In the past three years of the epidemic, the cross-border e-commerce logistics industry has experienced ups and downs, like a roller coaster. But looking back at the past three years, we can find that there are many points to be noted in the cross-border e-commerce logistics industry.
01
What are the reasons for the tight air capacity and price increase?
The epidemic has substantially changed the shopping habits of Chinese consumers as well as overseas consumers, especially overseas consumers.
Before the epidemic, China's domestic e-commerce has been developing for more than 10 years, and basically all consumers who can shop online will shop online. Later, with the popularization of smartphones, China's rural population also began to shop online.
However, unlike in China, the level of overseas online shopping and e-commerce development was not high at that time. From the perspective of the online penetration rate of retail, before the epidemic, the online penetration rate of the United States was only about 10%, but it rose to 20%-30% during the epidemic. The same is true in the European region, where online penetration rates in many countries were in the single digits before the pandemic, rising to 10-30% after the pandemic, depending on the country. Changes in the shopping habits and ways of overseas consumers have led to the expansion of the export share of cross-border e-commerce, and also brought about changes in cross-border e-commerce platforms. One of the most obvious is the rise of the four small dragons of Chinese e-commerce, including: Pinduoduo international version of TEMU, fast fashion platform SHEIN, Ali's AliExpress, TIKTOK. China's e-commerce platform, represented by the four small dragons, has become the largest e-commerce platform, and the collective sea of China's e-commerce platform has led to the rapid increase in cross-border e-commerce logistics orders. According to incomplete statistics, at present, only cross-border e-commerce packages from China have exceeded 10,000 tons per day, and such large orders of cross-border e-commerce packages need to be transported out by air.
In the past two to three years, air cargo volume has grown exponentially, and demand has been rapidly amplified in the short term, but the supply of air capacity has not kept up. At present, the Civil Aviation of China has about 200 full-cargo aircraft, and a long-range wide-body full-cargo aircraft has a one-way cargo capacity of about 100 tons. If according to the European and American routes to calculate, China's domestic long-range wide-body full freighter number of about 60, each freighter flies once a day, that a total of about 6,000 tons of goods a day. However, no less than 10,000 tons of cross-border e-commerce packages need to be transported every day, which means that at least 100 long-range wide-body full-cargo aircraft are needed to transport them every day, which is the contradiction between the capacity gap and demand. In terms of the number of global freighters, according to Boeing's relevant data statistics, as of December 2023, the number of global long-range wide-body freighters is 752, including freighters of FedEx, UPS, DHL and other international express giants.
However, these full cargo planes can not only be used to transport China's cross-border e-commerce packages, but also need to transport high-value goods, project goods, designated goods, express goods and so on. From the current situation, the growth rate of cross-border e-commerce parcel orders is far greater than the increase in the supply of aviation capacity, and the growth rate of long-range wide-body freighters can not keep up with the growth rate of cross-border e-commerce parcels. Therefore, China's cross-border e-commerce exports are facing a problem: the ceiling of upstream air capacity is restricting the continuous development of cross-border e-commerce export direct logistics.
The imbalance between supply and demand for capacity is likely to be a long-term contradiction over the next five to 10 years. Some people might wonder, how does this affect the next five to 10 years? Because the speed of manufacturing an aircraft is very slow, companies looking for Boeing, Airbus order an aircraft, at least 2 years or so to deliver, and the price of a new long-range wide-body full freighter is as high as one billion, which is a very expensive means of transport. It is difficult for general enterprises to afford it, and only some state-owned enterprises, central enterprises or large listed companies can afford to buy it. This determines that upstream capacity is a heavy asset, high capital investment industry, there will not be too many people into the game. Therefore, from the supply side, the growth of air cargo capacity is very slow. In addition, the current global aircraft manufacturers are only Boeing and Airbus, the production of large cargo aircraft is only one Boeing, Airbus freighter production line has just begun.
This leads to limited upstream capacity and limited supply. The high monopoly of the upstream and the insufficient supply determine the limited supply and production capacity of the upstream, but the middle and downstream are affected by cross-border e-commerce, and the demand is soaring. It is these contradictions between demand and supply that have led to the current shortage of air cargo space and price increases. In fact, the tension and price increase of air transport did not appear only this year, and there have been repeated occurrences in the past few years. For example, from November to December 2023, air freight on European and American routes rose to 70-80 yuan/kg;
In 2020, affected by the epidemic, the peak of air freight on European and American routes once exceeded 100 yuan/kg, resulting in the cost of air logistics far exceeding the value of the parcel goods themselves. This will further curb the growth of cross-border e-commerce direct logistics, or B2C cross-border e-commerce packages that are shipped overseas from China. Due to the inadequate supply of upstream transport capacity, the development of cross-border e-commerce logistics industry has been limited.
02
What are the reasons for the explosion and price increase in the shipping market?
Since May, the shipping market has been broken, and it is difficult to obtain a cabin, and many shipping companies have a serious shortage of cabins and containers.
It is expected that in the second half of this year, many shipping companies will launch a new round of price increases, and the shipping price from China to the West will soon exceed 6,000 US dollars. As a result, we expect ocean freight prices to be high in the second half of 2024, mainly for the following reasons: First, the impact of the Red Sea crisis. The Israeli-Palestinian conflict and Houthi attacks on ships passing through the Red Sea have forced ships to circumnavigate the Cape of Good Hope, leading to longer voyages and delays. For example, shipping containers from China to Europe may take more than 20 days, but it may increase by seven to eight days after circling the Cape of Good Hope, and the entire voyage may be extended to 30 or 40 days.
The increase in the range directly leads to the slower turnover of containers.
Before a cycle may be completed in 40 or 50 days, now it may take 70 or 80 days or even longer, which requires more containers to meet the transportation demand.
If the existing container supply is insufficient, it will inevitably lead to tension and shortage. The second reason concerns the emerging model of cross-border e-commerce and its changes. The first is a change in Amazon's policy. Amazon has introduced a policy called "split warehouse" since the beginning of this year. In the past, Amazon sellers simply shipped the goods (such as a cup) to an Amazon warehouse in the United States, and Amazon took care of the subsequent deployment. However, current policies require Amazon sellers to ship goods in batches to FBA warehouses across the United States.
In addition, sellers also need to ensure that each warehouse is fully stocked to avoid running out of stock. As a result, the amount of stock that the original sellers have sent overseas has increased significantly. This adds further logistical complexity. The second change is the "semi-managed" model. The semi-escrow model means that sellers on the platform can first send goods by sea to overseas warehouses in the United States or Europe and the United States, and then store the goods in overseas warehouses of logistics companies.
When there is an order on the platform, the seller can ship directly from the overseas warehouse. In this semi-managed model, many sellers who want to conduct cross-border e-commerce need to stock overseas warehouses by sea, which virtually increases the volume of sea freight. The container flow on the supply side changes slowly, and more ships need to circumnavigate, resulting in a slower ship cycle. On the demand side, due to Amazon's warehouse division policy and the launch of the cross-border e-commerce platform semi-hosting model, the demand for shipping has been further pushed up.
The combination of supply-side disruptions and demand-side increases has pushed up ocean freight prices in the short term.
03
What are the risks behind the wave of price increases and tank bursts?
Under various factors, the current sea freight has shown a rising trend. Sea freight continues to rise, shipping companies are facing a lack of boxes, cabinets, and shipping space, which has brought bad expectations to cross-border e-commerce sellers and logistics practitioners. They are worried that they will face higher shipping costs if the goods are not shipped in time, so they are rushing to ship before the price increases. As a result, the warehouses of cross-border logistics companies in the United States and Canada are full, the containers on the docks are piling up, and the shipping companies are also full of cargo.
Although the industry appears prosperous on the surface, we believe that behind such prosperity lurks many crises and uncertainties.
Why do you say that? Because of the concentrated phased shipment, we noticed a phenomenon: when large-scale overseas stock, it is bound to lead to an increase in overseas inventory in the short term.
Retail focuses on the moving-to-sales ratio and inventory turnover. When large quantities of goods are constantly being shipped overseas, it actually drives up overseas retail inventories, which take time to work through. Once sea freight is expected to rise, everyone will rush to ship. The goods originally scheduled to be shipped in July and August may now have to be shipped in April and May to avoid higher sea freight in August.
Or originally intended to ship in October before Christmas, but now have to ship in June or July, because of fear of having to bear high freight and no warehouse space by the end of the year. Once ownership modeling enterprises, foreign trade enterprises and cross-border e-commerce have formed price expectations, it will push up the entire overseas inventory in the short term. In the long run, this will lead to a "bullwhip effect" in the supply chain, in which everyone is panicking to stock up. Once overseas inventory is overstocked, it may face a dilemma of unsalable inventory, causing everyone to stop stocking up after a few months.
Why does this happen? First of all, some goods have been stocked in advance and are therefore no longer stocked. Second, everyone needs to run down stocks. Therefore, there may be price fluctuations in the future, similar to the stock market, but industry fluctuations, shocks, price changes, etc., bring money opportunities. Therefore, our view of the price surge or the burst wave is that there is both risk and opportunity. From the point of view of risk, it is unfavorable to the long-term stable and healthy development of the entire supply chain and industrial chain. But from an opportunity perspective, there may be some short-term money-making effects or opportunities for practitioners.
This article comes from cross-border e-commerce logistics