How is ZTO leveraging AI to maintain technology leadership and empower various stages of the express delivery value chain?

AI integration has reduced missorting rates by over 60% in 25 sorting centers, automated over 70% of customer service tickets (reducing human escalations by 5 percentage points), and optimized last-mile dispatch, cutting transportation costs by 20% for large outlets. Future plans include upgrading voice customer service AI across 6,000 outlets within six months. “The combination of 3D digital twins and machine vision technology has been deployed across around 25 or so sorting centers, reducing the missorting rate by over 60%, while significantly lowering labor costs.”

What is the latest outlook on industry growth and competitive divergence, and what is the current status and profit level of the retail parcel business?

The industry is shifting to high-quality development, with market share consolidating among top players. ZTO aims for both volume and quality growth, strengthening cost advantage and service quality. The retail parcel business (reverse logistics) shows meaningful growth, with average daily volume reaching 9.7 million in Q1 and exceeding 9.4 million in Q2. Its unit profit remains higher than traditional e-commerce parcels despite slight price declines due to optimized unit costs. “Currently, the unit profit contribution of reverse logistics parcel remains higher than that of our traditional e-commerce parcels.”

ZTO

ZTO Express (ZTO) Q1 FY26 earnings call: guidance and Q&A

Q: What were the key drivers of Q1 cost efficiency, are full-year cost targets changing, how will diesel price hikes affect costs, and what is the outlook for pricing dynamics under anti-involution?

Q1 cost reduction was driven by automation, digitalization, and refined management, improving vehicle load rates and per capita efficiency. Full-year core transit costs are expected to decrease further, with a focus on end-to-end cost reduction. Diesel price volatility is expected to have limited impact in Q2 due to anti-involution-driven price recovery and fuel surcharges. Anti-involution policies have been effective, reducing low-price parcels and stabilizing pricing. “The price recovery driven by the anti-involution policies has largely offset the impact of high fuel costs, and certain provinces have absorbed rising diesel costs through fuel surcharges.”

Q: How should we envision the pace of Social Security promotion for delivery workers, and what is the quantitative impact on the network's cost?

ZTO welcomes Social Security implementation, aligning with anti-involution goals. While short-term per-parcel cost increases are possible, long-term benefits include enhanced network cohesiveness and reduced turnover. ZTO will proactively support policy implementation and help network partners cope with additional costs through ongoing cost reduction initiatives. “In the short term, the rollout of these policies may lead to an increase in per parcel cost. However, from a long-term perspective, establishing a more stable and secured employment system will enhance network cohesiveness, reduce workforce turnover, and further solidify the quality of our last mile services.”

Earnings call· Mar 2026 (Q1 FY26)· Industrials· May 20, 2026

Source: earnings call transcript

Executive summary

ZTO Express Q1 FY26 — Strong Volume Growth and Profitability Improvement

ZTO Express delivered strong Q1 FY26 results, driven by robust parcel volume growth and market share expansion, alongside significant improvements in operating efficiency and unit cost reduction in transportation and sorting. The company continues to align with anti-involution policies, focusing on high-quality development and leveraging AI for operational enhancements. Management remains committed to maintaining a healthy industry ecosystem and delivering consistent shareholder returns.

Highlights

Parcel volume grew 13.2% year-over-year to 9.67 billion, significantly outpacing industry growth.
Market share expanded by 1.2 percentage points, further solidifying leadership position.
Adjusted operating profit increased 22% year-over-year to RMB 2.6 billion (excluding non-operating items).
Combined unit cost of transportation and sorting decreased by RMB 0.06 year-over-year.
Retail parcel volume grew 65% year-over-year, optimizing product mix.

Concerns

Adjusted net income growth of 5.2% year-over-year was lower than adjusted operating profit growth.
Overall unit cost for the core express delivery business increased 8.8% or RMB 0.08, primarily due to KA cost increase.
Gross profit margin rate decreased slightly by 0.3 percentage points to 24.4%.
Income from operations margin rate decreased 2.9 points to 19.2%.

Guidance & targets

Category	Target	Timeline	Confidence
Full-year 2026 Parcel Volume Growth	10% to 13% year-over-year high materiality	FY26	High

ZTO operating KPIs by quarter

ZTO operating KPIs stated on its earnings calls, by fiscal quarter
KPI	Dec 2025 Q4 FY25	This call Mar 2026 Q1 FY26	Jun 2026 Q2 FY26	Change vs prior quarter
Parcel volume	—	9.67B Parcel volume reached 9.67 billion, up 13.2% year-over-year, significantly outpacing industry growth with market share expanding by 1.2 percentage points, further solidifying our leadership position. Source: earnings call transcript	10.49B Parcel volume reached 10.49 billion, up 6.5% year-over-year with market share expanding by 0.4 percentage points, entrenching our industry leadership position. Source: earnings call transcript	+8.5%
Daily retail volume	<10M In the fourth quarter, daily retail volume reached close to 10 million parcels. Source: earnings call transcript	~9.7M In Q1, average daily retail parcel volume reached approximately 9.7 million, which indicates a meaningful growth rate. Source: earnings call transcript	11.7M+ In the second quarter, average daily retail parcel volume exceeded 11.7 million, of which return parcels averaged approximately 9.8 million each day, increased approximately 80% year-over-year. Source: earnings call transcript	—

Operating figures the company stated on at least two of the calls shown, checked against each call's transcript. Click a figure to read the sentence. A dash means it was not stated that quarter.

Risks & headwinds

Potential increase in per-parcel cost due to Social Security implementation for delivery workers Short term

May lead to an increase in per parcel cost

Mitigation:Long-term benefits of enhanced network cohesiveness, reduced workforce turnover, and solidified last-mile services; ZTO will proactively support policy implementation and help network partners cope with additional costs through ongoing cost reduction initiatives.

Diesel price volatility due to Middle East tensions Q2 FY26

Prices increased significantly in March, then declined in late April

Mitigation:Price recovery driven by anti-involution policies and fuel surcharges have largely offset the impact; expected limited impact on total network-wide cost in Q2.

What to watch in Q2 FY26

Impact of Social Security implementation on per-parcel cost

Next quarter

Current Potential increase acknowledged

Target Stable or managed cost impact

Why it matters

This could impact profitability and network partner economics, a key focus for the company's shared success philosophy.

In the short term, the rollout of these policies may lead to an increase in per parcel cost.

Find out whether ZTO delivers this. Inve re-checks your case every morning.

Q&A highlights

What were the key drivers of Q1 cost efficiency, are full-year cost targets changing, how will diesel price hikes affect costs, and what is the outlook for pricing dynamics under anti-involution?

Q1 cost reduction was driven by automation, digitalization, and refined management, improving vehicle load rates and per capita efficiency. Full-year core transit costs are expected to decrease further, with a focus on end-to-end cost reduction. Diesel price volatility is expected to have limited impact in Q2 due to anti-involution-driven price recovery and fuel surcharges. Anti-involution policies have been effective, reducing low-price parcels and stabilizing pricing.

“The price recovery driven by the anti-involution policies has largely offset the impact of high fuel costs, and certain provinces have absorbed rising diesel costs through fuel surcharges.”

asked by Qianlei Fan · answered by Huiping Yan

2 min read 6 chapters

Detailed narrative

Industry Dynamics and Anti-Involution Policy

China's express delivery industry maintained overall growth with parcel volume up 5.8% year-over-year in Q1 FY26. Anti-involution policies continued to deepen, leading to pricing recovery and a return to rationality in competition. ZTO, as an industry leader, proactively upheld a healthy industry ecosystem by supporting these policies and committing to rational, value-driven competition, which provided a solid foundation for sustainable growth.

Operational Efficiency and Cost Advantage

ZTO achieved a RMB 0.06 year-over-year decrease in the combined unit cost of transportation and sorting, driven by digitalization and lean management. This included optimizing route planning, enhancing load efficiency, and improving fleet management, leading to a 10.5% decrease in unit cost of line haul transportation to RMB 0.37 and a 6.4% decrease in unit sorting costs to RMB 0.25.

The company expects core transit-related costs to further decrease for the full year, with a focus on end-to-end cost reduction.

Product Mix Optimization and Retail Parcel Growth

The company focused on optimizing its product mix, with retail parcel volume growing 65% year-over-year. This strategic shift towards higher-value retail parcels and reverse logistics is driving a structural change from single-channel e-commerce volume to a more diversified and improved value mix.

Average daily retail parcel volume reached approximately 9.7 million in Q1, with reverse logistics parcel volume exceeding 9.4 million average daily in Q2, contributing higher unit profit than traditional e-commerce parcels.

AI Integration and Digital Transformation

ZTO is deepening AI integration across its network to enhance operational empowerment. AI-powered solutions have reduced missorting rates by over 60% in approximately 25 sorting centers, automated over 70% of end-to-end customer service tickets, and reduced human agent escalations by 5 percentage points.

AI also optimized last-mile dispatch, cutting short-distance transportation costs by 20% for large network outlets and supporting tens of millions of daily retail parcel orders.

Shareholder Returns and Long-Term Strategy

Backed by strong profitability and cash flow, ZTO plans to refine its regular cash dividend and share repurchase mechanisms to optimize capital return structure and deliver consistent returns to shareholders. The company's long-term strategy prioritizes high-quality market presence, service, low end-to-end costs, and sound profitability, aiming for steady earnings growth for network partners, continuous wage improvements for couriers, and healthy longevity for ZTO.

Social Security and Workforce Welfare

ZTO welcomes the implementation of Social Security policies for delivery workers, viewing it as aligned with anti-involution goals to safeguard frontline workers' interests. While acknowledging potential short-term per-parcel cost increases, the company believes a more stable employment system will enhance network cohesiveness, reduce turnover, and solidify last-mile service quality in the long run.

ZTO will proactively support policy implementation and help network partners cope with additional costs.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.