Upset the Shopping Cart: Can forwarders survive Chinese e-commerce?

Assault not limited to B2B e-commerce

Although business-to-businiess (B2B) general freight bookings still comprise the majority of air cargo moving out of China, business-to-consumer (B2C) e-commerce is the fastest growing segment. According to data from eMarketer, global cross-border e-commerce is expected to grow by 22 percent annually between 2015, and 2020. China’s e-commerce market, meanwhile, is expected to nearly double between 2016 and 2020 from US$86 billion last year, to an estimated $157.7 billion in 2020.

Along with expanding cross-border e-commerce has come a boost to airfreight demand. For the month of May 2017, total traffic, measured in freight tonne kilometers (FTKs), rose 13.9 percent, year-over-year. Responding to the recent surge in demand, the Netherlands-based consultancy WorldACD noted that e-commerce was a major driving force, but made it abundantly clear that not all freight was moving as express parcels. The largest growth in regular shipments, WorldACD found, were those weighing more than 1,000 kilograms, a clear sign that most e-commerce finds the regular speed of air cargo adequate, and that “e-commerce is definitely not a matter of individual small parcels flying across the globe.” Shek concurred, adding that, because of e-commerce, many commodities that once moved by sea are now moving by air.

Returning to biochemicals, Lu said that e-commerce has also enabled her company to sell directly to factories and thus bypass distributors, which would otherwise ship by ocean. These distributors often warehouse concentrated product, then dilute and resell chemicals at a significant markup. If these chemicals are sold directly to factories, the shipments are smaller and the consignee accepts a higher airfreight shipment bill in exchange for wholesale commodity prices.

But as express airfreight is not the only option for cross-border consignments, additional import/export models have emerged. Two dominant cross-border e-commerce models have shifted in and out of favor: the bonded warehouse model and the direct mail model (see sidebar). Many airfreight forwarders and carriers have found ways to leverage China’s growing cross-border e-commerce market through both of these models. “In current practice, direct-mail is more sensitive in transit time and service compared to normal general cargo,” Shek said.

This, in turn, means that direct mail favors airfreight. Felix Li, general manager at Shanghai Wellwin Logistics, said, “Unlike bonded warehouses, which fulfill goods from within China, direct-mail products are sent from abroad, for customers who are unwilling to wait months for goods to arrive.” Direct mail, Li added, is popular because bonded warehouses can only stock a finite number of SKUs. “There is a push for individualization,” he said, “and so we are seeing more unique goods flow through the direct-mail model.”