Cross-Border E-Commerce Logistics & Customs Clearance Basics
Updated: Dec 10, 2018
Cross-border e-commerce differs from general trade primarily in that it enables merchants to sell directly to Chinese consumers, instead of having to go through distributors and retailers in the middle.
Cross-border e-commerce shipping is divided into two channels: direct shipping from overseas merchants to customers, and bonded importing & warehousing, in which inventory is stocked in warehouses in free trade zones to enable faster fulfillment.
Furthermore, direct shipping is divided into two channels: UPU postal shipping and business commercial shipping, also known as B2C direct shipping.
UPU Postal Shipping
Under UPU (universal postal union) postal shipping, different postal offices around the world collaborate to ship small personal packages across borders; in China, government-run China Post Group handles last mile delivery for cross-border postal shipping.
Postal shipping corresponds to personal customs clearance, and products do not have to have import permits or registration filings. While most packages go through customs without a hitch, customs officials may inspect a small percentage of packages, which may be levied a postal tax of 15%, 30%, or 60%, depending on the product category.
The 15% postal tax applies to food, beverage, stationery, toys, and electronics. The 30% postal tax applies to toiletries, sporting goods, non-luxury skincare products, kitchenware, household appliances, textile, and most other categories. The 60% postal tax applies to cosmetics products (such as eyes, lips and foundation make-up, etc.) perfumes, luxury watches, jewelry, and golf products.
If the postal tax comes out to be under 50 RMB, then it is exempt altogether and the customer does not have to pay the tax.
For postal shipments, there should not be more than six items, and altogether the value of the items should not be more than 2,000 RMB.
However, if the shipment consists of just one item, then there is no limit on the value of that one item. Merchants should think carefully, however, if they want high-value items such as handbags to be handled by postal couriers.
Business Commercial Importing
Business Commercial shipping (often referred to as B2C imports) is a formal import e-commerce model that was introduced in 2016. Under this model, merchants who sell directly to Chinese consumers pre-register their products as B2C shipments and three types of information (order, payment, and delivery info) are provided to Chinese customs authorities before the packages arrive.
Once they arrive, they are taxed at the Business Commercial tax rates of either 11.2% or 25.5%. This include import tariffs, value-added taxes, and consumption taxes.
The value limit per order is 5,000 RMB, and customers are limited to an annual amount of 26,000 RMB. This means that if you’re selling high-value luxury items such as handbags, you may want to use personal shipping clearance.
Shipments generally go through customs more smoothly as the SKUs are pre-registered and the express logistics company typically handles everything.
The downside is that customers have to provide their national ID numbers, and every item is taxed. The plus side is that the merchant knows this beforehand, and the merchant can incorporate the tax in the product selling price ahead of time.
Only items on the Positive List are allowed to be shipped via this customs clearance channel.
The Positive List was introduced in April 2016, and the government designates certain items as eligible, and other items as ineligible. Products not on the list need to have import permits, registration forms (e.g. nutrition products need to apply for CFDA permit for domestic circulation and sales) and other filings, which are pre-requisites for customs clearance certificates.
However, these requirements have not been enforced and all items are still regarded as personal items, though they are taxed under the Business Commercial tax rates.
Bonded Importing (B2B2C)
The bonded importing model involves the stocking of inventory in bonded warehouses in Hong Kong or free trade zones in mainland China, so as to facilitate the faster fulfillment of orders.
This drastically cuts down shipping and customs clearance times, but creates larger inventory risk in that merchants must be able to forecast customer demand to figure out how much inventory to stock.
If the inventory cannot be sold, oftentimes it must be written down at the merchant would have to suffer high losses.
Tax-wise, shipments are taxed under the same Business Commercial tax system that B2C direct shipping is.
This logistics model is better for larger merchants that sell large amounts of top-selling products. Generally, they should be of medium or low value, as there is the risk that unsold items may have to be written down. This is partly why luxury brands do not use the bonded warehousing model.
The variety of products that can be sold through the bonded importing model is much more limited, and goods have to obtain a China Inspection and Quarantine (CIQ) certificate on arrival.
Key Questions You Should Ask Yourself Before Selling to China
1. Am I able to stock a sufficient number of products when there is a sudden increase in interest in a product, e.g. during a special marketing campaign?
2. How many parcels can I ship each day?
3. How flexible are my fulfilment capabilities, regarding the packaging process? Packages sent to China may need extra packaging material for international transport.
4. Is my storing facility large enough to store more products? Or are there ways to enlarge the facility?
5. How long does it take for a product to sell out? Do I have enough inventory stocked for the more popular items?
It should be noted that Chinese consumers are spoiled when it comes to e-commerce delivery. Because of lower labor costs and the concentrated nature of Chinese cities, it is common for Chinese consumers to receive their products within 1-3 days.
For international brands and retailers looking to crack the China market, the prospect of facing off against domestic e-commerce businesses that can provide cheap 1-3 day shipping is daunting.
Those thinking about entering the China market need to think about whether there is a true demand for your products and brands, and whether or not the role they play in the market can be replaced by local players.
Newcomers to the Chinese cross-border e-commerce market can start off by shipping through cross-border channels. As they scale their business they should think about stocking high-turnover inventory in warehouses in Hong Kong or Chinese free trade zones so that they can ship items to customers faster. This results in a better user experience and can help create a competitive advantage.
Oftentimes international brands and retailers offer free shipping for those who spend a certain amount of money on goods. This can be a good way to encourage more spending and divert attention away from high shipping costs, which can turn off many customers.
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