December 2019, China started reporting on severe cases of pneumonia in Wuhan. Quickly after, it became apparent that the world had a potential pandemic at its door. Covid-19, or novel Coronavirus, started spreading worldwide and quickly brought economies to its knees. Lockdowns followed, forcing brick & mortar stores among others to close its doors in many countries in the West and East alike.
While offline stores struggle, many e-commerce businesses started seeing a surge in orders. Certain product categories, such as home fitness equipment, gardening tools, personal hygiene goods and entertainment have especially been in demand as of late. While demand increases and would in normal situations be met with excitement, online sellers now struggle to actually get the goods they’re selling to their customers around the globe. Why? Because of travel restrictions.
Many of the parcels shipped worldwide are shipped by airfreight. A large portion of the world’s parcels, 45%, are placed on board of commercial airlines. However, with lockdowns also came a drastic decline in commercial flights, as governments put in place travel restrictions and less tickets have been booked ever since. Partly because of legislation, partly because of concerns of getting infected with the Coronavirus. The main point being, there is a steep increase in demand for air freight due to an increase in online orders, yet there is a decrease in supply due to a large percentage of commercial airlines being grounded indefinitely. As a result, airfreight costs have been rising significantly over a short period of time. While it used to cost around $500,000 to charter a flight from Asia to the United States, it now costs up to $1.7M. Someone has to pay that bill, either online sellers or the consumer.
Some of the challenges ahead of you may be the increase in shipping fees, the air freight lead times and being able to deliver your goods in a timely manner. You may also see delays in manufacturing caused by a decrease in staff members, or enacted regulations with regards to keeping several meters distance. This takes away from the efficiency of your manufacturing procedures. Steve Suh, CEO of Floship and Chad Rubin, CEO of Skubana discussed this very topic during a FloCast episode. Tune in or continue reading for some things you should be doing to soften the impact of the pandemic.
First of all, it is good to keep in mind that relationships between the United States and China aren’t getting any better because of this. There are already ongoing trade wars between the two superpowers, putting tariffs of 25% on many imported goods. Many American e-commerce brands have seen profit margins drop due to this. President Donald Trump said that China will pay the bill for the damages caused by Covid-19, one way or another. Will this lead to an even bigger increase in tariffs? Nobody knows for sure, but it is good to be aware of the possibility.
A way around this is to simply send your goods to Hong Kong and ship from the special administrative region to the US instead. Ship through Hong Kong instead of directly from China to the US. Shipping through Hong Kong also allows you to minimize lead time caused by parcels being stuck at customs longer than needed if they were to come from China.
Online sellers could also choose to move manufacturing facilities out of China, to countries like Vietnam, or perhaps even Mexico. Sometimes this is easier said than done, and the Hong Kong approach may be the better option. But give it a thought. You don’t just help soften the impact of the trade tariffs by moving your manufacturing facilities, it is also the best strategy to protect your business from the next pandemic. There will be more cases of Zoonotic viruses, it is inevitable.
Chad suggests sellers to diversify their supply chains, to find a preferred factory but also have backup factories to fall back on when your initial factories has to shut down for whatever reason. Relying on just one supplier is a bad idea. Having several backup suppliers will allow you to react to issues around the world as they arise. While China was on lockdown, you would have been able to continue manufacturing outside of China, and now as the United States and parts of Europe are on lockdown, you would be able to open back up your China-based facilities again. Diversify and be ready for the next time around.
Shipping from Hong Kong during Covid-19
Airfreight costs are higher than it has been in a long time. Steve mentions that there is a scarcity of airfreight in the market, resulting in all-time high prices. Airfreight is 3-5 times more costly than before the outbreak and continues to rise as the situation worsens. This really makes you wonder, what do you do? - Steve Suh.
While China is pretty much manufacturing at full capacity once again, sellers now worry about supply chain costs and delivering products to customers as soon as possible.
Sending goods from a Chinese manufacturer to Hong Kong currently may take around 2 days. When the goods arrive in Floship warehouses in Hong Kong, we are able to fulfill orders practically the same day, within 24 hours. Using an option like FedEx or DHL, we’d be able to ship to consumers within 1 to 3 days. You may think that lead times would be worse, but it is not. FedEx especially has a great network in the US, and even with the current situation we are seeing delivery time to be within 1 to 3 days, says Steve Suh.
Another option could be to ship goods by ocean freight. Ocean freight takes longer, but is a reliable mode of transport even right now. If you’re selling goods that are relatively affordable or the popularity of the goods aren’t heavily impacted by shipping delays, ocean freight may be an option for you. Especially for bulky items.
Keep in mind that postal is currently heavily impacted, Steve Suh says. Postal is not as reliable as it should be due to the decrease in availability of airfreight on the market. Postal is a non-inclusive solution, so each part of the road may be taken care of by different companies. As the first part of the journey parcels go aboard commercial airlines, you can see how postal shipments will be delayed. Several countries have also suspended their postal services. Keep this in mind when choosing your shipping strategies.
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