Interview with Wan Song, logistics director of cross-border e-commerce DHgate: Stockpiling overseas warehouses or new ways out

Entering 2022, will the high Sino-US maritime prices loosen?

As a new format and new model of foreign trade, cross-border e-commerce is an important member of the Sino-US maritime market. Wan Song, head of the DHLink Logistics Division of dhon DHLink, a cross-border e-commerce company whose main business is in the North American market, said in an exclusive interview with the first financial reporter that as some countries and regions adopt a more normalized response to the epidemic, the tension in the global supply chain may be alleviated, which will promote the current "crazy" shipping prices to ease. But potential prospects such as higher oil prices could prolong the price decline.

Wan Song believes that Sino-US maritime prices always fluctuate on the basis of supply and demand. He said that most of the orders of traditional large supermarkets end after Christmas, but the model of cross-border e-commerce is different, and the current strong demand will continue until the end of January next year.

The supply chain crisis of the past two years has tested the channel resilience of cross-border e-commerce. Wansong suggested that sellers can stock up on overseas warehouses as one of the ways to diversify their risks. Otherwise, transportation efficiency and logistics time are difficult to control, which may ultimately affect buyers' choices and shopping experience.

Li Xingqian, director of the Department of Foreign Trade of the Ministry of Commerce, previously introduced that overseas warehouses have the characteristics of "four fast and one low", which are fast customs clearance, fast distribution, fast turnover, fast service and low cost. According to the data of the Ministry of Commerce, at present, the number of overseas warehouses in China has exceeded 2,000, with an area of more than 16 million square meters.

Prices are likely to be relatively stable and continue to fall next year

CBN: The Spring Festival is approaching, how do you judge the tension in the supply chain of Sino-US shipping routes in the short term?

Wan Song: Judging from the market situation, the pricing of international freight, including sea freight, is always related to supply and demand, and the price has always fluctuated according to supply and demand. In addition, oil prices rose by a higher margin in September and November this year, and only began to decline in early November, and these cost increases also led to higher sea freight rates.

There is no concept of Spring Festival in overseas markets. To be precise, from the historical data of e-commerce, after Christmas, from the traditional business-to-business (B2B) model, the traditional general trade rests after this point in time, and there is almost no business.

However, the situation of e-commerce is different, and the trend is not uniform. B2B is connected to large supermarkets, such as shipping to large supermarkets such as Walmart in the United States. During the holidays, the U.S. has its own stocking schedules, and after Christmas, they won't have a lot of new orders. However, e-commerce, especially the business-to-consumer (B2C) model, because it directly docks with consumers, orders will continue until the end of January, and the end of January coincides with the traditional Chinese Spring Festival. From the end of January and the beginning of February, throughout February and March, the consumption of the European and American markets is also relatively flat, so the peak season will continue until the end of January.

CBN: Some forecasts say that supply chain bottlenecks will continue until mid-2022, what do you think about this?

Wan Song: In the medium to long term, the tension in the supply chain is caused by many factors. In addition to the epidemic factors, there are also problems of insufficient processing capacity in U.S. ports, such as the Port of Los Angeles, a maritime center on the West Coast of the United States. The Biden administration's urging of these ports to operate 24 hours a day shows that there is a crisis in the receptive capacity of U.S. destination ports. This may be caused by various reasons such as local policy markets and social environments, but it is also a driving force behind the rise in freight rates.

In the case of the Port of Los Angeles, for example, the shortage of manpower in the port of destination has led to a reduction in processing capacity and has also caused the box not to go back. In addition to the ships themselves, container containers are also part of the supply, which makes the supply insufficient. The shortage of supply has triggered an increase in freight rates.

Judging the changes in next year, first, we think that the epidemic may become a normalized situation. Governments are planning to accept the normalization of the epidemic, including the United States, Singapore, the United Kingdom and some countries and regions in Europe. When the normalization of the epidemic, the countries and regions open the door, the entire transport link will be normalized, then the price should still be in a downward trend, returning to a normal level, but this may be a slow downward process.

Second, there may be some variables in between, mainly in the form of international oil prices. If oil prices rise again, it will become a force hindering the decline in freight rates to a certain extent, which will prolong the decline in freight rates.

Third, if the supply side's production capacity to produce goods declines, resulting in a decline in demand for freight, it may also pull down the freight rates of the Us-China sea.

Overall, we believe that from the end of this year to the whole of next year, the freight rates of China and the United States should show a relatively stable, but continuous decline.

CBN: Containers stay in U.S. ports for more than three weeks, what is the cracking method?

Wan Song: Boxes stay in U.S. ports for 3 or 4 weeks, and this problem has actually happened throughout the pandemic, from last year to this year. In other words, the port is understaffed and under-started, which has happened frequently in history. For example, the epidemic caused the suspension of operations, which is also one of the important reasons for the surge in maritime freight rates some time ago, because it has become the driving force of insufficient supply.

From some historical experience, China will produce more container containers to put into supply, such as Chinese container companies are producing in large quantities. But this plan is only temporary, because the number of cargo ships is a certain amount, the Chinese side is working overtime to produce new boxes, and it is only supplied to the Chinese side, and the ports in the United States always have a place to store these boxes, but also have the ability to handle these boxes.

All in all, the boxes have to work. Therefore, we think the most fundamental solution is to return to normal. In other words, the United States still needs to invest more and invest more in port processing capacity, which is the final solution.

CBN: What is the impact of the soaring freight rate on the shipment of cross-border e-commerce? Will it lead to the unprofitable cross-border e-commerce?

Wan Song: Judging from past data, cross-border e-commerce is not unprofitable. This year's sea freight rates are almost equivalent to the air freight rates of 2019, which was before the epidemic. Even so, cross-border e-commerce sellers can still pass on these costs to U.S. buyers, either by the buyers to bear the freight costs, or by the final consumer to share the costs, that is, the price of the product. I think this may also be one reason why Biden asked to deal with the issue of the port as soon as possible, because ordinary Americans will not be able to stand the price surge. That's what we've seen this year.

Logistics costs are passed on to buyers, which is a very normal business practice. However, now that sea freight prices are soaring, Chinese sellers will actually bear part of the cost, and the proportion is difficult to say. In this case, for Chinese sellers, their original profits will also be discounted. But overall, the burden of shipping costs is still mainly on U.S. buyers. So, the current situation is that the seller earns less profit, the buyer pays more, but the transaction is exactly the same thing as the original, and in the end only the transportation and logistics company makes money.

Is overseas warehouse a new way out?

CBN: What suggestions do you have for the layout settings of overseas warehouses?

Wan Song: It depends on the seller's market judgment. In general, for some of the goods identified by the seller as having a market, I recommend that the seller use more overseas warehouses to prepare goods in the mainstream market. Only in this way can we better respond to the needs of buyers and greatly improve the buyer's shopping experience, such as receiving shipments quickly.

Stockpiling overseas warehouses can also reduce the tension of the supply chain to a certain extent. For example, in the peak season of European and American holidays, it is difficult to ship goods, and a large number of goods cannot be transported. If a cross-border e-commerce seller only prepares goods locally and supplies overseas buyers, then whether it is efficiency or the time consumed, it is completely uncontrollable, and the so-called logistics time is mainly mentioned here. In this case, if there is a problem and the situation is uncontrollable, the number of buyers who choose you will definitely decline.

Therefore, our advice is that if the seller has full trust in this commodity and thinks that it is very good to sell and very marketable, it is best to find a way to stock the overseas warehouse. Of course, if this product is still in the testing stage, it is still recommended to ship it in a Straight Chinese way. This is because if you rush to stock up on overseas warehouses, a large amount of inventory is risky.

From the layout of overseas warehouses, the market is already very mature. The mainstream market includes the west coast and the east coast of the United States. In Europe, the EU countries and the UK should be viewed separately, because the UK has left the EU, it is a separate customs area, if the goods are going to enter the UK from the European continent, in fact, they have to enter customs once.

CBN: There is news that the vacancy rate of warehouses in the United States is very low, is the supply of overseas warehouses sufficient?

Wan Song: The supply of overseas warehouses is sufficient. Taking DHgate as an example, we are a cross-border e-commerce platform with the United States and Europe as the main market, and we have sufficient overseas warehouse resources in the United States and Europe for sellers in need. Frankly speaking, after all, the United States is sparsely populated, and the cost of warehousing is cheaper than that of China's core cities. However, the impact of higher labor costs in the United States should also be considered.

The sorting of e-commerce shipments is much more complicated than the traditional sorting of shipments. The commodity warehouse unit (SKU) of cross-border e-commerce is very small, very fragmented, and very numerous. The original traditional B2B business, such as Wal-Mart such a large supermarket, warehousing and transshipment is very efficient, forklifts directly put the entire pallet of goods on the shelves, but for most B2C e-commerce and small wholesale e-commerce, this is not possible. Because it involves small and complex links such as tally, sorting, and size, these costs are still quite high.