1. The Chaotic Era of American Retail

In the continual evolution of the global economic landscape, the logistics industry is facing a crucial moment of supply chain reshaping. Meanwhile, the American retail market is undergoing an unprecedented strategic contraction, providing valuable opportunities for Chinese e-commerce enterprises to expand overseas. In recent years, the American retail market has experienced a significant round of strategic adjustments. Traditional retail giants like Walmart and Costco have been gradually scaling back, with varying degrees of decreases in the number of stores and product variety (SKUs).

Taking Walmart as an example, after reaching a peak in the number of stores in 2019, Walmart has been consistently reducing its presence in recent years, and its SKU count has also been cut back due to high inflation and high-interest environments. However, this strategy has somewhat reduced the diversity of retail products, particularly impacting consumer benefits in remote areas and among low-end consumer groups.

The strategic contraction of American retailers is essentially a cautious risk management response to high inflation. This prudence is reflected not only in inventory management but also in cash reserves. Some American retailers are maintaining high levels of cash reserves; for instance, Amazon's cash holdings have increased from over $30 billion to over $70 billion, indicating Amazon's readiness to invest or expand in more favorable conditions. Furthermore, there's a greater emphasis on maintaining lower inventory levels to ensure financial security and operational stability. However, for Chinese e-commerce enterprises, the strategic adjustment of the American retail market presents a rare opportunity for overseas expansion.

With the increasing proportion of third-party self-operated businesses on platforms like Amazon, more and more Chinese merchants are entering the American market and competing with local American companies. Leveraging advanced internet technologies, efficient supply chain management, and diverse product lines, these Chinese e-commerce enterprises are continuously enhancing their competitiveness and gradually gaining a foothold in the American market.

Li Cong, Vice President of Zongteng Group

In recent years, the rise and innovation of Chinese e-commerce platforms have garnered widespread attention in the global market. Emerging e-commerce platforms like SHEIN and TEMU have gained a large number of users and market share with outstanding performance. However, despite their significant achievements in a short period, their share remains relatively small in the entire e-commerce landscape. The real competition focus has shifted to two larger tracks: omni-channel retailing and the internationalization of Chinese brands.

After experiencing the wave of store closures by Amazon, Chinese enterprises have begun to realize the risks of relying solely on one channel. As the American retail market has entered a stage of structural growth in a stock market structure, it's challenging to sustain high-speed growth solely relying on one platform. Therefore, more enterprises are seeking multi-channel expansion to reduce risks and increase market share. Meanwhile, problems such as sluggish domestic demand in China and real estate bubbles have prompted more enterprises to turn their attention to overseas markets.

 For many companies, going global has become a strategic choice not only to find new growth points but also to maintain a leading position in intense competition. Although Chinese cross-border e-commerce is currently a small track, with the advancement of regional supply chain integration, it is gradually merging into the mainstream of China's overseas expansion, undoubtedly offering tremendous opportunities.

2. The Arrival of a New Inventory Cycle

From the perspective of inventory cycles, we also see hope for Chinese e-commerce enterprises. After experiencing the destocking phase from 2022 to 2023, many companies have successfully shed their inventory burdens and begun to enter a new phase of actively increasing inventory.

Currently, many industries such as home furnishings, clothing, toys, etc., have basically completed inventory clearance and are in the late stage of passive destocking or the early stage of active inventory increase. This means that inventory pressure in these industries has been effectively relieved, providing a more stable operating environment for businesses.

At the same time, industries such as e-commerce and food have also passed the bottom of the inventory cycle and are showing a steady upward trend. Although they may be affected by the intense competition, the overall trend is positive. After inventory has been well digested, merchants will quickly invest in a new round of inventory buildup, which is a promising prospect for logistics companies.

Looking at the number of import containers from the United States, the data from September of last year has returned to the level before the decline in September 2022, indicating that the inventory cycle in the United States has basically ended. Generally, a complete inventory cycle lasts for about 40 months, and the next cycle will follow.

For the logistics industry, this means that the industry's survival status will vary at different stages of the inventory cycle, with at least half of the cycle presenting a favorable market environment for the logistics industry. The changing inventory cycle brings some challenges to the industry. For example, in the past cycle, we witnessed significant declines in air and sea freight prices, which brought certain difficulties to businesses.

However, it is these experiences that deepen companies' understanding of the importance of the inventory cycle and prepare them for dealing with various stages of the cycle in the future. In fact, behind the international expansion of every e-commerce platform is the iteration of the supply chain. From the responsive supply chain of the eBay era to the efficient supply chain of Amazon, and then to the agile supply chain of Chinese companies like SHEIN, each iteration has brought significant breakthroughs to the e-commerce industry.

These are innovations in the supply chain and tangible new productivity. With the rise of omni-channel retailing, end-to-end integrated supply chains and unified inventory management models will become new requirements and future trends for customers. As logistics service providers, it's essential to be proactive and find our position in different types of supply chains.

Image Source: Zongteng Group

Currently, China's e-commerce development stage is ahead of the United States, and starting from this year, live-streaming e-commerce will gradually rise. Although platforms like TIK TOK have faced some obstacles in certain regions, the trend of live-streaming e-commerce is unstoppable. It will provide brands and merchants with more interactive and showcasing opportunities, further enhancing sales effectiveness. However, the challenges of inventory management in live-streaming e-commerce cannot be ignored, and how to manage inventory well will be an important issue for brands and merchants to face. The era of Chinese supply chain globalization is opening up, reshaping the window of opportunity for supply chain globalization. In the future, we will face more new phenomena, challenges, and perceptions.

3. Changes in Cross-border Logistics Industry Under Supply Chain Competition

Under various overlapping cycles, the logistics environment is greatly influenced. All resources in the logistics industry follow the demand of the retail trade market. However, currently, the growth rate of e-commerce is significantly higher than that of retail, which requires logistics companies to meet the rapid growth demand with limited capacity, achieving the matching of supply and demand sides, which is a very challenging task. Specifically:

Air Freight:

In recent years, the surge in parcel volume in China has broken the ceiling of air freight capacity, which in turn indicates that China's fully managed direct delivery business will be severely restricted by air cargo capacity. In the foreseeable future, the development of direct delivery logistics industry will be constrained by capacity. Air cargo capacity involves airlines, and airlines involve negotiations on national air rights.

 Therefore, this is not just a simple economic issue. Future aviation resources may be more efficiently utilized, for example, by configuring appropriate aircraft for suitable routes to improve efficiency. Zongteng Group has also begun to allocate aircraft, with two Boeing freighters stationed in Shenzhen. In addition to our two self-owned aircraft, we added two Boeing 777 charter aircraft capacity in April to deploy more capacity on European and American routes, stabilizing air channels and trunk transportation effectively.

Sea Freight:

Currently, the maritime industry also faces many challenges and risks, with the biggest black swan being the Panama Canal and the Suez Canal. The Panama Canal has experienced a 1/3 decrease in traffic due to a drop in water levels, while the Suez Canal, after the crisis in the Red Sea, will see a decrease of approximately 300 ships per week, with an increase of 300-400 ships around the Cape of Good Hope. These will have profound impacts on China and global supply chains. If this continues, not only will sea freight prices continue to rise, but the route network will also be restructured.

The good news is that due to the delivery of new ships ordered during the pandemic, maritime capacity is expected to increase by 10% next year, while trade demand only increases by 3%, which will create some surplus capacity in the market, conducive to price negotiation. However, this still depends on when the crisis in the Red Sea ends, and factors such as ship companies adopting deceleration methods to dilute capacity to achieve carbon emission reduction goals, which are uncertain. But overall, the maritime industry is expected to net add 3.5 million TEUs of capacity next year, indicating an oversupply of capacity.

Warehouse Aspect:

After the 2008 financial crisis, warehouse prices in the United States have been on the rise. For example, warehouses in the western United States are priced as high as $400 per square foot, equivalent to over 30,000 RMB per square meter, with a rental rate of $18 per square foot per year. Recently, the vacancy rate of warehouses in the United States has started to rise. The current vacancy rate in the United States is approximately between 3% to 6%. According to historical experience, after the vacancy rate of warehouses in the United States reaches its peak, it takes another two years for rents to reach their lowest point. Therefore, many logistics companies now face certain risks in large-scale expansion.

Warehouse rents may remain relatively high in the future. In this situation, enterprises need to carefully consider their overseas warehouse expansion plans or seek warehouses in non-Western regions with relatively cheaper rents. Additionally, with the increasing seriousness of inflation and labor shortages, the application of robotics technology is becoming more widespread. The future trend will focus on warehouse intelligence. For example, in 2020, Amazon had only 200,000 sets of robots, and now there are 700,000 sets.

Currently, Zongteng's overseas warehouses are continuously optimizing details to meet the personalized needs of various professional customers from the bottom up. With the influx of professional customers, the standardized products of single-channel fulfillment platforms can no longer meet their diversified requirements. Therefore, we have implemented multiple optimization measures, including effective period management for industries such as food and cosmetics; sequential code management for electronic products, realizing one code per item instead of one code per SKU;

barcode mapping, enabling smooth warehouse entry and direct scanning regardless of the barcode used by customers, reducing the trouble of relabeling and identification. These measures are aimed at better serving various professional customers, including specific requirements such as products with batteries, truly empowering various overseas industries, and meeting the delivery needs of both B2B and B2C.

Changes in Amazon:

Although industry attention has been more focused on platforms like TEMU and SHEIN in recent years, Amazon has been continuously iterating and upgrading, still requiring our attention. In June 2022, Amazon sold a large number of warehouses, and in 2023, it directly transferred more than 6.7 million square feet of warehouses, which is roughly equivalent to the rental of over 6.9 million square feet of warehouses, indicating an adjustment in its warehouse layout strategy.

 This is also the reason why Amazon FBA has been adjusting its inventory policy in recent years. However, in this context, Amazon's sales still achieved a growth of over ten percent. Amazon has always insisted on placing warehouse goods closer to customers. Since 2016, Amazon has been continuously building and improving its warehouse network, which was basically completed last year, making the warehouse network in the United States equivalent to the warehouse network of eight independent European countries. Each warehouse is equipped with the same inventory, laying the foundation for Amazon's future achievement of same-day or next-day delivery. This change has profound implications for the first-leg delivery of FBA.

The goods shipped from sellers' warehouses are becoming smaller and more dispersed to adapt to the layout of Amazon's warehouse network. This trend of dispersion poses higher requirements for warehousing and distribution service providers, including higher turnover rates and warehouse entry accuracy. Additionally, Amazon's inventory policy is always in a state of adjustment. If sellers and logistics service providers fail to keep up in time, they are likely to get into trouble. Currently, Amazon's warehouse utilization rate has reached 85%, indicating a nearly full warehouse load, which is a remarkable management achievement.

 Amazon has driven up the industry's speed standard, forcing all participants to engage in a service network arms race. The biggest impact of this is that Amazon will absorb more inventory resources from sellers. Sellers who want to perform better need to stock more goods in different warehouses. The more goods they stock, the faster their sales will grow, and the faster their efficiency will be, directly affecting the logistics service providers of the FBA first leg.

Therefore, many logistics companies are continuously expanding their warehouses, especially after the goods are increasingly subdivided. The FBA first leg requires more shelves to distinguish goods, which greatly affects the area, shelves, and overseas sorting capabilities of warehouses. Furthermore, after the goods are dispersed, companies cannot use truck transportation anymore, only express delivery, resulting in smaller unit volumes for delivery to recipients, and subsequently adjusting profits.

This requires FBA first-leg service providers to establish consolidation warehouses in different Amazon warehouses. It is best to achieve centralized transportation from the U.S. West to various regions, and then conduct distribution locally; otherwise, the effectiveness and profits will be greatly reduced. Sellers have also been greatly affected by Amazon's warehouse adjustments. Among them, large sellers can use their resource advantages to focus on high-selling SKUs, and smaller SKUs cannot withstand warehouse splitting. Inventory-type sellers may be more fatally affected, as they cannot achieve the goal of shipping from multiple warehouses, thus losing competitiveness.

However, boutique sellers may benefit the most from this change. They can optimize inventory management and distribution strategies to improve sales efficiency and customer satisfaction. The changes in Amazon have also affected the pattern of e-commerce platforms. When Amazon greatly improves logistics timeliness, customer experience is enlarged accordingly, and the efficiency of direct delivery logistics in China needs to be higher. Direct delivery ports need more points of injection to compete with Amazon by shortening the distribution time. Otherwise, they will lose out even if their prices are lower, and may ultimately be eliminated by customers. In addition, overseas warehouse companies have also been affected to a certain extent. Currently, most overseas warehouse companies only have warehouses in the eastern and western United States, and a few companies may have three to four warehouses. However, in the future, having six warehouses will gradually become a standard configuration. Although overseas warehouse companies do not have the platform discourse power like Amazon, third-party overseas warehouse companies mainly undertake Amazon's overflow business. If companies

If Amazon forcefully promotes this policy, both seller resources and seller resources will be involved, and Amazon's flywheel effect will spin again. The future industry will enter a stage of structural growth with existing resources. Sellers need to shift their focus from pursuing scale to pursuing efficiency, retaining more profits to cope with the rising logistics costs, and seeking high-quality development. Additionally, sellers need to choose their positioning carefully, considering whether their own supply chain matches the platform. Each platform has its own advantages, but ultimately, it depends on the competitiveness of the enterprise's own supply chain. Only with sufficient competitiveness can businesses thrive in the future. Chinese brands going global are already making waves and are unstoppable. Along this journey, we will undoubtedly encounter various setbacks. We hope to walk together with everyone, sharing the joys and sorrows of the journey.

End

Cross-border E-commerce Logistics Bai Xiaosheng