China Manufacturing To Overtake U.S. - Impacts on Cross Border Trade
Last week the Wall Street Journal posted a really interesting graph on the front page that shows the size of the China manufacturing sector. WSJ subscribers can read the entire article here. The graph speaks a thousand words.
I don’t think it comes as any big surprise that Chinese manufacturing is increasing at such a huge rate. A walk down a Walmart aisle or a trip to the Apple store is about all the proof that you need. Add to that the ongoing TV, blog and news commentary related to China’s recent moves to allow the Yuan to appreciate against the dollar. Will it lead to a surge in U.S. manufacturing or a decrease in the trade deficit with China? (Yuan is a unit of the Chinese currency the Renminbi) Only time will tell.
Being a a global e-commerce and global logistics blog, I’m less interested in discussing the trade deficit and more interested at looking at the major trends for trade routes and where all these Chinese manufactured goods are going, who is buying them and where are they being sold. I also think there are a few new trends developing that people should be aware of.
- Asia to LA/Long-beach trade route will continue to grow.
- Asian manufacturers will enter the U.S. market.
- The middleman will be redefined.
- The difference between International shipping and cross-border e-commerce.
Asia to U.S. Trade Route Growth
The silk road was a trade route. Columbus was looking for a new trade route to Far East spices when he crash landed into the Dominican Republic. As with everything, Wikipedia is the gospel of great definitions even for trade routes.
If you move goods along a trade route, you will rapidly find that your costs for container shipping will be much lower and you will have more container shipping options (increased frequency) if you are shipping along a well established trade route. More volume of goods means lower costs for everybody because more ships are moving more frequently and the container companies want those ships full. Just go down to the Long Beach port on any given day and you will see loads of ships and containers coming in from Asian ports; but, probably not too many from West Africa.
When it comes to consumer e-commerce (b2c), and international e-commerce, the trade route is still a factor. I realize that there is air freight and consolidated shipping and express parcel. All those still are driven by the most general rules of trade – The more goods that move, the cheaper you can get the transport. (I’m going to have to come up with a snappier way to say that…comments welcome). Trade Routes are an interesting thing when you apply it to e-commerce and especially consumer e-commerce.
When you look at the Port of Long Beach and Port of Los Angeles container volume as a whole, you get the number one port in America and its container volume is increasing (making up from low inventory in 2008-2009). It’s no big surprise that it’s the closest port to the major Asian export markets.
Asian Manufacturers will enter new markets – Redefining the Middleman.
2010 has seen a large uptick in deal making for the major Asian marketplaces. Particularly interesting is the interest in direct to consumer (B2c) e-commerce tools and deals that bring sales tools and marketplaces to the front door of Asian manufacturers. Here are just a few deals that you may have noticed:
- There are new wholesale marketplaces popping up to make it easier for Asian manufacturers to sell goods in small wholesale amounts to U.S. buyers and importers. AliExpress appears to be the most well backed and accelerating quickly. Others include Light in a Box and DH Gate. These are transaction platforms (like Amazon) and not just sourcing connection platforms. All aim to simplify the process of buying from an overseas manufacture.
- Yahoo Japan and Alibaba’s Chinese auction site TaoBao tie the knot.
- Alibaba just bought Vendio – a U.S. Auction tool and e-commerce shopping cart provider. Alibaba’s first U.S. acquisition to support their AliExpress marketplace.
- Rakuten, one of the largest Japanese marketplaces is on a global acquisition spree that started with the Buy.com purchase.
This is just a small sampling of a steady increase in deals in the E-commerce space. Most point to a desire to help Asian manufacturers understand how to sell directly into online marketplaces and to help match-make Asian manufacturers with more importers and retailers and facilitate transactions of smaller amounts of wholesale goods.
What does this mean for the importer, retailer or middleman? Today, it may just mean a new transaction platform to help source goods and understand what is being purchased. However, as manufactures learn how to enter foreign markets more effectively, this may put the squeeze on importers and retailers who don’t offer a value add or it may simply offer retailers with skills at merchandising a more savvy manufacturer/supplier who can offer tools like drop ship and factory direct pricing. At the current pace, this will take a while. Read on to understand more why.
Cross-Border E-commerce is not defined as “International Shipping”
Take one look at any of the wholesale goods marketplaces above and you will quickly notice that while the product prices are low; in many cases the cost to ship the product may be more than the price of the goods. Many products offer free shipping; but, its pretty obvious that the price of the good was rightly increased to cover the shipping cost. Most of the shipments appear to be international parcel or air-freight shipments that will take over two weeks to get to their buyers if they clear customs quickly.
This is pretty typical for most small and mid-sized overseas manufacturers today. Put the product up for sale in a U.S. marketplace; but, keep the inventory in the home country until it is purchased. This is overseas selling using International shipping. This is not scalable cross-border e-commerce!
Why? Because, asking a buyer to pay more than the cost of the goods in shipping, having to wait multiple weeks for a shipment and pushing the customs/duties and tax problem onto the buyer is just a new face on sourcing overseas. The buyers that understand this process and know how to import will continue to import; but, new buyers will be slow to adopt. None of the problems have really been solved for the buyer in a way that makes the buyer want to buy more product, more frequently. There was a recent article in the E-commerce Times that didn’t separate “International shipping” from “cross-border e-commerce” and did a fantastic job of describing all the hassles and risks of international shipping.
Being able to ship a parcel Internationally will help close a few transactions; but, cross-border e-commerce, as practiced by the largest companies, is not International shipping. Cross-border e-commerce is all about the supply chain and the location of inventory closer to buyers. A manufacturer that takes a small amount of inventory and imports it into the U.S. (or any major market), stores it in a warehouse in the U.S. close to buyers has many more sales options available than the manufacturer that keeps all inventory in Asia. Some sales options that open up:
- Truly enter a new market and be able to automate your sales growth
- Sell the product wholesale or retail in more online marketplaces (retail and wholesale marketplaces).
- Automate order fulfillment using a service like Shipwire
- Offer local buyers same day shipping, free shipping promotions and other proven conversion increasing offers
- Increase sales by removing the hassles of importing and clearing customs
- Be able to handle returns locally
- Offer the goods to retailers and give them drop ship terms
Please see our Global Growth micro-site for more information on entering an overseas market.
Clearly, cross-border e-commerce takes more time than shipping international; but, the benefits are huge for the companies that find partners that can help them do this. Clearly Shipwire is one such cross border e-commerce partner I hope people consider and recommend to any seller that is wishing to enter into new markets and accelerate sales.
This blog post is getting way too long so expect me to flush out cross-border much more in upcoming blog posts.