5 Benefits of Chinese Bonded Warehouses

by | Apr 4, 2016 | Chinese Market, Emerging Markets | 0 comments

In 2015, 32% of all digital shoppers in China made cross-border purchases. With more than 331 million Chinese shoppers on the Internet, that’s an impressive number of cross-border shoppers. But it wasn’t until 2013, when China piloted cross-border foreign exchange payments that the market reaped a turnover of $3.32 billion (USD). Now, China is attempting to increase that turnover by promoting Chinese bonded warehouses.

According to Export.gov, most consumers are purchasing baby and beauty products, which make up 57% of cross-border sales, with healthy products and food close behind (24% of the market). Those types of products require a large warehouse as a holding ground before each package is individually shipped to the customer, and that’s what the bonded warehouse offers.

The project was started in 2013, when China’s General Administration of Customs designated six cities—Shanghai, Hangzhaou, Ningbo, Zhengzhou, Guangzhou, and Chongqing—for cross-border e-commerce pilots. The program allowed the cities to set up bonded warehouses dedicated to importation and delivery of merchandise purchased online from other countries.

In the past, cross-border markets have shipped their products directly into China from warehouses outside the country. However, the traditional method comes with many frustrations including long shipping times, high duties and taxes, difficult product returns, and increased prices. The new Chinese bonded warehouse model rectifies many of these issues.

Not all products are suited to the bonded warehouse model. Niche items that sit on warehouse shelves won’t receive the same benefits as fast-moving, high-volume goods. But for cross-border e-commerce companies with the right products, bonded warehouses reduce inventory risks and increase profits. There are five main benefits to Chinese bonded warehouses.

Streamlined Customs Process

Prior to Chinese bonded warehouses, the customs process was largely handled offline with paper forms. Now, Cainiao, Alibaba Group’s logistics provider, has a direct digital link to Chinese customs that allows for more accurate tracking and faster handling of goods that Chinese online shoppers purchase from overseas. While Cainiao is the only logistics provider to currently offer this direct upload, many other bonded warehouses are starting the streamlined process.

The process allows transaction, payment, and shipping data to be seamlessly relayed to customs for speedier processing. It also allows goods ordered from cross-border companies to be delivered in a matter of days instead of weeks, so that cross-border shopping is more practical and desirable. In addition, it allows overseas partners to avoid submitting supplementary data such as transaction receipts, which cuts down on additional workload for e-commerce companies.

Reduced Shipping Times

As mentioned above, traditional e-commerce methods have long shipping times, between two to four weeks. These lengthy times are due to customs as well as how sales are processed. Goods shipped from outside the country cannot be shipped until a sales order exists. This means that only those goods specifically ordered can be brought into the country, pre-addressed and packaged. The Chinese bonded warehouse changes that.

A bonded warehouse allows e-commerce companies to ship their goods into China in bulk. Goods don’t have to be delivered only when a sales order is produced. Instead, the Chinese warehouse can hold goods within the country and then ship out each product as it is purchased, severely decreasing the shipping times. Plus, since the customs process is streamlined and completed during bulk delivery instead of individual purchase, packages can arrive almost as quickly as they would for in-country purchases.

Increased E-Commerce Profit Margins

The Chinese bonded warehouse also helps increase merchant profits, even at a lower Chinese sale price, thanks to cutting out the middlemen. In conventional bricks-and-mortar retail, there can be three to four middlemen—distributors and wholesales—between the factory and supermarket shelf. Now, there’s only one middleman, the warehouse, so prices are cut and profits are increased.

Profits are also greater thanks to bulk shipping to bonded warehouses. Logistics costs can be reduced to as little as 10% of what they would be in they were shipped in individual packages to consumer homes. Additional savings also come from the decreased taxes, since bonded warehouse goods bear a significantly lower tax burden than ordinary imports.

Improved Logistics

The logistics of using a cross-bonded warehouse in China makes sense. For an e-commerce company using the traditional shipping method, logistics can be a nightmare. First, warehouse space in the U.S., Australia, and other countries can be more expensive than the same warehouse space in China. On top of that, finding a shipping carrier to carry the products into the country with the right documentation causes additional headaches. Not to mention what happens with returns.

With a bonded warehouse, e-commerce companies don’t have to worry about lengthy shipping times for returned items. Instead, the item can be returned directly to the Chinese warehouse and made ready for another sale. In addition, the logistic bonded warehouse charge is just 5-20% depending on the product. And since the barriers to entry into China are lower than through the traditional e-commerce or retail method, it makes up for any other fees.

Ultimately, the success of the Chinese bonded warehouse depends on the right e-commerce companies jumping on board to get their products to consumers at the right prices. While new rules may soon be put into place that change the market, the bonded warehouse model has already greatly improved and increased the cross-border e-commerce market.