In 2024, cross-border e-commerce has seen significant growth. Particularly in Shenzhen, the scale of cross-border e-commerce imports and exports exceeded 100 billion in the first quarter of 2024, a year-on-year increase of over 90%. The booming development of cross-border e-commerce exports has spurred the prosperity of the cross-border logistics market, with the first noticeable effect being changes in freight rates.

Since March 2024, air cargo rates have remained high. Rates on European and American routes generally hover around 40 yuan per kilogram, with some intercontinental routes nearing 50 yuan. From the end of the Chinese New Year, the global air cargo market originating from China has shown no signs of a low season. Export e-commerce platforms, mainly direct shipping, have maintained strong growth momentum this year. Against this backdrop, the air cargo market is very busy.

The rapid growth in cross-border e-commerce parcels has driven an increase in air cargo volumes and the demand for dedicated cargo planes. But is this business model sustainable? We need to consider the following aspects:

First, the current fully managed export model of cross-border e-commerce is based on platforms providing substantial traffic and logistics subsidies. To attract new customers during the initial stages, platforms offer subsidies and low prices, enabling many overseas consumers to purchase numerous low-cost items. Therefore, in the initial customer acquisition phase, substantial subsidies from platforms are normal, and both merchants and consumers can benefit from these platform subsidies.

Second, in the air cargo market, the rapid growth of cross-border e-commerce parcels has led many companies in the industry to opt for charter flights. If these charter flights depart from Hong Kong, Macau, or other transit countries, these places typically do not offer subsidies for air cargo charters, operating instead on a market bidding mechanism. However, if the flights depart from mainland China airports, many local governments provide subsidies for air cargo charters. For instance, subsidies for Boeing 747 or 777 charters on European and American routes can reach millions. This creates a non-market pricing mechanism.

Under such a mechanism, if local government finances become constrained and subsidies are reduced or eliminated, the cost of air cargo charters at many mainland airports will rise, potentially by 5 to 10 yuan per kilogram. Therefore, in a non-normal market pricing mechanism, subsidies still play a significant role in the cost structure of cross-border e-commerce logistics or air cargo. If subsidies are removed, the mainline cost of direct cross-border e-commerce logistics will see a significant increase.

Third, due to the growth of cross-border e-commerce parcels reaching the capacity ceiling of air cargo supply, the issue facing the cross-border e-commerce logistics industry is no longer insufficient demand but rather insufficient capacity supply. With limited capacity supply or very slow capacity growth, yet continuous growth in cross-border e-commerce, the industry will gradually see an elimination mechanism. That is, with limited overall capacity supply and prices within a relatively acceptable range, merchants, platforms, and logistics companies will begin to choose suitable transportation methods based on unit price and product profit margins.

This is essentially a process of matching supply and demand. In this process, low-value, low-unit-price products will gradually exit the air cargo or direct cross-border e-commerce parcel business model. This will lead to a reshuffling of categories, business models, and platform profitability.

From this perspective, we believe that high air freight rates or limited capacity supply do not necessarily mean that the business model will be impacted. The market is interactive. For cross-border e-commerce platforms, sellers, and logistics companies, it is crucial to carefully calculate the most suitable cost for their operations and continue to operate sustainably. Companies should not overly worry about rising freight costs or changes in demand. In the long run, the cross-border logistics industry will remain in a state of mutual stabilization or competition, with fully managed exports and air cargo capacity supply gradually achieving slow growth amidst existing stocks.

END

Public Account: Cross-border E-commerce Logistics Baixiaosheng