By Xiangjun Fu, Jiawei Zhou, Zhengqi Zhou and Muyuan Zhu (Listed in alphebatical order)
The city of Yiwu is famous for being the “Largest small commodity wholesale market in the world.”
Nowadays, Yiwu’s logistics industry is developing at an unprecedented rate. It has already become an international port city designated by the United Nations ESCAP and also listed as a national secondary logistics park layout city of China.
Yiwu International Logistics Center was constructed in September 2009. It is a modern international logistics center built in the Yiwu market economy and trade in line with global development. The City of Yiwu has now evolved into one of the most important logistics centers around the world; about 400,000 standard containers are exported annually. Moreover, Yiwu Port by Dongyang River has developed into an international inland port. In the City of Yiwu, there are 1,639 domestic logistics enterprises, 1056 international freight forwarders, more than 100 air freight forwarders, 4,876 import and export companies, 134 express companies such as SF, STO, and YTO, and more than 100 cross-border e-commerce logistics companies.
The Operation Process of International Logistics Industry in Yiwu
Based on half a month’s research, Yiwu’s logistics industry’s detailed operation process has surfaced.
There are three import and export channels, namely air transport, sea transport, and rail transport. For Yiwu’s International Logistics Industry, railway transportation and sea transportation mainly account for the bulk of the total import and export volume, while air transportation has a relatively small share.
Process of Import
The “Overseas Warehouse” located in the Yiwu Free Trade Zone proves to be indispensable in the entire logistics process. The import process starts when importers purchase goods from overseas manufacturers.
While transporting by sea, the goods will be shipped to Chinese ports in large quantities by shipping companies in collaboration with importers. In the case of Yiwu, this arrival port is most likely either Shanghai Port or Ningbo Port. Depending on the producing origin, goods’ transit times originating from Africa and Europe are generally between 25 to 45 days. Besides, the quantity of import goods is so large that the importers continue to sell for several months without re-importing to replenish inventory, which is also the reason why importers were far less affected than exporters during the pandemic.
The goods imported through railway mainly come from CR Express that connects China and Europe. This regular freight train travels four times a week from China to Europe and two times a week returning to China. The returning train can import goods straight to Yiwu Railway Logistics Center with a Free Trade Zone built in it.
As of the airside, Yiwu’s logistics industry does not have that much importance since Yiwu’s airfield area class restricts it. Class 4C airport can only land planes like Boeing 737 and Airbus 320, which can only carry a relatively small amount of cargo. Yiwu’s imported goods by air land mostly at Pudong airport and then transported to Yiwu Free Trade Zone through cargo trucks. After being inspected by customs, cargo will be directly transported to warehouses in the Free Trade Zone. From now on, these goods will be under the dual supervision of customs and taxation bureaus until further delivery.
The most important thing is that these goods are tax-free when they are stored inside the Free Trade Zone, and importers only need to pay the corresponding tax on the goods picked up, which is of great help to importers’ capital flow control. When leaving the Free Trade Zone, the customs will document the picked up goods. Then, the destination of these goods will be determined by the importer and distributed to domestic consumers through a logistics company.
Process of Export
The export process is more simplified compared to imports. The exporter only needs to package the goods to freight forwarders or the logistics company that the buyer cooperates with.
Transporting by sea and railway is relatively simple. Most buyers would appoint freight forwarders to be in charge of the whole export process. Therefore, exporters only need to ensure the quality of the goods to pass the customs export inspection, sort and pack the goods and deliver the goods to the freight forwarders. After that, freight forwarders will take over the cargo and load them into standard containers. In terms of railway transportation, each freight train leaves from Yiwu has 40-50 carriages and carries 80-100 standard containers. The CR Express trains bonded for Europe will experience three-track changes and eventually arrive at European destinations. In terms of sea transportation, most export goods will be transported by truck fleets to ports in Ningbo and Shanghai and then being shipped to countries overseas. Cargo transport by container ships is usually in a large volume. The exporters tend to collaborate with professional ocean shipping groups like Evergreen or Maston to ensure the cargo is still intact when arriving at buyers’ warehouses.
Air transportation has many more limits compared to the sea and railway. Due to aviation safety, the cargo allowed to board the plane is heavily restricted. Such limitations resulted in a proper sorting and packing process. The packaged goods need to follow pallet size. Exporters mostly use international Air Cargo companies like DHL, UPS, and FedEx to transport their products. They only need to deliver the goods to the outlets of these air freight companies in Yiwu, and then the air freight companies will transport these goods to Shanghai Pudong Airport and load onto the cargo planes.
How has Coronavirus affected the logistics industry in Yiwu?
The transportation and logistics industry performs one of the most vital services of the modern globalized and interconnected world. Since the beginning of 2020, more and more countries across the globe have shut down their borders and limited transportation to travel to contain the coronavirus outbreak, thus, creating impediments for international trade and transportation. Such a phenomenon has been significantly amplified in Yiwu, China.
During the pandemic, Yiwu’s export market was hit catastrophically.
Mrs. Yan, the owner of the local retail company Pint Corporation that mainly exports electronic products to African customers, claimed that the export sales decreased drastically when Yiwu International Trade City resumed work and production back on Feb 18th. Her main clients were limited to African and European countries before the pandemic; this is because of the strict quality certification required for electronic products in Japan, South Korea, and the United States. Things were even worse during the pandemic–lockdown over the Eurasian Plate cost the company’s logistic routes toward European countries. Luckily, her business is now back on track in July with a controlled upcoming impact.
Another interviewee, Mr. Chen, a local retailer who exports daily necessities, said a 70% drop in the revenue compared with the number from the previous year. He also lost his big customers from India due to the worsening international relationship between the two countries. To compensate for the losses, Mr. Chen transferred half of his production capacity to epidemic prevention materials. However, initially, the Chinese government’s policy that restricts the products to domestic sales only, then the strict quality certification of countries like the United States to limit his sales.
Luckily, thanks to the fixed departure of CR Express freight train from Yiwu to Madrid, even under such a pandemic, Mr. Chen was able to sell his epidemic prevention materials to new European customers. However, his old clients in Africa can not check the products offline and can only communicate with Mr. Chen using WeChat or WhatsApp. They are still demanding daily necessities to trust their products’ quality. As a result, with the revenue from Europe and Africa, he is still very likely to survive through these rough circumstances.
In another interview, Mrs. Zhang provided specific numbers indicating how bad the situation is–her average daily shipment volume dropped from five to six thousand tote bags before to only one thousand during the pandemic. As the owner of a tote-bag manufacturing company, Mrs. Zhang’s shipments were suspended due to unsalable products. Her long-term customers are from Europe and South America. Same with Mrs. Yan, she as well can not ship any more products to European countries. What’s worse, she sent one load of shipment towards South America when Yiwu International Trade City resumed work and production. The buyer rejected this shipment due to insufficient space in the warehouse. Besides, the Tote-bag manufacturing industry is a relatively saturated market. Every seller has its customer base, so she was unable to find alternative buyers to take over the shipment. This load of products was stranded in the outdoor port cargo distribution area and eventually lose value due to weathering.
Yiwu’s import trade market was not as severely affected as the export trade market during the pandemic.
Inside Yiwu International Capital Goods Market, importer Mr. Wang, who owns the company High Quality, revealed his business’s current situation. Mr. Wang’s company mainly imports FMCG and sells them domestically. These fast-moving consumer goods are primarily imported by sea to warehouses located in Yiwu Free Trade Zone.
Mr. Wang implied that Coronavirus did not affect his business before late March before the number of infections spiked in Europe and the Americas. During this period, his company did not have any losses but instead achieved a higher sales revenue than the same period last year. This is because people were forced to stay at home in the need for social distancing, which brings up the consumption of FMCG. The quarantine policy of the Chinese government has benefitted importers like him.
However, starting in late March, the number of infections surged internationally. The pandemic has caused countries to shut their borders, and logistics routes were either blocked or restricted. Sadly, most of Mr. Wang’s cargo is imported from countries like the United Kingdom, Germany, and the United States, where the number of infections was growing outrageously.
Luckily, the goods Mr. Wang ordered were loaded onto cargo ships before the pandemic worsened, and on their way to China. This successfully bought him time by adjusting the sales strategy: the professional customs clearance team helped Mr. Wang control the warehouse inventory decrease by limiting the purchase amount and extending the sales cycle. Such measures ensured that Mr. Wang’s company maintained a relatively stable revenue until July when the trade was gradually resumed.
Other than Mr. Wang, who sells all sorts of FMCG, Mrs. Qin, the Romanian Goods shop owner, also gave us some insights on imports during the pandemic. Different from Mr. Wang’s experience, Mrs. Qin has successfully stayed out of trouble. Her corporation mainly sells high-end red wine imported from Romania, where the epidemic outbreak was less severe. Besides, Romania is one of the countries through which the CR Express passes, so the return China-Europe freight train can conveniently load the red wine and import them back to China.
What’s more, because red wine is a common FMCG on the dinner table, its demand also rises during the pandemic, which avoided the backlog of unsalable goods in the warehouse and occupying valuable storage space. At last, Mrs. Qin imports goods in large quantities, but only once every few months. Therefore, even in January and February, when the domestic epidemic in China caused freight trains to stop operating, she still had enough stock to ensure normal sales.
Though both import and export trade markets have encountered obstacles during the pandemic, Yiwu, the biggest inland port in China, was processing increased shipments to some extent.
By shifting its logistics’ focus from shipping and cartage to railroad transport, Yiwu covered some losses on the sea and air transportation internationally. Take CR Express as an example, the total number of import and export orders on China-Europe freight trains has reached 22.37 million, while the revenue has exceeded 350 million US dollars from Jan 1st to Apr 21st. The number of orders and revenue has increased by 75.4％ and 99.7%, respectively. In June 2020, the logistics revenue of Yiwu ranked sixth place in the country.
What will happen in the future?
Possible Future Development of Yiwu Logistics Industry
A manager of a Chinese logistics company in Africa, Mr. Yao, offered four possible aspects that promote Yiwu’s logistics industry.
The first aspect is “Gigantic-ism,” he implied that with the development of the economy, logistics supporting facilities need to be developed to a large scale to meet the needs of the developing logistics industry. For example, container ships are being built bigger and bigger, ports are being expanded, and roads are widened.
Moreover, he illustrated the concept of “Standardized.” If the logistics companies want to survive in a competitive environment, the company has to reform. Such a measure includes optimizing the process standardizing the operation, reducing the cost, etc. Such measures can move the logistics industry towards a standard and stable future.
Thirdly, he mentioned “informatization,” which leads to E-logistics. In the past, although the use of automation equipment in warehousing and sorting has already aided operational efficiency, physical labor is not avoidable. He believes that the logistics system will evolve to the stage that artificial intelligence is taking over all the operations, thus bringing real “automation” to the logistics industry. With the help of the big data system, the logistics system will be operated orderly and efficiently with the help of a data analysis system, thus optimizing resource allocation and efficiency.
The Prospect of Domestic Logistics Companies
Fierce competition in Yiwu’s logistics industry has promoted a strictly regulated and saturated market.
“Generally, there is intense competition between all the logistics companies,” says Mr. Guo, a tutor of E-Commerce. He mentioned that there are 40 logistics companies in Yiwu, while a malicious bargain is rising between these companies. Each company is trying its best to lower the price of shipping products to gain more customers than the others.
However, the teacher indicated that this phenomenon could also be a benign competition, thanks to the logistic evaluation system. Whenever a certain logistics company made a mistake, the company’s rating in the evaluation system lowers. It is quite a simple idea; customers would want to keep their cargo undamaged when transporting. Therefore, companies with a low rating would certainly lose out customers. Through this process, a logistics company that remains a good reputation will occupy a bigger market share. The logistics company with a poor rating is more likely to go out of business.
The Prospect of International Logistics Companies
Chinese logistics companies have a bright future in the international market.
Mr. Cheng, the manager of Yinghe logistics company, claimed, “Not a single Chinese logistics company has achieved success in the international market! Not even SF Express!”
Although SF Express has been one of the leading logistics enterprises in China, its international exploitation has been far from calling it a success. Mr. Cheng is feeling positive about the Chinese logistics companies’ future in the global market since everything is possible. Unlike the competing domestic logistics market, the international logistics market is relatively unsaturated. Therefore, as long as Chinese logistics companies keep establishing international outlets and improving their efficiency, they can have a place in the global market.
We found Yiwu worked as the backbone of China’s logistics industry and has a bright prospect through our field research. There is a vast amount of small and medium-sized logistics companies in China. The saturated market has such intense competition between different companies that most of them have gone out of business. The capital flow is so hard for these enterprises to control that fundamental breakage occurs.
However, there are only a few companies that are focusing on the international market. We suggest that the government aid the company by reducing tariffs so that small and medium-sized enterprises can survive in harsh times. The entire logistics industry can still maintain diversity and competition. There will be a prominent future by incentivizing Chinese logistics and production firms to engage in international trade.