Transportation costs from China increased considerably during the second half of 2020. We began to notice the trend in August, although more people were heard talking about it during the last quarter of the year. In fact, businessmen from different sectors, concerned about the consequences, commented on the situation on social media networks like Twitter.
At the beginning of last year, two weeks of public holidays for Chinese New Year overlapped in China and we already began to hear about the expansion of COVID 19 with the subsequent mandatory lockdowns caused by the pandemic. The combination of the two events triggered a mismatch in supply and demand, which subsequently led shipping companies to make cancellations (known as Blank Sailing) due to the low volume of freight transport.
There was no time for the situation to improve. In March, COVID 19 arrived in Europe. Towards the end of the first quarter and during much of the second quarter, most countries were in lockdown, resulting in a drastic drop in global demand. The shipping companies continued to cancel routes to adapt to the low import demand. This decision affected the US and other countries in the American continent, which were forced to delay the return of containers to port, due to their late reception.
China, one step ahead, picked up its economic pace strongly in June. But the lack of equipment returning to the country combined with the services still cancelled by shipping lines, caused a global shipping collapse, resulted in an inevitable rise in freight rates from China to the outside world.
The current delicate situation, together with a new celebration of the Chinese New Year, suggests that this problem will continue at least during the first quarter of 2021. Only the evolution of the market and of supply and demand will provide a solution for this situation. Or not.
In this context, it should not be forgotten that, despite the economic crisis that COVID-19 is causing around the world, the pandemic has provoked a real explosion in ecommerce, and many articles are starting to talk about last year as E-2020: the year of ecommerce.
In countries such as the UK, ecommerce transactions are estimated to have accounted for 30% of total retail sales by 2020 (in 2019, the figure was 21.8%). In other countries, such as Spain, the figures are also highly optimistic, with e-commerce growth of 36%, making the country the third fastest growing market this year.
The evolution of e-commerce is undoubtedly not going to slow down, nor will it regress. Its growth will not always be as rapid, but it is a new form of consumption that has changed everything in developed countries. In this context, entrepreneurs now fear an increase in the costs of their products more than ever. In an economic and social time as delicate as the one we are experiencing; an unexpected price increase can equate a significant loss of customers in most economic sectors.
Looking for alternatives to the high cost of freight.
The reality is, that the price of transportation from China has increased threefold or even fourfold in the last year. Given this difficult situation, it is important to stress that there are no magic formulas to reduce the cost of transportation from China. When supply and demand normalize, and there is enough time to recover from the disruptions caused by the pandemic, we are confident that transport rates will come down again. But this is unlikely to happen in the short term.
However, the business world never stops, and imports also cannot be put on hold. That’s why the only alternative to combat transport cost overruns is to seek to maximize efficiency in imports.
From optimizing product design to the existence of possibly unnecessary elements like too many plastics in packaging, can all contribute to cutting production costs and without sacrificing quality, of course. However, as you probably already know, choosing a good supplier and the subsequent negotiation are the key factors to consider in order to cut expenses.
Tips for choosing a good supplier in China.
As sourcing experts, we know how important it is to choose the right supplier. In fact, we would go so far as to say that more than 70% of import success depends on it.
Checking that the potential supplier meets the following requirements should always be taken into account when choosing a supplier in China:
- Reliable experience with proven track record
- Real production capacity
- Training for their workers
- Competitive prices
- Internal performance resources
- Quality in manufacturing
- Timing compliance
Despite knowing the points to consider when choosing a good supplier that guarantees optimizing the cost price and a successful import, it is not easy to actually realize this. Cultural and communication factors and lack of experience often result in a “bumpy” import that does not meet the expected results.
At S3 Group we have been acting as a sourcing partner for nearly 20 years for companies from all over the world buying products in China. Among the services we offer, the selection of and negotiation with suppliers are the services our client’s value most as it ensures a smooth import and an adjusted cost of the products, which guarantees them a greater competitiveness against their rivals.