Ecommerce landslide and disruptions in 2020

When every facet of every country’s economy got affected by the terrible Covid-19 menace, new online buying behaviors emerged relative to the situation. 'Toilet paper bulk' moved from 2657th place to 4th  most searched item online, with hand sanitizers, wipes, nonmedical masks rising in their online search ranking. The seasonality and trends of buying changed based on consumer behaviour and spending power. Most home entertainment items such as board games, at-home gym equipment, BBQ equipment, indoor games, car accessories, home improvement accessories had a great demand compared to pre-Covid times. Most of these items mentioned were not ready for the online demand and ran out of stocks as it was not a traditional peak for them.

Chinese sellers/consolidators came back to life when the air freight rates started to recede from the PPE tidal wave. UPU gave the US the liberty to negotiate the rates on a bilateral approach with many countries and China's post got the brunt of it. The rates shot up by 150-200 percent based on different aspects of e-commerce. ChinaPost’s most popular e-packet service had to raise the prices with a surcharge. Most small scale/low-value sellers could not afford the drop shipping rates and started to focus on other destinations than USA.

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The abrupt behavior has changed the online civilization. While many teenagers did not have the extra money to spend and purchase, the middle-aged online buyers became the new inhabitants of the online world.

Popular markets and disruptions

Amid all the chaos, overall e-commerce has grown in volume compared to the same period of last year’s. Even before the Covid-19 situation, e-commerce parcels grew at 17 percent (compounded annual growth rate) across 30 countries surveyed. The e-commerce world purchased $412 billion worth of goods in 2019. The medium of online shopping in 2019 recorded 34 percent of mcommerce while the desktop computer still leads as the main vehicle of online exploration.

Based on World Bank data and PayPal consumer behaviour analysis, some striking data has surfaced. USA registered as the largest online per capita sales at $3766 and China recorded the largest online sales of $635.5 billion. India recorded 42 percent annual m-commerce growth as the fastest growing country while Japan recorded 60 percent annual growth in m-commerce. Although Japan grew 60 percent, India had the highest m-commerce penetration. While China-US route maintained the top spot as the highest cross border trading lane, clothing, footwear, accessories were the top categories.

Black Friday has changed the air freight and ecommerce world permanently. It has influenced many markets to reap the benefits of online shopping behaviors. Black Friday which was a traditional brick and mortar shopping festival has turned to be the world’s largest online shopping season. Black Friday has influenced China’s Singles Day (11/11) and the UK, India, Japan, Singapore have also joined this season to forecast online sales. Online sales have become such a GDP driver that Mexico has invented a new season called ‘El Buen Fin’.

Disruptions do not come only in the form of inventions, they can also be birthed by supply chain processers and capacity. UPU rate changes and USPS increasing the UPU rates has had the biggest impact and created the largest disruption on supply chains. It has made the ChinaPost product struggle to keep demand and postal volumes have plummeted. ChinaPost has started to focus on freight-to-post or we call it F2P model of drop shipping. For example, ChinaPost Chengdu has started their 3-weekly freighters to USA and source their section321-T86 mode of clearance instead of traditional CN36/37 mode. What might be causing this? Traditional postal services are now looking for better options than relying on UPU agreements. They want to offer new concepts and new products to every day changing landscape of ecommerce. The biggest beneficiaries are the ecommerce service providers who have the essential tools to offer services such as Section321-T86 mode of B2C clearance in multiple ports in USA, UK’s LVBI, EU’s Low-value clearance, China’s 9610 customs clearance for exports, 1210 for imports and bonded domestic B2C, last-mile carriers such as Hermes Logistics.

When we discuss the US market disruptions, the capacity to process Section321-T86 entries at each port, inspection resources by customs at each port, the capacity to process and accept last-mile deliveries by USPS or last-mile consolidators like Pitney Bowes, DHL, FedEx smart post and other providers are a great concern. Judging by the last 2-3 months of performance, we expect the delays to happen from Airline terminals to last-mile carriers in the USA.

Further disruption is on the horizon. EU has delayed the implementation of unified VAT for low value and a common database of valuations. This process is called the EU VAT IOSS ID Number. A direct quote from the policy is “indirect registration for all other non-EU sellers. They need to appoint an EU intermediary to obtain an EU IOSS VAT number. The MSI will be the MS where the intermediary is established. Such intermediaries will have an EU IOSS VAT number for each seller they represent”. In simple language, there needs to be a “taxable person” representing all the Chinese sellers going to EU countries. The IOSS VAT Number will be on each customs entry in all injection points in EU where there will be a central database collecting the VAT activities of this IOSS VAT number. Another disruption in EU low-value ecommerce supply chain would be the adaptation is interoperability of label standards. The designed interoperability standard which is GS1 Standard will be implemented across all EU states for each logistics unit, which is in our world, a parcel. The entire life cycle of a parcel to EU will carry this labeling standard and all stakeholders need to be able to read this standard to move a parcel through their systems and capture tracking events. We all know that many ecommerce sellers in EU (from a third country) are trying various ways of getting into EU with undervaluations. When this policy is implemented, it will be hard for any ecommerce seller to use different valuations under the same IOSS VAT number and declare different values. The new label standard will carry the seller ID, Buyer ID, and the VAT IOSS number.

UK has plans to remove the LVBI and even talking about online sales tax. While these governments are mulling additional taxes to be collected from online sales, the largest market in the Middle East, which is Saudi just increased the VAT to 15 percent (from 5 percent) for all trade including ecommerce.

Maturity of dropshipping from China

When we look at the China-US supply chain and the actors in the theatre, we find very experienced-risk taking actors as well as aggressive-new players. The understanding of how to use brokerage and the last mile is still at a developing stage. Anyone can find the linehaul capacity to USA but the understanding of how to manage data in a compliant way and how to select the appropriate last-mile options need more education. Both sellers, consolidators, and brands need to spend more time understanding how e-commerce works end to end. With the introduction of Section321-T86 in USA, the opportunities to handle more dropshipping have become greater than B2B2C or domestic fulfillment in USA. Dropshipping is a retail fulfillment method where a store does not stock up on products. Instead, when a store sells a product using the dropshipping model, it purchases the item from a third party and has it shipped directly to the customer.

Last-mile express carriers in USA need continuous development. One of the largest express ground networks in the USA cannot cater to the Chinese market with their next day or 2/3 day product as this express carrier require a confirmed injection date on the label. This is not suitable for Chinese parcels going to USA. Some sellers are not aware of the steep penalties by USPS if the weights are not correct on the label. The challenges for service providers are equal. Offering last-mile labels to sellers or consolidators without a credit limit of a deposit could be very risky to say the least. The billing aspect of brokerage and last miles need a very focused and detailed process. Understanding 1H, 2H holds in US customs, delayed billing by last-mile carriers before injecting to USPS and so on. We can go on to mention so many other minutes but important details of maturity that we expect and need have by the shippers to USA.

2020 peak season

Due to airline capacity restrictions and airline travel restrictions, we could expect the second half of 2020 to be a very volatile and expensive peak for airfreight space. The current capacity is not enough to cater to any demand increase expected. The peak season ex-China to USA and EU from late September to December is going to reach very high levels of rates due to limited capacity and new capacity coming only by way of full freighters or passenger-converted-freighters. The operating cost of such flights is not cheap. The rates offered by airlines are going to be valid for a week, the longest. Although rates might not reach the PPE era, the rates will increase substantially. My advice to all e-commerce sellers, brands, and consolidators would be to block the space you need for the peak season by estimating the volume of 2019 with a growth of 20-30 percent in 2020 and commit the volume to the logistics providers.

Unpredictability of drop shipping cost will be difficult for sellers and consolidators. Not being able to fix a price online will push sellers to absorb the additional cost in their margins. It is most likely that sellers have to get used to this volatility for the next 5-6 months. Come March 2021, many forwarders will be looking for BSAs with airlines to reduce the risk and it will permanently drive up the cost of drop shipping. It is in everyone’s best interest to strike a balance on cost, not to let the cost kill the golden goose. 

Sources

•      PayPal commissioned Ipsos MORI PayPal Insights 2018.

•      Credit Suisse global wealth report 2019

•      Statistica

•      Commission implementing EU Regulation.

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect those of STAT Media Group.

(This piece is written by Chaminda Gunasekera, Senior Director - Air Freight / ECommerce / Network Development: APAC & MEA at SEKO Logistics and was originally published on LinkedIn. Chaminda is a subject matter expert on ecommerce, air freight and multimodal products within North Asia, Indian Sub Continent, Middle East, and Africa)