Does this spell the end of low-cost shipping from China?

The days of low-cost packages imported directly from China are over, experts at the University of Antwerp predict. The sharp increase in shipping and delivery costs coupled with the capacity decrease caused by the coronavirus only add to existing problems.

Poisonous cocktail

The price of products sold online on low-cost platforms such as AliExpress and Wish is expected to rise significantly, transport economics professor Roel Gevaers and aviation economics professor Wouter Dewulf of the University of Antwerp say. In Belgian business newspaper De Tijd, they speak of a “poisonous cocktail” of four ingredients that could put an end to the golden age of dropshipping.

Two of these ingredients are directly linked to the coronavirus epidemic and its logistical consequences, in particular the disappearance of a large portion of long-haul flights. Gevaers and Dewulf point out that cargo space in passenger flights accounts for more than half of the worldwide transport capacity, and that the sharp reduction in the number of flights has increased the price of air freight from China tenfold, from 0.75 dollars per kilo to 7.5 dollars.

Once the goods were unloaded in Europe, Chinese platforms sometimes used commercial courier companies such as DPD and UPS if they could offer them a preferential rate: since a van filled to the brim is always more profitable than a half full one, the Chinese were sometimes able to negotiate a favourable price for the traditionally more expensive “last mile”. But now that the health crisis has boosted e-commerce to the point of regularly causing capacity problems for courier companies, this option is disappearing.

Postal tariff reform

In addition, the Universal Postal Union’s “charity” regime was particularly attractive for low-cost web platforms: still considered a third world country when it was developed in the 1960s, China enjoys a preferential tariff on the mail it sends around the world. This regime was not adapted when China became a superpower: this means that national postal companies have to deliver parcels from China almost free of charge – or even at a loss, especially if they weigh less than two kilos. However, as American president Donald Trump has put an end to this system: from 2021, each country will be able to set its own prices, which could almost triple postal rates by 2025.

Finally, there is the new European Union tax regime for direct-to-consumer purchases, which is aimed precisely at this very popular dropshipping system. For the time being, only packages over 22 euros are subject to VAT, and import duties only apply to packages over 150 euros. But everything will change from January 2021, when parcels under 22 euros will also be subject to VAT.

The entire business model of Chinese e-commerce players, based on free delivery for orders of just a few euros, is therefore in danger of collapsing like a house of cards. On the bright side, Gevaers and Dewulf see European e-commerce regaining ground if the Chinese do not quickly set up their own European logistics bases – it is no coincidence that Alibaba is trying to set up shop in Liège while its rival JD.com wants to do the same in the port of Zeebrugge.