Industry Insights | The acceleration of global digitalization and the increasing consumer shopping demand are driving the rapid development of cross-border e-commerce in China

Cross-border e-commerce, abbreviated as cross-border EC, refers to the international commercial activity where transaction entities at different customs borders exchange information, conduct commodity transactions, and settle payments through cross-border e-commerce platforms. It digitizes traditional import and export trade processes such as contract negotiation, conclusion, and fulfillment, and delivers goods through cross-border logistics and off-site warehousing to complete transactions. Cross-border EC can be categorized into three types based on transaction entities: B2B, B2C, and C2C.

B2B cross-border e-commerceE-commerce activities between enterprises operating in different jurisdictions are the online exchange of goods, services, and information facilitated through the internet. In China's cross-border e-commerce market, B2B transactions account for over 90% of the total transaction volume, with enterprise-level markets playing a dominant role.

B2C (Business-to-Customer) cross-border e-commerceE-commerce activities conducted by enterprises at different levels of maturity, targeting individual consumers directly. Enterprises provide services such as online product purchases and online information consultations for individual consumers, allowing them to directly purchase goods from the enterprises.

With the continuous strengthening of China's opening up to the outside world and the government's policy support for cross-border e-commerce development, the development of China's export cross-border e-commerce has been promoted. Relying on China's advantages in manufacturing labor costs and raw materials, which are low and efficient, the types of cross-border e-commerce exported goods are relatively concentrated. According to the General Administration of Customs, more than 90% of cross-border e-commerce goods are consumer goods. Among them, exports mainly include clothing, shoes, bags, home textiles, and electronic products. Imports mainly include cosmetics and toiletries, pharmaceuticals and health care products, baby and maternity products, as well as food and fresh produce. The products exported by China through cross-border e-commerce have a relatively low technical content and low added value, with most being daily necessities.

With the increasingly close international cooperation on the 'Belt and Road' initiative and the continuous development of new infrastructure represented by 5G networks, artificial intelligence, etc., China's cross-border e-commerce export products are gradually transforming from labor-intensive, low-tech, and low-value-added products to high-tech and high-value-added products represented by drones, virtual reality products, 3D printing, smart wearable devices, and smart homes. This transformation is gradually moving from 'Made in China' to 'Intelligently Made in China'.

Cross-border e-commerce is the transformation and upgrading of traditional international trade, achieving advantages such as digitization and informatization on top of traditional trade. As an essential carrier of cross-border e-commerce services, cross-border e-commerce logistics provides import and export warehousing, cargo operations, freight transportation, customs clearance services, etc., for cross-border e-commerce enterprises.

According to the direction of goods flow, cross-border e-commerce can be divided into import and export; according to customer type, it can be divided into B2B and B2C. B2B and B2C can be further divided into third-party and self-built B2B and B2C.

Source: Analysis by Frost & Sullivan

Cross-border e-commerce logistics is one of the important supporting services for cross-border e-commerce. The operation of cross-border e-commerce cannot do without an efficient logistics system. In cross-border e-commerce, logistics is the key link that transports goods from the seller's country to the buyer's country. It determines whether goods can arrive at their destination in a timely and safe manner, directly affecting consumer satisfaction and the reputation of sellers. Therefore, to ensure the smooth operation of cross-border e-commerce, an efficient and reliable cross-border e-commerce logistics system is needed for support.

Source: Analysis by Frost & Sullivan

From the perspective of the cross-border e-commerce logistics industry chain, the upstream mainly includes cross-border e-commerce platforms and merchants, with representative companies including Amazon, Alibaba, etc. The downstream of cross-border e-commerce logistics is primarily composed of individual and corporate buyers.

The midstream of cross-border e-commerce logistics refers to the process and activities involved in the transportation and handling of goods from the starting point to the destination. The main participants in the midstream of cross-border e-commerce logistics providers include some companies that mainly offer partial cross-border logistics services such as warehousing, package delivery, customs clearance, etc. Other companies' businesses cover all major aspects of the cross-border logistics process and provide end-to-end cross-border e-commerce logistics services, including package reception, warehousing, security inspection, repackaging, marking, sorting, export customs declaration, international route transportation, customs clearance, and final delivery.

Source: Analysis by Frost & Sullivan

The level of cross-border e-commerce logistics services and the efficiency of the logistics system are the guarantees for the development of cross-border e-commerce. The common cross-border e-commerce logistics models are mainly divided into four types: international logistics model, postal system model, dedicated line model, and overseas warehouse model (customs bonded warehouse model).

EMS, UPS,DHLSome larger international logistics companies such as FedEx, TNT, etc., belong to the international logistics model.These companies' logistics networks are distributed around the world, providing reliable services and strong delivery capabilities, with basic deliveries taking 3-5 days. The downside is that the prices are relatively expensive, making them suitable for products with small volume, light weight, and high added value.

Under the postal system model, it can be divided into China Post and International e-PiaoBao.The prices of China Post are relatively cheap, with a wide delivery range and simple procedures. However, the downside is that logistics delivery times are longer and there are limitations on the types of goods that can be shipped. International E-mail Express mainly offers logistics services to destinations such as the UK, the US, and Australia. Its speed is slightly faster than that of China Post small packages, and the cost is also relatively cheaper.

The dedicated line mode refers to the centralized transportation of goods.This model can effectively reduce transportation costs, with faster timeliness, lower expenses, simpler procedures, and strong customs clearance capabilities. However, the areas it can cover are relatively limited, there are restrictions on the types of goods that can be shipped, and returns are also more difficult.

Under the overseas warehouse model, merchants must first store their goods in other countries. Once they receive online orders from customers at overseas destinations, they directly rent warehouses in those locations to deliver the goods required by the customers.Low transportation costs, significantly improved logistics speed, ease of return and exchange, and more convenient after-sales service are the advantages of overseas warehouses. However, due to the need to send goods first, how to correctly predict demand, how to better control inventory levels, how to reduce warehousing costs and unsalable inventory costs are challenges faced under the overseas warehouse model.

• Intelligent logistics service

Driven by technological development and diversified downstream demand, cross-border e-commerce services have been further expanded and improved, achieving intelligence in multiple service links. Based on big data for full-link optimization analysis, cross-border e-commerce logistics enterprises can optimize service steps and improve service efficiency. For example, cross-border e-commerce logistics service providers anticipate collecting information and analyzing in each process and implementing algorithms for optimal route planning and intelligent inventory management for cargo transportation. The application of intelligent devices such as big data and AI automated guided vehicles ("AGVs") can effectively improve cargo classification and packaging efficiency and reduce labor costs. Therefore, intelligent services are a market trend in cross-border e-commerce logistics services, and enterprises with intelligent services are expected to enhance their competitiveness in the cross-border e-commerce logistics market.

• Integrated supply chain logistics service

Currently, cross-border e-commerce logistics services are still limited, mainly focusing on customs clearance, warehousing, and transportation operations. However, with the continuous changes and improvements in market demand, logistics companies need to expand their service scope accordingly. Comprehensive cross-border e-commerce logistics services not only provide traditional logistics services but also cover all links of the industrial chain, such as inventory optimization, transportation optimization, warehouse location layout, etc. In the future, the integration of supply chain and logistics is expected to further develop, and companies that offer comprehensive, omnichannel, multi-dimensional value-added services to customers are one of the market trends in the cross-border e-commerce logistics industry.

• Environmental protection logistics

According to the 'Implementation Plan for Promoting Green Consumption' released by the National Development and Reform Commission in 2022, it is proposed that continuous research and development and digital technology need to be advanced, as well as the intelligence level and operational efficiency of the logistics industry should be improved. Accelerate the development of environmentally friendly logistics, actively promote green express packaging, and encourage enterprises to use integrated packaging. Express delivery is an important part of daily production. In recent years, thanks to technological progress and the integration of warehousing and distribution, ineffective losses during the logistics process have been effectively reduced. In the future, energy conservation, emission reduction, low energy consumption, and high-efficiency logistics will be one of the market trends in the cross-border e-commerce logistics industry.