With online sales of $1.94 trillion in 2019, China boasts the largest e-commerce market in the world — more than 50% of the global total. New rules in cross-border e-commerce, however, could change the market this year.
Cross-border e-commerce has flourished in recent years, thanks in part to low shipping costs from China to the United States and other countries — which have made it easy and affordable for Chinese companies to reach consumers worldwide. The impetus behind this shipping boon also lies in the rise of online marketplaces, such as Amazon and Alibaba, as well as the favorable shipping rates granted to China by the Universal Postal Union — the 192-country organization responsible for setting shipping rates from country to country.
The UPU often favors developing economies with lower rates. Unfortunately, the organization’s classifications for member countries have not kept pace with the evolution of global commerce. As a result, despite having the largest retail market in the world, China was still designated as a “developing” nation, and therefore given cheaper rates. This meant packages originating in China cost less to ship to U.S. consumers than packages originating from, and traveling within, the U.S.
Because of this disparity, the U.S. argued the policy gave China an unfair advantage in cross-border e-commerce shipments, and threatened to leave the UPU if the organization did not grant the U.S. the ability to set its own terminal dues. This resulted in the signing of a new deal — referred to as “Option V” — in September 2019, allowing the U.S. to set its own postal rates for imported parcels weighing fewer than 4.4 pounds. The deal also allows nations importing more than 75,000 metric tons of parcels to adjust their rates beginning in July 2020, with a second set of countries self-declaring new rates in January 2021.
These reforms will lead to significant price increases for shipments from China to the U.S. In fact, according to the Chinese Post Office, fees paid by China to the U.S. and other countries to deliver packages will nearly triple through 2025.
The effect of these rate increases will be felt by Chinese companies, particularly small e-commerce businesses, which may be forced to increase prices on cross-border shipments to combat higher shipping costs. This could steer away U.S. customers who were willing to overlook slower delivery, but only in favor of cheaper items and free shipping. Larger Chinese retailers will likely be less affected by the changes, as they often have sophisticated logistics operations with warehouses located around the world.
While the days of purchasing cheaper products from China certainly aren’t over, this new deal will help even the shipping-rate playing field. And even with significant price hikes for Chinese companies shipping to the U.S., China’s cross-border e-commerce market should remain strong. We’ll see a more competitive international marketplace — and a growing number of companies looking to mitigate shipping costs with other supply-chain optimization strategies.
