This article provides an overview of the logistics and communications network as part of the China eCommerce market and outlines some of the key elements that prospective cross-border retailers need to be aware of before entering it.
Although China has an enormous population of 1.4 billion within more than 455 million households, the target market for any online retailer entering this market will perhaps be the 730 million consumers who have internet access, 95% of whom access the internet from their mobile devices according to data from January 2017.
From a logistics perspective, it is important to know where these customers are and how they can be reached. It is also useful that an increasing proportion of the overall population live in urban areas. Many online consumers are concentrated in the major cities to the East of the country:
Figure 1: Popular areas of China
However, these major population centres represent less than 10% of the overall population and there are an increasing number of consumers in smaller cities, without access to a wide range of traditional shops, who provide a growing opportunity for online retailers.
The Chinese market does present some very real logistics challenges with considerable distances even between major population centres (Shanghai to Beijing – 1070 Km). The choice of access points into China is therefore important.
In the past, this logistics challenge has been compounded by an underdeveloped and inefficient logistics infrastructure although more recently huge advances have been made spurred on by the explosive growth of ecommerce and the Chinese government’s series of five-year plans, which highlight domestic consumption and a competitive atmosphere as a model for economic growth.
China now has an extensive infrastructure including 230 airports and a high-speed rail network and the State Post Bureau (SPB), has reported that a total of 31.3bn parcels were delivered in China during 2016, an increase of 51.4% on the previous year and it is estimated by Alibaba that 80% of all parcels shipped in China originate online.
This growth is driving considerable investment and competition, with 3000 shipping companies now operating in China. Most of the main logistics centres are traditionally on the East coast but with the development of urban centres and associated infrastructure, these are extending North and West.
Figure 2: Network coverage in China will move north and west
Retailers without a local operation seeking to enter the Chinese market for the first time will find that there are effectively five ways to access this delivery market.
Using China Post as the final delivery agent, retailers will be able to access services through their own domestic postal providers. From the UK for example, Royal Mail provides the following service options (example – small parcel weighing 500 grams and valued under £50):
There are several global carriers able to provide collection, distribution and delivery into China (using their own operations or local partners) and although it is estimated that they account for less than 1% of total parcel deliveries in China, the rate of growth is approaching 40%.
In addition to the global carriers above, domestic carriers in the retailers own market will often accept online retail orders and ship them to China.
Domestic carriers will sub-contract the onward shipment, often to the global carriers, the postal service or to one of the larger delivery companies in China. For a retailer with a contract with a domestic carrier this can be a natural starting point for accessing services to China they should start by finding out what options their carriers provide.
Service times will vary depending on the line haul arrangements in place and the service partner chosen.
Direct Access describes a solution used to consolidate volumes from different senders to achieve better air transport rates. Consolidated orders are shipped to the destination country where they are handed to local partners for the final delivery.
Direct Access operators provide a managed service that can include:
Where a retailer has sufficient volume to be able to contract with a direct access operator there is the opportunity to get a ‘courier’ level service at less than ‘courier’ rates.
There are a number of companies providing such services. In the UK for example these include wnDirect and P2P Mailing (TrakPak).
Parcel brokers provide smaller retailers a way of accessing better pre-contract rates through postal operators, global and domestic carriers and direct access providers. Parcel brokers do not offer all carrier options, only those that choose to contract with them, but in the UK for example companies such as Parcel2Go and Parcel Monkey provide this channel into China using the likes of TNT, DPD, Asendia, World Economy, Parcelforce, UPS and others.
Retailers with a reasonable volume of orders going to China may wish to consider the option of parcel management service integrators who can provide immediate integration with a wide range of service providers delivering into the Chinese market. These will include most of the options above (excluding parcel brokers) and many others.
The retailer will need to have or enter into a contract with the delivery service provider but then the integrator will offer the ability to allocate orders to the most appropriate service - using agreed business rules - printing labels and customs documentation, providing tracking and helping to manage returns. For smaller retailers, some integrators offer their own parcel broker option that can help obtain better rates.
Providers of such services include MetaPack, Sorted, Seven Senders, ITinsell, Hypaship, Route Genie and Consignor. In China, the Alibaba logistics company, Cainiao provides Alibaba and Tmall clients with integrated access to:
The question of custom duties is covered earlier in this country guide but needs to be referenced under the heading of logistics because any error can clearly delay clearance and delivery to the customer.
The delivery operator selected will be able to provide full details and advice on the necessary documentation and processes and some can go further by pre-clearing orders whilst the goods are in transit or at the start of their journey using a Consumer Duty Paid process. This can be done using the HTS code assigned to each product category (Harmonised Tariff Schedule) and can reduce delivery times and remove a potential barrier of having the goods held when they arrive in China.
Retailers are therefore advised to specifically ask what their chosen delivery partner can do to facilitate customs clearance and duty calculation / collection.
With the publication of the State Post Bureau’s 13th five-year plan (2016 – 2020), packaging has taken on a new significance with the stated objective to ‘introduce recyclable, green packaging to reduce waste’.
Online retailers looking to enter the Chinese market should be also aware of the various packaging requirements needed for products crossing the border, though depending on the specific goods being exported, these requirements can vary greatly and depending on the industry, regulations are often administered and enforced by different government bodies.
When contemplating packaging rules and standards, retailers should refer to the packaging regulations their specific industry.
For China, as in all markets, cross-border packaging must be optimised for cost reasons because carriers not only charge by item or by weight, but commonly by cube. This is driven by international freight charges, especially air freight where space is at a premium and a light weight but larger parcel will cost more to carry than a heavier weight smaller one. The table below shows examples of the volumetric weights used by one global carrier.
Any retailer wishing to compete in the Chinese market should appreciate the delivery services offered by domestic Chinese retailers because these provide direct competition and influence the expectations of Chinese shoppers.
This service landscape is shaped by the domestic delivery companies. China Post is the local market postal carrier and widely used by domestic retailers although it is losing market share with growth of 20%which is well below the overall market growth rate of 51.4% for the whole of 2016.
The reason for this is the fierce competition from 3,000 privately owned domestic operators (growing at 62.1% in comparison), who also act as delivery partners for cross-border carriers and large volume importing retailers.
The table below provides a profile of some of the top logistics and distribution companies in China for comparison but new companies are entering all the time.
Figure 3: Delivery in China
A useful delivery time benchmark is provided by JD.com which shows year on year improvement for domestic delivery as the local market develops.
Figure 4: Internet Trends in China
The provision of warehousing services by many of the larger delivery companies will be useful for retailers reaching a critical volume of orders, allowing them to hold stock locally which in turn will allow access to local delivery rates which are low when compared to other markets. According to State Post Bureau the average cost for the delivery of a parcel in Q1 2017 was 12.7 yuan which is 5% lower than Q1 2016 (13.4 yuan) and 14% lower than two years before (14.7 yuan).
This level of delivery cost historically stems from low labour costs but the downward pressure is being maintained with the rapid introduction of technology (sorting robots, delivery robots, route management, GPS tracking) and the most recent five-year plan (13th – 2016 - 2020) issued by China’s State Post Bureau includes an initiative to ‘promote research, development and application of robots and Unmanned Autonomous Vehicles (UAV’s) for express delivery’.
Finding the right delivery address in China can be a challenge, being complex in cities with many multi occupancy buildings, and reliant on local knowledge in rural areas. Being able to accept delivery instructions and capturing contact details will help as many delivery agents will turn to WeChat to contact the recipient prior to making the delivery.
As eCommerce in China develops the demand and expectations of Chinese shoppers increase. Against the backdrop of falling parcel delivery costs the State Post Bureau estimates that average spending on express delivery has increased in 2016 by 42.7% to 287 yuan. At the same time, it reports that consumers are increasingly satisfied with the service they receive.
To drive that satisfaction, the Royal Mail Delivery Matters-China survey reported that Chinese shoppers expect:
Despite the rapid adoption of different payment methods (third-party, mobile app, credit card, mobile NFC), about 3% of deliveries are still carried on a COD service and this of course leads to a need to make delivery appointments.
Reasons for retaining a cash-on-delivery service are residual concerns over inaccurate product descriptions and discomfort with not actually seeing a physical product and the risk of fraud / online payment safety. A cash-on-delivery logistics solution can help convey online store credibility.
These are all problems that have been seen in other markets in the early days of online shopping and are becoming less apparent as Chinese consumers become more confident. However, for the moment this delivery option should be considered.
In the same way that European consumers have a statutory right to return goods within 14 days, so Chinese consumers have a 7-day legal ‘right to regret’ through which they can return goods (in complete and good condition) within a week of purchase. The consumer may be required to pay for the return if there is nothing wrong with the goods but this still means that as well as it being good practice to provide a transparent and efficient returns solution, there is a legal imperative too.
When selecting a delivery partner for China, retailers should find out what arrangements they can make for returns.
Chinese consumers will need:
Some operators can arrange for the return to be sent back to the country of origin where it can be delivered back to the originating retailer to be processed. Another option is for the return to be processed in country and some operators now provide Chinese processing centres where the return can be locally validated, quality controlled and the refund issued. This then may allow consolidated orders for return to stock, disposal, or even, when there is sufficient demand, for the goods to be retained in China and used to fulfil another Chinese order.
To help retailers manage the returns process these same operators are developing white label / multilingual returns portals matching up the original order with the return. Such portals make it is easier for the customer to make returns, offering multiple payment options such as customer or retailer paid. The customer can print the label, see when a return has been received and when their refund is due.
Examples of operators providing such services include wnReturns, ReBound and Royal Mail (who are launching this option early in 2018).
As with many other markets, China is starting to adopt click & collect to provide an alternative delivery channel to shoppers and the State Post Bureau’s 13th five-year plan has an objective to ‘promote the use of smart express drop boxes to prevent backlogs’. This suggests that despite Chinese shoppers being more satisfied with deliveries than previously, there is still room for improvement and certainly the Japanese retailer Uniqlo has begun offering click and collect from 400 of its 500 Chinese stores, in part to circumvent delivery delays. For retailers importing into China who do not have a store network and who cannot offer in-store click & collect, third party click and collect networks are starting to emerge in China supported by plans (by the likes of 7-Eleven and Family Mart) to increase the number of convenience stores - Bain.com reported an estimated at 13% in the past year:
This article provides a logistics overview of the China eCommerce market – we have produced a full country guide covering in-depth information on multiple aspects of trading into this territory including logistics, payments, legal framework and marketing.
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