and optimized performance evaluation systems. Growth profit increased 50.0% to $3.3 billion as a result of increased revenue and cost productivity gains. Gross profit margin rate increased 8.5 points to 33.9%. SG&A expenses, excluding share-based compensation as a percentage of revenue, dropped 0.1 points to 5.3%, demonstrating a healthy corporate cost structure and leverage. Income from operations increased 45.0% to $2.9 billion, and associated margin grew 6.6 points to 29.6%. Operating cash flow was $3.76 billion for the quarter, and EBITDA was $3.88 billion. Capital expenditure totaled $2.2 billion for the quarter, and we are anticipating annual CapEx to be in the range of $6.5 to $7.5 billion. We are on track to achieve another year of free cash flow. Now moving on to guidance. Taking into consideration the current market condition and our operating situation, the company reiterates that its annual volume guidance to be in the range of $29.27 billion to $30.24 billion, representing a to 24% increase year-over-year. Relative to the entire industry performance, the company remained committed to achieve at least 1.5 percentage point increase in volume market share for the year. These above estimates represent management's current view and preliminary assessment, which are subject to change. Now this concludes our prepared remarks. Operator, please open the lines for questions. Thank you.
spk06: We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then 2. In the interest of time, we ask that you please limit yourselves to two questions. Once again, that was star then 1 to ask a question. And at this time, we will pause momentarily to assemble the roster. And our first question will come from Ronald Keung of Goldman Sachs. Please go ahead.
spk02: Thank you, Lydon and Sophie. Congratulations on the very stable profit and loss, and the market share has also improved. Lydon, you just mentioned that the express delivery industry has reached a critical stage. We also saw that some of the players in the IT team in the industry have also made some relatively large price drops. How do we judge this time China China China China China China China China uh uh Thank you, management. Very quickly, management talked about the express industry reaching a critical point. while we have delivered very strong profit growth while increasing market share, but we have seen some of the smaller players starting to cut prices and become more aggressive. So do we see this as a temporary kind of act from these smaller players? Will this be extending into the fourth quarter peak season this year and how do we assess this round of price cuts from smaller players? Second is about service quality and our end-to-end delivery time. Could you share some of the metrics there and compare with peers, and how do we plan to widen our differentiation, not just from end-to-end time, but any value-added services or anything that we're planning to maintain our service leadership? Thank you.
spk03: Thank you for your question. Your first question is about the loss of price. Generally speaking, after September, the freight industry's volume will increase. It will increase by about 5% between September and July. It will increase by about 10% between September and October. It will increase by about 10% between September and October. It will increase by about 10% between September and October. It will increase by about 10% between September and October. It will increase by about 10% between September and October. It will increase by about 10% between September and October. It will increase by about 10% between September and October. It will increase by about 10% between September and October. It will increase by about 10% between September and October. In my opinion, the price will still be stable. Indeed, every year, in July and August, the price, the express price, is going down. The Chinese Communist Party has always maintained our strategy, which is the three balances of profit, market share, and service. Our annual profit is not bad. In fact, this year, we also have this strategy, which is After May and June, our policy is to continue the policy of March and April, without making too many adjustments. The second is how to maintain this advantage in the middle. You just mentioned the burden of responsibility. We always think that the advantage of express delivery is actually two aspects. One aspect is that your service quality and efficiency must be priority. The ability is strong, the service is good. The same price, your service level is higher than others. We are doing this work from two aspects. The first is in the transfer phase. In the transfer phase, we do as much as possible to make our sales better. The second is in the transfer phase, we do 30,000 plus. In the past, We are now trying to optimize the route of travel as much as possible to reduce the spread of cases. This will make it more efficient and cost-effective. The second page is to connect the starting point to the destination center, or the starting point to the destination center. Because of the volume of the President's speech today, some of the cities have already reached about 200,000 seats. Then our parts of the center, such as Guangzhou and Tsinghua, its ratio is about 10%, it can achieve this. Then if this network is built up, the third network is the connection between the starting point and the end point. In fact, it is a temporary neutralization. We now have two neutralizations mainly, two branches. So there are more than two times. In the future, we will gradually increase the frequency of one-time distribution and zero-time distribution, that is, point by point. This advantage will never be reflected. Secondly, we will pay more attention to the sense of achievement of the employees and increase their income, increase their sense of achievement and productivity. Then we will release it and use it as a starting point to make the employees have more time to provide the ability to come and go. We will also reduce the cost of the entire industry and provide personalized service at the same time. Thank you.
spk07: Thank you very much for your question. First question is really, in essence, about the trend of the pricing going forward. It is typical that during a year, around September and October, the pricing will be about 10 percent higher than August and July. Because of the seasonality of the year, Also in November, the price will further increase because the access capacities will then gradually be utilized. The pricing for the market during the second quarter fluctuation, we believe it's more driven by the seasonality. ZTO has consistently focused on the approach that is balanced across quality of services, volume and market share, and profit. Our principle is eliminating loss-making transactions. What we've done differently compared to some of our competitors is that we extended our policy from March and April into May and June instead of making changes to them. So maintained stability in our entire network. Your second question is relating to linkage First of all, we do have systematic plan on improving, first of all, our quality of services and timeliness, because under the same pricing, higher quality of services will attract more volume. What we've done in two aspects in our operational environment is that, first, each of the transit linkage we will push it to its extreme, improving productivity, improving correlation between different segments of our process of sortation, transportation, improving the route planning, and so on and so forth. Those are the typical initiatives that we have implemented all along. And then the second area, which is what we have referred to in the past called tri-layer throughput. In the past, our advantage is a better connection between the outlets and our sortation centers. Going forward and then really starting these past couple of years, we've been slowly but surely building the connectivity between initiation outlets to the destination sorting center and also amongst the outlets from origination and destination so as to develop those three distinct model of sortation because the ultimate goal is to reduce the number of sortation. What we've done recently is focusing more on helping our outlets to improve their processing capability, including equipment, automation, and also their work areas so as to ensure the transportation of larger trucks can go in and out to improve the linkage because then with certain level of volume in a group of outlets, they are capable of sending the packages directly, bypassing the origination center to destination center, or in some cases, i.e., the third layer, is to go from origination outlets directly to the destination outlet. Hence, this is zero sortation. We have more and more of our outlets or regions having higher volume which makes it possible for this tri-layer throughput model. For example, in Canton and Yiwu, they represent about 10% of our total volume, and many of their outlets having over 200,000 packages a day. And with those scale condition or scale prerequisites, we are in the process of establishing the third and the second and the third layer of transportation and sortation throughput. Nowadays, we have on average of two sortations, a little over sortations, which means some of the packages will go through sorting centers or two sorting centers. Going forward, our focus is to increase one sortation and also zero sortation, the level of decrease in the total sortation will allow us to not only improve timeliness, but also reduce cost. Aside from developing our own capability in operation, we are also focusing on the second area, which is the last mile development and also focusing on our couriers. The couriers are going to be incentivized because our outlets will pass through front-end market price to our couriers so as to encourage them to pick up and deliver more on time and more responsively and also increase non-e-commerce packages. To do that, As part of the supplement, we also work with our last mile presence development. Typically, the packages will go to sortation centers and the couriers would have to spend time and go pick up those packages from the sortation centers. With our scale and redesigned process in our operations in sortation, we are able to direct packages directly over to our last mile locations or post, which will save plenty of time for the couriers to mainly focusing on delivery. So their ability and their services to provide individualized attention to those customers who need door-to-door delivery will be greatly improved. And this will not only help our couriers, it will also help the entire industry in reducing last mile cost. As volume becomes higher going forward, which is a definite future, we do believe helping the whole industry as a solution with our last mile presence will most certainly help the entire industry's healthy growth. To sum it all, scale, stability of outlets, and our couriers' improvements in their earnings, as well as our outlets, become more stable because they are also earning more. These are the three focus areas for us to develop differentiated competitive advantage going forward. Hope that answers your question.
spk06: The next question comes from of Morgan Stanley. Please go ahead.
spk04: Thank you. Director Lai, Director Yan, Sophie, thank you for accepting my question. Congratulations to the company for continuing to achieve a relatively strong performance in the second quarter. I have two small questions. One is about competition and the other is about cost. Regarding the question of competition, I am also very happy to hear that Director Lai just mentioned that our competition strategy in May and June did not change much between March and April. Uh, uh, uh, uh, Does this mean that in the second half of the year, we will be more aggressive in the competition of share? Or do we think that the competitors may forget that there are some production problems, which may cause them to automatically lose share? At the same time, Mr. Lai also mentioned in the beginning that we will hold the bottom line. I just want to ask what our bottom line is. If the competition in the entire industry is more intense than imagined, our bottom line is whether it is share or profit. If there are some shortcomings in these two, Let me translate for myself. Thank you very much for taking my question and congratulations on a very solid second quarter results despite a very aggressive pricing competition in the industry. I have two questions. The first question is about competition. Very glad to hear that the company's strategy has not changed in the second quarter versus the first quarter to maintain a stable pricing. compared with some very aggressive competition from our peers. We noticed that in the second quarter, the market share gain of the company was 0.5 percentage point on a year-on-year basis. Considering management mentioned the target of 1.5 percentage point year-on-year market share gain, target remains unchanged. Does that mean we will be more aggressive in market share competition in the second half of this year? or it is because we think because of the utilization issue, some of the peers may lose market share because they don't have the handling capacity. And also, Mr. Lai mentioned earlier that we will lock in the bottom line. So what's the bottom line of the competition strategy if the market, the industry competition comes more aggressive than expected? And the second question is about cost. So very glad to see the second quarter unit cost drop was much significant than expected. earlier meeting management guided around five to seven percent percent drop in unit cost for the whole year so considering the second quarter we have achieved better than that what's the outlook for the second half of this year in terms of unit profit and also what's the outlook for the next two years
spk03: You just mentioned two issues. One is the competition and the other is the cost. Indeed, the price of the market has been very steady since the second quarter. We saw the financial report of the second quarter. In fact, our single-voting rate has dropped. In fact, as I said before, we have continued the competition order in March and April. From another perspective, our single-voting rate We didn't make any adjustments from the beginning of the year. In fact, from another perspective, if we make adjustments, there is a possibility that our body weight will increase one more point. This is no problem. It is considered from two aspects. First, China has to be a firm protector of the industry price. The second is that we ourselves have established it ourselves. Most of the entrepreneurs and employers of this express, in fact, if the price is too low for the development of the entire industry, the stability is actually bad. In the second half of the year, we think, because in general, the body weight in July and August is lower than in May and June. After September and October, the body weight will gradually recover and enter the high peak of the year. So this rich industry will be fully utilized. So in general, in fact, each company will, according to its own resource advantage, The price will gradually Overall, we think that the growth of the population is still wise. It is the first problem. The second problem is the cost. Indeed, the cost decrease effect is still very obvious. The main reason is that we have found a problem point. The second reason is that our responsibility is higher. Including the location of the border, the location of the old border, the reduction of the distribution of resources, and the management of the dam. This is related to the cost of all the roads. In the second half of the year, we still have confidence. There is still room for cost reduction. I mentioned earlier that we will try harder to reduce the distribution index. Now, the average distribution index is about 2.094. The distribution index should be increased by 0.25. If we reduce the distribution index by 0.14, it will be 0.25. If we reduce it by 0.2, it will be 0.95. Thank you very much for your question. First question is really about the price competition. In fact, surely we have observed that during the second quarter,
spk07: the price fluctuation becomes extremely volatile. From one perspective that we have done is, as I described earlier, we didn't change our pricing from May and June, from March and April all the way throughout to May and June, because indeed, as you look at our decrease in ASP, in essence, Aside from the objective reasons, we subjectively have allocated or given profit to the pickup and the delivery end. Our market share did only increase 0.5 points because we do believe that in the longer term, CTO with the largest scale and strongest competitive advantage, we are also taking on the role of a stable agent to ensure that the entire industry is stable and especially enduring the economic recovery. From our personal sentiment, we are all coming from the same place. We come from the villages and we all know that we are not trying to create detriments to anyone. We're just simply using up the excess capacity. So if we take on the price actions severely, it would, because of our scale and influence, will really impact the entire industry, which is really not what we intend to do. So we are hopeful that typically in starting in September, the volume will recover. and the whole industry will enter into a higher season. Its installed base and capacity will be utilized, and each of the players will become more sensible in matching their capacity and resources to their pricing strategies. One thing we've done differently now is that ZTO make pricing decisions based on the direction of our routes. which is more granular and we have more visibility. In other way, we have much greater flexibility in precision in making appropriate price decision. In the second half of the year, we are hopeful that the whole pricing trend will stabilize and the price will return and most likely. With regards to the 1.5 points target, We do believe there are still opportunities for us, and then we will strive to achieve our commitment. Second question on the cost side. What we've done is, aside from what we described earlier to provide better operational efficiency through some of the initiatives that we have implemented, we are also improving the direct linkage. So when we are able to quickly find issues and solve problems, we're becoming much more efficient on the call side. Some of the things that we are also doing, mentioned earlier, is our outlets are gradually being rerouted to pick up or to drop off to the nearest center in their vicinity instead of just geographically or organized by provinces. So the whole entire end-to-end timeliness is improving. This will certainly impact the cost. We do believe there is still more room for us to gain on cost productivity, as I mentioned earlier. Currently, we're about 2.09 times of sortation throughout the entire network. And each sortation will cost probably about approximately about 25 cents. So if we reduce the sortation by 0.1, that is 2.5 cents cost productivity gain. And we intend to further improve the linkage and reduce the sortation, hence, as I mentioned earlier, the tri-layer throughput model based on our scale will allow us to gain much greater cost productivity going forward. Thank you.
spk04: Thank you, Director Lai.
spk06: The next question comes from Thomas Cheung of Jefferies. Please go ahead.
spk01: Good morning, Manager Cheung. Thank you very much for accepting my question. 我的问题是关于 我们长期的一个发展的 想请问一下管理层 我们怎么看我们长期的一个 market share 就是市场份额的一个占比 然后从我们的 product mix 的角度来说 我们会怎么去看 在最近经济的不明朗的情况下 大家在那个 Thanks, management, for taking my questions. I have two questions. The first question is about our long-term market share expectations. Given that we have talked about the 1.5% market share gain, just want to see how our market share will be trending in the long run. And my second question is really about the parcel mix. Given that we are seeing some changes in the consumer behavior, given the macro backdrop, are we seeing the rate of the parcel is having some changes in terms of the heavy rate and the lightweight parcel, and how will that affect the cost per parcel trend? Thank you.
spk03: Thank you for your question. You have this scale, you will definitely get more and more market share. Because express delivery depends on service and price. Simply put, it's the same price. If your service is better than others, you will definitely get more users' trust. The same price, if the Buddha is better than others, there will be more and more market divisions. In fact, the market is public. The Chinese Communist Party has been very focused on two things. One is the advantage of the Buddha and the benefit of the Buddha. These three platforms. So we have been looking at it since the last world war. In fact, our three lines are very stable. We won't say The second one is that the express network is all-in-one. It can't just rely on the headquarter's ability. So the salesperson's position is different. We believe that China's express delivery will definitely create a market share. These two red lines, This is the first one. The second one is the problem of product delivery. We will follow the trend. In the past, we used to follow the trend. We used to eat, drink, eat, eat, drink, eat, eat, eat. Now, we follow the trend. In places where the food is good, our products may be poor. In places where the food is not good, for example, in the northwest and northeast of the southwest, there may be more products. We will follow Our resource matching is to determine the cost of collection. So it makes the efficiency of resources even greater. So the load capacity of the vehicle, the efficiency of the equipment used in the factory, the efficiency of the equipment used in the factory, will be more accurate. In general, According to the second quarter of this year, in fact, our volume is relatively small. The weight of the product structure package has dropped. The whole industry, in fact, we also see, especially this year, all the third quarter of the year, in fact, the weight of the structure has dropped. This proves that more and more consumers
spk07: Thank you for your question. Your question really relates to the competitive strategy. So on that, ZTO has always focused on building our own competitive strength and remain stable and profitable, remain focused on stable and sustainable profitable growth. The Chinese express delivery industry, it has been apparent that when you have cost advantage, you have scale, and you have high level of quality of services, you will attract greater market share. In essence, Express delivery is about value. It's a value proposition. With a level of high quality of services, customers will gravitate towards those who have high efficiency or low cost or reasonable cost. The market is fair. In the past, we have demonstrated and it is evident that when we focus on all three of our corporate focus, i.e., quality, services, market share, as well as our own profitable development, our market share continually improve and increase. We do believe that, more importantly, for an entire network to be healthy and growing, especially because in China the franchised model, we have been in all throughout our years focusing closely on the equitable allocation of career outlet and our company as a brand operator. Each of the players need to focus on fair allocation and sustainable growth going forward. We believe, if you reference to the developed market, in China there will be concentrated market share in a few players, and this has been the trend. We've been seeing the concentration in our market share in the past. several years. As long as you have a high quality of services, you are also building up scale and efficiency and differentiated competitive advantage. We believe the longer term market share concentration will continue to demonstrate itself. Second question relates to the product mix or parcel mix. Indeed, in the second quarter, we have observed that not only just us, including our competitive partners in the space, they also experienced lower parcel, average lower parcel weight. And this is indeed, as you have observed and mentioned, the consumer shopping behavior has been evolving and changing. towards more sporadic shopping. For us, some of our main e-commerce package production regions, the packages will be lighter, yet we believe more of the inland to the north and south, we are having our regions with more agriculture product coming up, for example, that will be heavier. As we are developing a pricing strategy based on routes, we will match the load rate of our transportation resources and our space, operational space and equipment with the sortation center as well as our network partners. And in that sense, determine what the appropriate pricing needs to be for a different set of product mix going forward.
spk06: This concludes our question and answer session. I would like to turn the conference back over to management for any closing remarks.
spk07: Thank you everybody again for joining us today. Sometimes it takes a step back to take two steps forward and we are maintaining our stamina in looking into longer term and also with our financial resources and our competitive strength, we have much greater flexibility in playing offensive or defensive going forward. Opportunities are ahead for us to look not just at the second half of the year when volume will increase. We're also looking forward to many years ahead where we will continue to take a leadership in profitable growth. Thank you again for your continued support, and we look forward to speaking with you soon.
spk06: The conference has now concluded. Thank you for attending today's presentation
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