The previous article analyzed the operating costs of overseas warehouses. In this issue, we will focus on the functional aspects of transit warehouses and overseas warehouses for analysis.

(4PLinks is a UK-based logistics company offering one-stop services including customs clearance, bonded warehousing, overseas warehousing, and fleet management.)

(The founder William)

Before delving deeper, let's first examine the types of warehouses based on their functionalities:

Transit Warehouse: Goods need temporary storage and transit in the warehouse before being distributed to Amazon or third-party warehouses for single-item fulfillment. The turnover cycle is typically 1-2 months, primarily for B2B business. Typically handled in boxes weighing between 15-30KG, with major parcel delivery services like DPD, UPS, and DHL.

Overseas Warehouse: Goods stored in overseas warehouses are sorted and distributed to customers, mainly for B2C business such as single-item fulfillment. Usually handled on a per-item basis, with weights ranging below 2KG, primarily using small parcel delivery services like HERMERS, ROYAL MAIL, and YODEL. Examples include FBA, warehouse, and 4PX, which are mature single-item fulfillment warehouses.

Bonded Warehouse: The highest level of warehouse, with the most difficult application process, serving as the first transit point for e-commerce goods entering the UK. Goods are cleared in the bonded warehouse before being circulated to various B2B or B2C customers.

Consolidation Warehouse: Concentrates goods destined for the same location, then distributes them using full-truckload delivery to reduce delivery costs. Examples include several UK alliances like PALLETWAY, PALLEX, TPN, and dedicated lines like BHX4.

Value-Added Services Warehouse: Includes services like relabeling, return handling, product upgrades, etc., which complement the functionalities of the aforementioned warehouse types.

1. Transit Warehouse

In the first half of 2021, there was a peak in demand for transit warehouses, leading to a situation where warehouses were in short supply. The surge in demand for transit warehouses was mainly due to:

Amazon warehouse capacity limits

Unstable sales during the special period of the pandemic

High logistics headhaul costs

Unstable ocean shipping schedules

Account issues, etc.

1. Why did Amazon impose capacity limits on warehouses?

The reason behind Amazon's warehouse capacity limits can be understood through a simple example.

Suppose an FBA warehouse has 10 million slots, with each slot representing a product. Then, Amazon's entire platform can sell 10 million different products to end customers through FBA warehouses.

However, if products are delayed and occupy slots in Amazon's warehouse, it reduces the total variety of products available for sale on Amazon's e-commerce platform, thereby reducing Amazon's competitiveness. Therefore, Amazon certainly does not want its warehouses to become storage warehouses.

During the special period of the pandemic, the surge in sales led to many sellers unable to accurately control their inventory ratios. In the early stages of the pandemic, the lockdown in the UK directly stimulated online consumption, resulting in a surge in sales for many sellers and widespread stockouts.

Coupled with high logistics costs, the industry slogan at the time was: "Whoever can get goods to Amazon will be the biggest winner."

The lockdowns during the pandemic pushed sellers' stocking cycles to their peak, putting tremendous pressure on Amazon's FBA warehouses. Consequently, Amazon had to restrict capacity to prevent sellers from continuing to stockpile goods.

The subsequent lifting of lockdown measures in the UK and the resurgence of offline trade returned online trade to normal. However, many sellers were unable to slow down in time, resulting in a large amount of excess inventory, making Amazon's capacity restrictions even more burdensome for sellers.

One of the most memorable cases involved a seller of home office products. Due to the pandemic and the lockdown in the UK, most people chose to work from home, leading to a sudden sell-out of home office products, with sales increasing several times over.

However, after the UK lifted its lockdown, sales plummeted sharply. Coupled with Amazon's capacity restrictions, the seller had to move tens of containers of goods from Amazon's warehouse, with dozens more containers still floating at sea.

Apart from sellers, the situation also drove the demand for transit warehouses in the UK to a climax, leading to a shortage of warehouses, and in some cases, no warehouses were available for rent, driving prices higher.

However, such short-term, brute-force growth inevitably cannot guarantee service quality, posing a potential time bomb for many enterprises and sellers.

2. Who should bear the cost of excessive warehouse growth?

Firstly, sellers. Having been in the cross-border e-commerce industry for several years, I have to say that last year was the most difficult year for most sellers, and only companies with solid foundations could survive.

In the future, the dividends of cross-border e-commerce will become smaller and smaller. If you still want to manage accounts with 3-5 people as before, the situation will become increasingly difficult.

Currently, the industry tests the team capabilities, supply chain capabilities, crisis management capabilities, cash flow, and control capabilities of each link of logistics for enterprises to a great extent. The reasons for this are:

Firstly, at the beginning of the year, the major e-commerce platforms began to enforce tax collection and payment, increasing the tax costs for sellers, putting everyone back on the same starting line. Additionally, in 2021, logistics costs remained high. Port congestion and pandemic prevention measures increased costs and incurred unconventional logistics expenses.

Secondly, during the pandemic lockdown, online trade surged. Sellers expected to make big profits in 2021, but due to the pandemic, sales were unstable, and failing to control inventory properly, coupled with Amazon's capacity restrictions, made it challenging for sellers to break even.

Subsequently, account-related issues emerged, with accounts that had been operating for years being suddenly closed, and hundreds of thousands of items in stock being unable to find warehouses for returns.

Having barely made it to the second half of the year, many sellers hoped to recover some of their losses during the Halloween, Thanksgiving, and Christmas peak seasons, only to be held back by transit warehouses.

If sales were bad, it would be one thing, but with good sales, having inventory stuck in UK transit warehouses meant missing out on Halloween and Christmas. Especially for seasonal products like Christmas lights, not being able to ship this year, should they be kept for next year? This has dug a pit for sellers, causing most of them to give up.

Finally, enterprises that have over-expanded excessively. Everyone noticed that during the Christmas stocking peak season cycle, Amazon also began to increase capacity, and the demand for transit warehouses began to decline and return to normal.

If companies expand recklessly at this time, they will inevitably face the pressure of high warehouse costs. If a company lacks other core businesses, reliance on a single business will deal a fatal blow to its development, or even lead to a wave of warehouse closures.

3. What is the root cause of inefficient transit warehouse operations?

Firstly, sudden incidents such as Amazon's capacity limits, demand for transit warehouses, and account closures occurred in 2021.

Currently available transit warehouse service products are not mature, and there is no good system to support transit warehouses in improving operational efficiency.

Secondly, warehouse operational compliance. Many people entered this industry seeing the market dividend just beginning, so they have an immature understanding of the entire industry supply chain and don't know how to operate a warehouse compliantly. Some people even provide services to sellers by renting capsule warehouses or their own garden garages, greatly increasing the risk of being sealed by law enforcement agencies due to non-compliance.

Thirdly, warehouses lack control over traffic, accept shipments without restrictions, greatly exceeding capacity and operational capabilities, resulting in old goods unable to be shipped out, new goods unable to enter, and subsequently

(The picture was taken at the 4PLINKS warehouse.)

②Parcel Forwarding:

This category of products requires sorting during transfer and each box needs to be labeled with an FBA tag, which significantly increases the difficulty of operation in the transfer warehouse.

Without the support of a "system + location," the operational efficiency of the warehouse will be very low and prone to errors.

The operational scenarios of these warehouses also differ significantly from the scenarios mentioned earlier for bulk transfers or standard overseas warehouses for single-item fulfillment.

Because the boxes in the transfer warehouse generally weigh around 15-30KG, while the boxes for single-item fulfillment in the warehouse average around 500g, there is a significant difference in the physical handling requirements for warehouse operators.

For example: A customer has 100 boxes of products entering the transfer warehouse, numbered from 1 to 100, and the customer randomly selects numbers for each shipment, such as 8, 29, 46.

If the warehouse operation is the same as for bulk transfers, with products stacked on shelves and then picked for shipment based on corresponding box labels, then each shipment would require finding all the boxes each time, resulting in many repetitive actions and potentially spending an hour without finding a single box, especially considering the weight of the boxes.

4PLINKS continuously explores practical operations for single-item fulfillment products. Upgrades were made to the existing system in the overseas warehouse, adding some functional settings. Sorting capacity increased from the previous 10 boxes per person per hour to 100 boxes per person per hour, while reducing mislabeling rates by at least 95%.

3. Returns Label Replacement:

Because Amazon's returns are chaotic and disorganized, with random box sizes and quantities in each box, this places high demands on the transfer warehouse when processing returns and label replacements.

Without good sorting capabilities, the warehouse is prone to large-scale confusion in product handling, making label replacement and subsequent processing even more challenging.

In the process of handling hundreds of thousands of returns, 4PLINKS' transfer warehouse continuously refines and perfects the entire return operation process, from goods receipt, unpacking, repackaging registration, shelving, storage, label replacement, to controlling every step of the process.

(The picture was taken at the 4PLINKS warehouse.)

5. Is it still worth investing in transit warehouses in the future?

Firstly, I believe that for maximum efficiency, Amazon will inevitably further refine the functionality of warehouses. In the future, they may split warehouses into TO C and TO B categories.

The capacity limits of FBA warehouses are part of Amazon's strategic adjustment, hence there will inevitably be a third-party transit warehouse market. In the future, FBA warehouses will focus more on TO C business, ensuring product diversity, rapid sorting within the warehouse, and timely last-mile delivery.

Of course, Amazon will inevitably increase investment in TO B transit warehouses to improve its logistics supply chain and assist in FBA warehouse stocking. For example, the BHX4 warehouse in the UK plays more of a role as a transit warehouse.

I believe that in the future, there will definitely be more transit warehouses like BHX4 being put into use, as seen with Amazon's recent recommendations for their AGL project.

However, Rome wasn't built in a day, and in the short term, Amazon will find it difficult to establish a complete transit warehouse supply chain system. Coupled with the impact of the pandemic, this will inevitably slow down the pace of development.

Secondly, against the backdrop of the pandemic, although the demand for transit warehouses may not be as crazy as it was in 2021, overall demand still exists.

Global logistics costs remain high, raw material prices fluctuate significantly, Amazon's capacity limits are sudden, and I personally advise sellers to still seek high-quality transit warehouse resources to balance the logistics costs, production costs, and unexpected situations.

The stocking mode should be adjusted according to the actual situation, whether it's choosing TO FBA or TO transit warehouse TO FBA for the head route.

Furthermore, the instability of shipping schedules caused by the pandemic also increases the uncertainty of sellers' stocking cycles. Transit warehouses can help alleviate stockouts due to unstable shipping schedules.

Lastly, sellers' account issues, product unsalability, etc., all need to be adjusted in conjunction with transit warehouses.

I hope that after experiencing various pitfalls last year, this year sellers can more rationally choose high-quality transit warehouses for deep cooperation, thereby helping companies regulate inventory and improve their ability to respond to emergencies.

II. Overseas Warehouses

Overseas warehouses: Goods are stored in overseas warehouses and distributed to C-end customers through sorting, such as single-item fulfillment.

Generally, they are based on units, with weight restrictions of up to 2KG, mainly distributed by logistics companies such as HERMERS, ROYAL MAIL, YODEL, etc.

Overseas warehouses have been developed for many years, and existing market products, systems, resources, talents, and supply chains are relatively mature. With the continuous influx of capital, the market share of small-scale overseas warehouses will gradually be diluted.

Currently, there are several echelons of overseas warehouses in the UK:

First echelon: Represented by platforms such as Amazon's FBA and eBay's Orange Alliance.

Third-party overseas warehouses are difficult to compete with platform overseas warehouses in terms of traffic, scale, and market share.

Their warehouses mainly develop with the development of the platform and will inevitably take root in emerging markets such as the Middle East, Southeast Asia, and Africa as platforms continue to penetrate.

Second echelon: Enterprises that have been deeply cultivating the industry for many years and have accelerated expansion with the support of capital.

Represented by various links in the cross-border e-commerce supply chain, such as cross-border e-commerce sellers, cross-border e-commerce logistics companies, cross-border e-commerce service providers, etc., the total area of warehouses is generally at least 50,000 square meters, and they have overseas warehouses in multiple countries.

With the maturity of European e-commerce regulations in recent years, especially the overseas warehouse legislation passed by the UK in 2019 and platform collection and payment in 2021, it has led the entire cross-border e-commerce supply chain to develop towards compliance.

With the support of capital, second-tier enterprises have rapidly expanded in various countries in recent years, such as Warehouse, 4PX, Wan Yi Tong, Export Easy, etc.

These overseas warehouses are difficult to grab customers from platforms and will embrace more high-quality sellers or multi-platform operations in the future, such as Wish, TikTok, or some emerging platforms.

The wave of account closures on Amazon has made many sellers aware of the crisis, and independent sites are bound to be a major trend in the future. This will also accelerate the integration with overseas warehouses, but at the current stage where traffic is king, independent sites will require a long development journey in the short term.

If sellers do not have certain strength, they will basically be eliminated midway. However, independent brands like Anker and Shein give sellers hope for future development directions.

Given the vastness of Europe, sparse population, and high labor costs, second-tier overseas warehouse companies will inevitably increase their investment in automated operating systems. These overseas warehouses will lay a solid foundation for Chinese enterprise brands to go global.

Third echelon: Companies without capital strength, relying entirely on their own efforts to develop into industry leaders.

These companies have a certain scale and their overseas warehouses must have a total area of at least 30,000 to 50,000 square meters. This echelon is more aware of the risks and fears that the second echelon will continue to expand and harvest their market share. They are cautious and have mixed feelings about capital.

If overseas warehouses are to be used for final end-to-end delivery, they will need end delivery accounts. Currently, products below 2KG are mainly delivered by express companies such as Royal Mail, Yodel, Hermes, etc.