Export Engine Stalls, How to Break Through Logistics for Overseas Shipping?

With the foreseeable slowdown in external demand and the pressure of foreign trade by 2023, Chinese logistics companies that have previously stepped out of China to go global are now facing a collective test.

In a press conference held by the State Council Information Office in February 2022, Li Xingqian, director general of the Department of Foreign Trade of the Ministry of Commerce, pointed out that the international trade environment is extremely severe, with the risk of a global economic recession on the rise and a significant slowdown in external demand growth, while the international supply chain is accelerating its restructuring. 

And he mentioned, “the main contradiction in China's foreign trade sector, which was the supply chain disruption and inadequate performance capability in the past year, has now transformed into weak external demand and declining orders."

The fundamental of logistics lies in demand. In the current consensus that external demand is weakening, logistics companies' survival environment overseas is also facing challenges.

Previously riding on the fast train of domestic brands and cross-border e-commerce accelerating to the sea, a host of logistics companies went to overseas investment layout. The sales of domestic brands overseas have driven the single volume of logistics companies, and almost become the engine of overseas business growth of logistics companies.

Now, the foreign trade growth rate is slowing down, how to dig the second growth point of logistics companies that have long been heading overseas?

In the face of this challenge, a number of industry insiders pointed out to the author that the development logic of Chinese logistics companies overseas should be shifted from the demand side of the single volume to the supply side to enhance the brand power.

Logistics gets further development as national brand tide rises

Less than a month ago, Cainiao just signed an agreement with Deutsche Post DHL Group (DHL), and the two sides plan to jointly invest 60 million euros in the first phase, aiming to build the largest self-service network in Poland.

This move is closely related to the development trend of Speedy in Poland.

According to third-party platform App Annie, as Alibaba's "international version of Taobao", Selling.com ranked first among local cross-border e-commerce platforms in terms of cumulative downloads and user scale in Poland as of December 2022. This is the fourth year in a row that Selling.com has remained the number one cross-border e-commerce platform in Poland.

The business flow support provided by SpeedySales is the biggest reason why Cainiao and DHL invested 60 million euros to build a self-service network.

Looking back at the layout made by Chinese logistics companies in overseas markets over the years, they have mostly followed the rhythm of national brands going to sea to prosper together. Previously, the pole rabbit express relied on OPPO and Jindo to open up the Southeast Asian market; Jingdong and Cainiao are following their own e-commerce platform to bloom around.

A research report by CICC mentioned that cross-border e-commerce through disintermediation, reshape the overseas channel power of Chinese brands, enhance the product power to brand power conduction, drive Chinese brands to the sea. At the same time, the enhanced discourse of business flow also drives Chinese logistics companies to expand their service radius, accelerate globalization and open up growth space.

Zhao Xiaomin, an expert in express logistics and CEO of Guanxiao Capital, also analyzed to the author that some Chinese companies have previously gone abroad and have occupied a large scale in the international market and formed a wide sales network. China's independent brands are getting more and more popular, and logistics will follow.

"The easiest way for Chinese logistics companies (to go abroad) is to use the overseas local logistics alliance system to serve them first, and then take root locally."

Data from Frost & Sullivan shows that China's cross-border e-commerce logistics market size increased from 1.3 trillion yuan in 2017 to 2.8 trillion yuan in 2021, with a compound annual growth rate of 21.8%. By 2026, it is expected to reach 5.2 trillion yuan.

The development of cross-border e-commerce has further opened up the sales of national brands, and the final delivery of these goods to customers is also inseparable from the supporting logistics facilities and services. Goods flow, business flow and logistics complement each other, and the development of overseas business on the fast ship of national brands to the sea, which is the main logic of logistics to the sea in the last stage.

Logistics boosts brand power in the context of downward foreign demand

But right now, the momentum of foreign trade growth, which is closely related to the amount of orders undertaken by logistics enterprises, is being dragged down by the international economic environment.

Since this year, a number of institutions have given the warning of a global economic slowdown, global trade growth is not optimistic. According to the International Monetary Fund (IMF) on January 30 update of the "World Economic Outlook" report, in line with global demand trends, although the supply bottleneck will be eased, the growth rate of world trade in 2023 is expected to fall to 2.4%.

Then on February 2, Li Xingqian, director of the Department of Foreign Trade at the Ministry of Commerce, pointed out that the current risk of world recession is rising, external demand growth has slowed significantly, and the environment for foreign trade development is extremely severe.

The pressure has been reflected in the freight side.

On February 24 this year, the latest issue of China's export container freight index fell to 1077.75 points, down 68.54% year-on-year. Previously on December 30, 2022, this index was at 1271.31 points. The index had reached a record high of 3,587.91 points in the early 2022 period when shipping prices were soaring.

Reflecting on specific routes, shipping prices continued to be under pressure. As of the week of February 24, Shanghai - the United States and the West route freight rate reported 1234 U.S. dollars / FEU (40 feet container), down 84.7%; Shanghai - Europe route freight rate reported 882 U.S. dollars / TEU (TEU), down 88.3% year-on-year.

Logistics enterprises riding on the national brand to the sea express, had to start seeking new development momentum.

Zhao Xiaomin said, logistics enterprises on the one hand to go to sea strongly, on the other hand, do not go to sea blindly. "(Logistics to go to sea) timing is very important, the last two or three years, the whole international environment atmosphere has changed essentially."

He mentioned that previously, logistics enterprises benefit from the demand side - from the domestic enterprises of the single volume growth, when logistics enterprises play the role of "grafters". In addition, logistics companies should actually make efforts from the supply side and take up the role of "solution provider".

Further explanation, is that logistics companies need to have sufficient capacity to provide better services for Chinese enterprises out of the country. "Because the core of the express is the service, is the solution, this is their product."

For what is "better service", a cross-border logistics company insiders to the author to make a more concrete explanation.

The person recalled that the company had previously participated in a soda brand overseas sales program, "because their products are relatively full of gas, packaging and aluminum cans, the transport process is very easy to break, we want to give it to do electronic solutions."

"Another example is that many goods shipped to a destination will have a variety of route combinations, including those involving road transport, rail transport, air transport, this situation we will use their own set of codes to calculate how to transport to the destination according to the specific order to save the most cost, and then make a set of route program out, directly sell this program to the customer, the seller can choose this line to shipping."

He admits that the difficulty of perfecting logistics services is that its carriage of various types of goods have more special properties, the actual logistics companies need to do customization services. And at this stage, in this level to do a good job of the enterprise "is not much".

This is consistent with Zhao Xiaomin's observation. "China's goods go out, foreign freight in, in this process logistics companies must consider whether they can provide enough perfect solutions, if not, can only assume a graft role."

Heavy asset brings a series of problems

Talking about the slowdown of domestic export growth for logistics companies overseas business pressure, a brokerage firm analysis to the author, "because the overall overseas market is still relatively large, so if they can get some better customers, or can maintain some growth. But the prerequisite is that the enterprise itself is good at what it does."

But on the point of "excellent skills", he focused on a different perspective from the above-mentioned business people, focusing more on the hardware level, such as whether the network density is dense enough, the frequency of collection is enough to maintain customer stickiness.

This puts a high demand on the infrastructure investment and construction of logistics enterprises in foreign countries. Accordingly, it also requires the enterprise itself to have more abundant cash flow support.

Such as self-organized fleet of SF and self-built warehousing Jingdong, still can not get around the capital investment, long construction cycle, long return cycle of such heavy asset problems.

Previously, SF financial data show that as of June 30, 2022, SF operated 95 full cargo aircraft, including 72 of its own, international routes over 6700. However, as of the end of the third quarter of 2022, the ending cash and cash equivalents balance of SF was 28.033 billion yuan, and the cash and cash equivalents decreased by 6.78 billion yuan during the period.

On the other hand, Jingdong Logistics, which has made a strong effort in warehousing, is also carrying a heavy burden.

In January this year, in response to external inquiries about its shrinking e-commerce business in Southeast Asia, it said that the company is continuing to increase its logistics and warehousing layout in Southeast Asia, Europe and North America, of which 20 intelligent logistics parks have been operated in Indonesia alone.

And as of the first half of last year, Jingdong Logistics is still losing money. Financial data show that in the first half of 2022, Jingdong Logistics achieved revenue of 58.6 billion yuan, an increase of 20.9% year-on-year, while the net profit attributable to the mother was still a loss of 1.462 billion yuan. Although the scale of losses narrowed by 90.5% year-on-year, its warehouse rental costs increased by 16.0% year-on-year to 5.2 billion yuan.

In addition to rental costs, the aforementioned brokerage sources also introduced the equally high operating costs of self-built warehouses in foreign countries.

"For cross-border e-commerce enterprises, the use of overseas warehouses is bound to stock up, but now domestic enterprises go abroad basically to clothing and other fast-moving products, once the market aesthetic changes, the inventory may directly rot, so many companies will also take the initiative not to choose to stock up, the demand for warehousing will also decline."

And in any case, previously out of the country's logistics enterprises have long been sprinkled with real money for this. In the export dividend temporarily weakened at the moment, the logistics brand power contest was forced to advance. Looking for a balance between service quality and profitability will be a number of logistics enterprises in this overseas journey on the mandatory course.