Forwarders adapt to serve growing Chinese e-commerce market

Today we begin an analysis of trends in e-commerce with an overview of e-commerce growth around the world and a look at how airfreight forwarders are leveraging growing cross-border e-commerce volumes to boost airfreight consolidations. Tomorrow we’ll examine the way in which e-commerce is changing last-mile delivery to “last-mile pick-up.”

If you would like to learn more about the impact of e-commerce on the air freight and express industry, join us at the Cargo Facts Symposium in Miami, 10 – 12 October, where we will devote a session to just this subject. To register, or for more information, go to CargoFactsSymposium.com.

By the end of 2016, China’s share of e-commerce sales is expected to represent  47.0% of the world’s total, and be valued at US$899.1 billion, more than double the value of the total North American market, which is projected to reach $423.3 billion, according to the latest retail forecast from New York-based eMarketer. If estimates are correct, 2016 will be the first year the value of China’s e-commerce market is more than double that of the United States. More striking yet, by 2017, e-commerce sales in China will represent more than half the value of global e-commerce sales. Although not easily admitted, e-commerce is rapidly reshaping many parts of the supply chain as consumers increasingly turn to their PCs or phones, and opt for virtual shopping carts over bricks & mortar retail.

The shift away from traditional retail is clearly illustrated by the steady growth rate of the total retail market, which is paltry in comparison to the staggering growth of the e-commerce segment. Total retail sales were up 5.8% year-over-year in 2015 to $20.8 trillion, with 5.9% annualized growth expected through 2020 when the market is expected to hit $27.7 trillion. The e-commerce segment on the other hand, jumped 25.5% in 2015, and is expected to continue double-digit growth through the end of 2019. As one would expect, e-commerce’s share of overall retail sales is expected to grow from 7.4% in 2015, with a value of $1.55 trillion, to 14.6% in 2020 when e-commerce sales surpass the $4.0 trillion mark (an estimated $4.06 billion).

Although e-commerce transactions are likely to continue an upward trajectory in most regions of the world, growth will be most rapid in the Asia-Pacific region. As a region, the Asia-Pacific e-commerce market is already larger than that of any other region, with more than $US 1 trillion in sales expected in 2016, representing growth of 31.5% over last year’s figures. North America as a region is expected to post gains of 15.6% in 2016. Within Asia, China will continue to be the most important market, expected to clock $2.42 trillion in e-commerce sales by 2020.

How then, can the airfreight industry capitalize capture its rightful share of this market? We have covered the rise of Chinese express airlines, and cross-border platforms like Cainiao and FedEx CrossBorder extensively. Such platforms have indeed facilitated the process of purchasing goods from abroad, but often without involvement from the traditional forwarder. Today we look at how one Chicago-based airfreight forwarder SEKO Logistics, has refined its business model to serve growing e-commerce demand.

Within the supply-chain, airfreight has traditionally found its role transporting goods from low-cost manufacturing centers and injecting them into distribution networks that then supply retail outlets within the country of sale. But this is changing, according to Brian Bourke, vice president of marketing at SEKO who says“shift happens.” In recent years SEKO has seen a major shift in its core business, which was once reliant on inbound volumes from Asia. “If you look at our numbers in just the United States alone, between 2014 and 2015, we have turned into an almost net airfreight exporter, doing more airfreight consolidations in the United States,” and this change is “almost exclusively attributed to the rise of e-commerce,” Bourke added.

But how exactly has SEKO managed to channel burgeoning e-commerce in China to boost the volume of outbound consolidations from the United States? SEKO has been establishing “omni-channel e-commerce gateways,” to serve as new hubs in the altered supply-chain. Such a hub can handle local, regional and wholesale demand from one facility, while assisting foreign retailers in linking up to the local e-commerce market.

Turning back to Asia, SEKO last week recently opened a 50,000 square foot omni-channel hub in Hong Kong to support e-commerce operations, and help overseas retailers overcome the common pitfalls of entering the Chinese e-commerce market. James Gange, COO SEKO Asia Pacific says many global retailers choose to enter China through a well-known gateway such as Alibaba or Tmall, but that retailers often face challenges when trying to ensure a quality consumer experience. “Especially [regarding] after-sales – what happens with returns, customer service and getting questions answered? Such platforms don’t allow getting those questions answered.” Having local support in Hong Kong enables SEKO to continue handling airfreight consolidations, while giving retailers peace of mind that they have local after-sales support.

In the U.S. context, goods are consolidated for export and move through facilities like the one in Hong Kong very quickly. “Usually within 12 to 18 hours upon arrival at the fulfillment center, they move out with labels destined for the final customer” says Gange.

Moving into the future, omni-channel hubs are not just about bringing cross-border imports into Asia, (or vice-versa) SEKO is also positioning its hubs to serve outbound demand as well. Noting the impact of trends like ‘fulfillment by Amazon’ (FBA) Bourke says SEKO is “developing an offering for FBA whereby customers can ship out product FBA-ready, rather than having it done in the U.S.”

Although the days of large business-to-business consolidations from Asia and Europe may become increasingly eroded for many retail segments, we expect to see more examples of innovative forwarders and carriers finding ways to capitalize on the shift to e-commerce.