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Logistics in the China eCommerce market

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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.

 

The logistics landscape

 

With a population of 1.4 billion China offers an attractive market. Whilst 668 million are internet users, there are also 594 million who access the internet via smartphones. This represents a significant market but is only 46% of the 1.2 billion of the population with mobile phones. The growth potential for e-shopping dwarfs many other international markets.

 

Popular areas of China

Figure 1: Popular areas of China

 

A good many of these online consumers are concentrated in the major cities to the east of the country:

  • Shanghai – 24 million population
  • Beijing – 21.5 million population
  • Shenzhen – 15 million population
  • Guangzhou – 14 million population
  • Wuhan – 10 million population

 

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.

 

Overall China boasts 200 cities with populations of over 1 million and therefore the Chinese market presents some very real logistics challenges with a need to cover a physical geographical area of 9.5 million km2 and considerable distances even between major population centres (Shanghai to Beijing – 1070 Km).

 

In the past this 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 13th Five-Year Plan, which highlights domestic consumption and a competitive atmosphere as a model for economic growth. In 2016 it is predicted that China will become the third largest logistics market in the world (although the impact of the recent slow-down in China’s economy has yet to be appreciated) with infrastructure now including 230 airports and a high speed rail network.

 

The State Post Bureau (SPB), the government agency that regulates China Post and oversees the development of the post and parcel industry, has reported that the express delivery sector saw profound change in the six years ending 2014. The number of packages transported by express delivery surged by 820%, and now represent 63.9% of all post in the country. The SPB estimates that private firms represent 85.6% of the express delivery market.

 

Overall the SPB calculated that, in 2014, an average of 10.2 express delivery packages were sent for every person in China.

 

Logistic centres in China

Figure 2: Logistic centres in China

 

However, despite this recent and rapid development there is still some way to go. Geographic and social disparities are rife in China, and, as a result, the transportation infrastructure in the country varies considerably by region. As one would expect, the distribution networks in rural China are far less comprehensive than in the urban regions. Most of the main logistics centres are traditionally on the east coast but with this infrastructure development these are expending north and west.

 

Whilst Chinese authorities have been investing heavily in the improvement of technology on frontend operations, back-end technology deployment –primarily in the supply chain - has historically been at a slower pace, so new investment should have many positive repercussions for retailers and consumers alike, who will embrace the adoption of technologies, such as GPS and e-barcodes to ensure effective information flow between various stakeholders in the supply chain.

 

E-retailers moving into China are therefore presented with a variety of logistical difficulties and practices that they might not encounter as much in their home markets; key challenges include:

  • Establishing cost-effective shipping with suitable trackand-trace mechanisms to all locations
  • Providing a consistent and transparent delivery offer to all Chinese consumers
  • The provision of adequate cross-border documentation to customs upon the import of goods, as well as the passing of stringent customs clearance procedures
  • Establishing a system of effective global returns management including the difficulties associated with delays in refunds and reverse currency conversion

 

Given the inconsistencies of the Chinese distribution system, many eCommerce companies choose to outsource their delivery services to third-party logistics companies. Those consumers selling through third party platforms such as Alibaba’s Taobao or Tmall will also likely choose one of these solution providers.

 

Logistics choices (to reach China)

 

For the most part, retailers without an operation in China and seeking entry into the Chinese market for the first time, will find that there are effectively five ways to access this delivery market.

 

Post

 

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):

  • Royal Mail International Signed - 5 to 7 days’ delivery
  • Parcelforce Worldwide globalexpress - 3 days’ guaranteed - Tracked
  • Parcelforce Worldwide globalpriority - From 4 days’ delivery - Tracked
  • Parcelforce Worldwide globalvalue - 6-10 days’ delivery aim - Not Tracked

"Two-thirds of UK consumers feel that access to clear delivery and returns information is important in making their shopping experience more convenient."

Global carriers

 

There are a number of global carriers able to provide collection, distribution and delivery into China (using their own operations or local partners). The main ones are:

  • UPS Offers a range of services and delivery times to China subject to country of origin and the specific destination. UPS is steadily expanding its operation in China and recently announced new operations in 13 cities in the provinces of Guangdong, Jiangsu, Shandong, Zhejiang and Chongqing with plans to extend to more, lower tier cities.
  • Fed Ex Offers two main services to China with delivery times subject to country of origin and the specific destination
  • DHL Offers one main service option, namely - Export Express Worldwide
  • TNT Offers international services to China including time and day defined, express and economy subject to country of origin and the specific destination.

 

Domestic carriers

 

In addition to the global carriers (which will also be domestic carriers in most markets), in many countries domestic carriers based in the retailer’s 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 or postal service, but for a retailer already having a contract with a domestic carrier this can be a natural starting point for accessing services to China. Retailers already having a service contract with a domestic retailer should start by finding out what options they provide and can use this as a benchmark.

 

Service times will vary depending on the line-haul arrangements in place and the service partner chosen.

 

Direct access

 

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:

  • In-transit tracking
  • Customs clearance – often ‘wheels up’ in advance of arrival
  • Multiple points of entry – reducing ‘in country’ line haul costs and lead times
  • Calculation and payment of duties in advance of order and dispatch
  • HTS (Harmonised Tariff Schedule) code classification
  • Tracked returns – for unwanted and undeliverable items

 

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

 

Parcel brokers provide smaller retailers with 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.

 

Integrators

 

Retailers with a reasonable volume of orders going into 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 previously mentioned (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, Electio, ITinSell and Consignor.

 

Customs and clearance

 

The question of custom duties is covered earlier in this passport 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.

 

The detailed requirements for customs clearance into China can be found through the General Administration of Customs, Peoples Republic of China (GACC) website.

 

Packaging

 

E-retailers looking to enter the Chinese market should be 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 for their specific industry.

 

Delivery in China

 

Any retailer wishing to compete for Chinese consumers needs to appreciate the delivery services already provided to them by domestic Chinese retailers because these will provide direct competition.

 

China Post is the local market postal carrier (www.chinapost.com.cn) and probably the only network capable of covering the entire geography of the country so it will be widely used by local retailers. However, there are a number of other domestic operators providing services to Chinese retailers, that could also act as possible delivery partners for other carriers and large volume importing retailers.

 

The table opposite is extracted from The EU SME entre’s 2012 report entitled ‘Selling Online in China’, providing a summary of the main logistics and distribution companies in China and the range of services they offer.

 

In addition, we have seen more recent developments with fresh players entering the market and others developing their capabilities:

  • PG Logistics, JC Trans, SF Express – all privately-owned or joint venture companies targeting certain market segments and geographies
  • Midea, Haier – examples of spin-off logistics subsidiaries from a larger group
  • Sagawa - a Japanese logistics and delivery organisation, has set up a subsidiary company in Shanghai to handle deliveries and processing of COD payments for its Japanese customers.
  • SingPost is expanding its operations to specific cities in China
  • China Postal Express & Logistics and JD.com have signed a strategic agreement regarding cooperation over cross-border eCommerce . China Postal Express & Logistics will deliver goods purchased by Chinese customers via the online shopping platform from foreign seller. So far this service has been offered to JD.com retailers in the US, France, Australia, Japan, the Republic of Korea and several other nations

 

Any overseas retailer must consider their delivery offer against the context of this service landscape because it helps to set the competition benchmark with local retailers, influencing the needs and expectations of Chinese consumers.

"When contemplating packaging rules and standards, retailers should refer to the packaging regulations for their specific industry."

 

Delivery in China

Figure 3: Delivery in China

 

Chinese consumer delivery requirements

 

When a retailer is deciding on the delivery offer to provide it is important to consider the needs and wants of Chinese online shoppers and to recognise that any importing retailer is competing with domestic retailers already meeting these needs. It has become clear that as eCommerce in China matures and develops, a ‘one-size-fits all’ approach to this market is no longer enough.

 

From a delivery perspective Chinese consumers have high expectations:

  • Easy returns and exchange - 26% worried about difficult returns processes
  • Quick international delivery - 43% being unhappy about longer than expected delivery times
  • Track and trace - 27% being concerned by the uncertainties of buying from a cross-border retailer
  • Data protection and secure payments - 33% frustrated by hidden costs

 

Even in heavily-populated cities delivery is not straightforward as Chinese consumers will sometimes pay cash-on-delivery and expect the courier to wait while they check goods – this of course leads to a need to make delivery appointments.

 

An underlying reason for a cash-on-delivery service is that, when questioned about their reservations with online shopping, Chinese customers reported that it was inaccurate product descriptions, the risk of fraud / online payment safety and discomfort with not actually seeing a physical product that discouraged them the most. This is often mitigated by providing a cash-on-delivery logistics solution, an option reputed to provide online store credibility.

 

It is also worth noting that some Chinese consumers surveyed simply didn’t know how to use online banking services, citing this as a major dissuasion from online payments.

 

Overall 32% of recently surveyed online consumers chose cash on delivery as one of their online shopping payment methods and, although this is declining, it clearly has implications for the delivery services selected.

 

These are all problems that have been seen in other markets in the early days of online shopping and they will likely become less apparent as Chinese consumers become more confident, but for the moment they must be taken into account.

 

Click & collect

 

As with many other markets, China is starting to adopt click & collect as a means to provide an alternative delivery channel to shoppers.

 

For Chinese domestic retailers, in-store click & collect is of course an option but this is not so for importing retailers. Third party click & collect networks are starting to emerge:

  • Alibaba Group Holdings Ltd’s Tmall business-tocustomer platform launched a click & collect service back in 2012
  • In 2014 Amazon China increased its pickup points in Shanghai from less than 100 in 2013 to more than 300, working with Family Mart, a Shanghai-based convenience store chain operator, with plans to expand into other cities
  • Albeit for grocery delivery, Walmart has been expanding its ‘Walmart To Go’ service

 

However, at this time there does not seem to be any established independent click & collect networks that importing retailers can access but these are likely to develop with consumer demand so is an area to watch.

 

Returns

 

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’ by 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 it 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 their delivery partner for China retailers should find out what arrangements they can make for returns.

 

Chinese consumers will need:

  • A simple and transparent returns process
  • A convenient way to drop off the parcel or have it collected
  • To be kept informed on the progress of their return
  • Be advised when their refund is being made, possibly including duty repatriation

 

Some operators will 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.

 

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.

 

Operators providing such services in the UK include wnDirect and ReBound.

Download China Cross-Border eCommerce Country Guide

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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Further details on this market:

Overview of the China eCommerce market

Overview of the China eCommerce market

Overview of the China eCommerce market
Marketing strategies for the China eCommerce market

Marketing strategies for the China eCommerce market

Marketing strategies for the China eCommerce market
Popular payment methods in the China eCommerce market

Popular payment methods in the China eCommerce market

Popular payment methods in the China eCommerce market
Legal framework & regulation in the China eCommerce market

Legal framework & regulation in the China eCommerce market

Legal framework & regulation in the China eCommerce market
Optimising the customer experience in the China eCommerce market

Optimising the customer experience in the China eCommerce market

Optimising the customer experience in the China eCommerce market

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