Image source: Internet

1. The Stability of the Cross-Border Supply Chain Faces New Challenges

Since April, the ocean shipping market, which is supposed to be in the off-season, has seen a surge in prices. Freight rates on European and American routes have increased sharply, almost changing daily. Some routes have seen price increases of over 50%, with hikes reaching $1,000 to $2,000. The ongoing tension in the Red Sea has forced many container ships to take longer routes, increasing transportation distances and times. This has led to a decline in the turnover rate of containers and ships, resulting in an approximate 29% loss in shipping capacity.

On one hand, export demand is increasing, while on the other hand, high freight rates and tight shipping capacity are putting significant pressure on sellers. Fearing further price increases, many sellers have been rushing to ship their orders for the second half of the year as early as May and June, leading to a significant increase in shipment volumes and further tightening space availability. The shortage of containers and space, along with situations like overbooking and cargo rollovers, has become the norm in the industry. Many sellers are desperately seeking space daily, facing a market where "prices change daily, with quotes in the morning and price hikes in the afternoon." "There are many orders, but no space, it's frustrating." "Even with a price increase, it's hard to secure space."

The maritime shipping market is experiencing a severe shortage of containers, and the air freight market is also very tense. Under the fully managed model, e-commerce platform packages are experiencing an unprecedented surge. The volume of cross-border e-commerce B2C packages exported from China via air freight exceeds 10,000 tons daily, occupying over 50% of the cargo space of major domestic cargo airlines, driving a significant increase in air freight demand and rates. However, the increase in full cargo aircraft capacity is far behind the growth rate of e-commerce package volumes, further limiting the development of the fully managed model.

After encountering a bottleneck in air freight capacity under the fully managed model, e-commerce platforms have introduced a "semi-managed" model where sellers ship goods to overseas warehouses via sea freight. Over the past three months, the strong promotion of the semi-managed model by some e-commerce platforms has led to an explosive increase in demand for overseas warehouse services. During the pandemic, the bullwhip effect on the supply chain led to high retail inventory levels overseas, causing a nearly two-year-long de-stocking period in the U.S. market. This resulted in many third-party overseas warehouses facing operational difficulties due to lower turnover rates, and these warehouses have undergone capacity adjustments over the past two years.

Currently, the rapid promotion of the semi-managed model has highlighted the contradiction of insufficient overseas warehouse supply. Meanwhile, the fully managed model continues to drive up air freight demand and prices, with capacity and production still limited. Additionally, ocean freight rates are rising due to black swan events like the Red Sea crisis. The stability and cost control of the cross-border logistics supply chain are facing significant challenges!

2. The Stability of Logistics Supports the Healthy Development of Commerce

As the logistics fulfillment segment accounts for as much as 20%-30% of cross-border e-commerce transaction costs, stable timeliness and efficient fulfillment are vital for cross-border e-commerce and are core concerns for many cross-border merchants.

Ten years ago, cross-border e-commerce focused more on the transition from "nothing" to "something" for high-cost-performance overseas products. Consumers were relatively tolerant of delivery times. Nowadays, with the continuous improvement of industry infrastructure, overseas consumers have higher expectations and requirements for the consumption experience, with timeliness being the most direct aspect.

For example, if the fulfillment time of an e-commerce package exceeds seven days, the return rate increases by 2% for each additional day. Conversely, using logistics services that ensure timely delivery significantly improves the positive rating of a seller's products.

Speed not only affects the "return rate" but also the "repurchase rate." Overseas consumers are more likely to place additional orders after receiving their first package. Faster delivery times lead to higher purchase frequency, promoting more frequent transactions. For instance, in markets like France and Spain, ensuring timely delivery can boost the product repurchase rate by about 20%.

Faster delivery times not only reduce return rates and enhance customer satisfaction but also accelerate cash flow turnover. Sellers often say that operating cross-border e-commerce requires three batches of goods: one batch in transit, one batch in overseas warehouses, and one batch awaiting customer receipt. Many sellers, after years of operation, realize that their profits and cash are tied up in their inventory.

Delays in delivery that lead to consumer refusals and returns are extremely challenging for sellers. Therefore, sellers hope for logistics costs and delivery times to be relatively stable or at least within a controllable range. Only with a stable supply chain and controllable costs can sellers confidently ship their products, ensure continuous stock, and achieve sustainable business development.

The stability of logistics can greatly support the development of commerce. Stable logistics services are built on the basis of a healthy and sustainable cross-border logistics ecosystem. Long-term heavy asset investments are required to continuously improve the controllability and stability of services. Only with sufficient profit margins can companies support long-term investments, and only stable customer demand scenarios can support companies in continuously updating products and innovating models.

3. Multi-Dimensional Thinking on the Cross-Border Logistics Supply Chain

The consumption scenarios of cross-border e-commerce are diverse, and the service systems of cross-border logistics are hierarchical. These include fully managed and semi-managed models introduced by e-commerce platforms, as well as high value-added, customized end-to-end supply chain services provided by major courier and shipping companies. Take the e-commerce giant Amazon as an example: in September 2023, Amazon launched its Supply Chain by Amazon solution and opened it to Chinese sellers at the end of 2023.

This solution encompasses several of Amazon’s key products, including Amazon Global Logistics (AGL), Amazon Warehousing and Distribution (AWD), Fulfillment by Amazon (FBA), and Multi-Channel Fulfillment (MCF). It is an end-to-end, fully automated supply chain service that helps sellers quickly and reliably deliver goods from manufacturers directly to customers around the world, managing the supply chain on top of Amazon's order fulfillment services. By greatly simplifying the cross-border logistics process, it allows sellers to focus more on developing their products without worrying about supply chain issues.

Amazon Supply Chain Solution

Image source: Amazon

In the first leg of logistics, Amazon's supply chain solution offers flexible cross-border logistics services. Sellers can choose to use Amazon Global Logistics (AGL) or the Amazon SEND program based on their needs.

Amazon Global Logistics (AGL) provides one-stop cross-border transportation services for full container load (FCL) and less than container load (LCL) shipping from China to the U.S. and Europe (UK/Germany/France/Italy/Spain). With stable, fast, and efficient services, AGL ranked among the top non-vessel operating common carriers (NVOCCs) for sea freight from China to the U.S. in 2023.

The Amazon SEND program, through selected third-party logistics partners, provides one-stop FBA inbound services by shipping sellers' inventory from China to Amazon warehouses in the destination country. Compared to similar services, Amazon SEND has improved delivery speed by 21%, greatly enhancing timeliness.

In the warehousing and distribution stage, to help sellers manage their inventory, Amazon Warehousing and Distribution (AWD) offers integrated upstream warehousing and automatic replenishment to Amazon fulfillment centers. This intelligent warehousing service automatically receives inventory shipped through AGL and Amazon SEND, providing sellers with integrated supply chain services. The system can also use algorithms to transport the appropriate amount of inventory to relevant fulfillment centers, automatically replenishing stock, allowing sellers to avoid concerns about storage capacity limits, inbound transfer fees, and low inventory fees.

To address the current issues of insufficient overseas warehouse supply and replenishment difficulties, Amazon Warehousing and Distribution (AWD) allows sellers to bulk store inventory, keep safety stock in AWD, and automatically replenish FBA inventory through AWD, effectively avoiding stockouts. Additionally, Multi-Channel Distribution (MCD) helps sellers bulk ship products from AWD to other online and offline sales channels, enabling sellers to use a unified inventory to replenish all sales and distribution channels, maximizing the stability of the logistics supply chain.

Moreover, AWD storage fees are as low as 20% of FBA fees, with even lower bulk storage costs, saving sellers up to 42% and helping them better control costs and improve efficiency.

In the final delivery stage, Amazon offers two different logistics services to help sellers handle order fulfillment: Fulfillment by Amazon (FBA) and Multi-Channel Fulfillment (MCF). The most well-known is Fulfillment by Amazon (FBA).

Customers prefer same-day or next-day delivery products, and higher delivery speeds can increase traffic and sales for sellers. In recent years, Amazon Logistics (FBA) has focused on improving delivery speed, simplifying operational difficulties, and enhancing cost efficiency. For example, Amazon has invested billions of dollars in its delivery network, including hundreds of fulfillment and operational centers (including same-day support facilities), placing inventory closer to customers (within the same region), thereby speeding up final delivery and shortening package receiving times.

By the end of July 2023, over 1.8 billion items had been delivered to U.S. Prime members with same-day or next-day delivery, nearly four times the speed of 2019. In the first quarter of 2024, Amazon set a new delivery speed record, with over 2 billion items delivered with same-day or next-day service. Thanks to Amazon's continuous investments in improving FBA operational efficiency and optimizing cost-effectiveness, its prices are on average 70% lower than other two-day delivery channels in the U.S.

Amazon has specifically stated that it has invested significant resources in accelerating the entire supply chain system through Amazon Supply Chain services, further enhancing automation. The e-commerce platform's data will enable comprehensive tracking of global supply chain processes. In 2024, Amazon further upgraded its services, announcing the "2024 Amazon Export Cross-Border Logistics Accelerator Program" in China on May 24.

This program includes: expanding the pickup area to integrate "Guangzhou-Foshan unified pickup"; adding eight exclusive large-item warehouses in the U.S. West Coast for peak seasons; and integrating Amazon SEND into AWD by the fourth quarter of 2024 to simplify inbound supply chain management processes and improve inventory management.

Image source: Amazon

Amazon's combination of product and service offerings across various business scenarios in the cross-border logistics supply chain fulfillment is a typical example of horizontal integration and vertical focus within the supply chain. The stability of products and the extensibility of services at key nodes in cross-border e-commerce logistics are built on deep insights into merchant needs and a holistic perspective that ensures a win-win situation for all supply chain participants. This includes considering the demands of platforms, merchants, and service providers, leveraging their collective strength to continually enhance the prosperity and richness of the industry ecosystem.

In the first quarter of 2024, Shenzhen's cross-border e-commerce import and export volume exceeded 110 billion yuan, with a growth rate of over 95%, setting a new high for the same period. Cross-border e-commerce is currently becoming a new driving force for China to achieve high-quality development in foreign trade exports. Whether it is fully managed, semi-managed, or the Amazon Supply Chain solution, these are all evolving fulfillment models of the logistics supply chain that develop at different stages of cross-border e-commerce. Building an integrated, end-to-end, and multi-tiered cross-border e-commerce logistics fulfillment system based on a supply chain win-win mindset is of long-term value and significance for the entire industry.

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WeChat Official Account: Cross-Border E-commerce Logistics Expert