For cross border eCommerce, the two most common way for B2C retailers to export to China are “Direct Shipping Model” and “Bonded Zone Model”. Today we will explain the features of these two models, and break down the pros and cons:

Bonded Zone Model

Who is using:

Tmall Global, Kaola (Netease), JD.com, Fengqu (SF Express), Ymatou.com, Suning.com

Tmall Global

You Should Choose Bonded Zone Model Because It’s:

Faster. One of the biggest advantages for Bonded Zone Model. Since the products have been already shipped to bonded zone in China, it will take fewer days to deliver to the customer’s door.

Cheaper. The price of shipping costs will be lower on both the merchant’s side and the customer’s side. Since the merchant will import bulk goods from foreign country and store them in the bonded zone, large quantity will lower the shipping cost for each item. Again, since the product will ship from China, customers will pay lower than direct shipping.

Easier Return Services. Since a lot of merchants have registered and rented warehouses in bonded zone, so customers only need to return the items to the bonded warehouses in China, rather than shipping outside the country. That will save a lot of time and fasten the process.

Duty flexible. Commodities entering the zone are not subject to duty and customs clearance as would otherwise be the case. This offers importers more flexibility in bringing goods into the country.

Meanwhile, You Should Also be Aware of:

Higher initial investment. Of course the initial investment would be higher if your business decide to register and rent a bonded warehouse in one of China’s pilot zones.

Exchange rate fluctuations. That could be another possible disadvantage, since the exchange rate has changed frequently since the last year. You need to consider how you will protect yourself against changes in the exchange rate, since even a tiny variation in the rate could cost your business thousands.

Limitation of products. Since the product will be stored in bonded zone for quite a while, the products must meet the standards to store. In Shanghai Free-Trade Zones, there is a “negative list ” that provides an outline of the sectors in which foreign investment is restrained and is applicable only to the four current FTZs.

Overstocking inventory. It’s very important for retailers to determine is whether the quantity of their products sent to China is reasonable, and can be sold within a given period. If not, holding too many inventories will hurt your cash flows while costing you more on storage.

Direct Shipping:

Who is Using:

Amazon China, hai360, iherb, 6PM, GiltGroupe

hai360.com

You Should Choose Direct Shipping Model Because:

Chinese customers love it. Simple as that, Chinese customers prefer “direct shipping” since it represents authenticity. Meanwhile, a lot of Chinese customers are skeptical about “bonded zone model”, since they are not familiar with the term.

More variety on product category. The product category will not be restricted by “negative list” or similar policies since it will be delivered from your own country to your customer’s door directly.

Save your initial investment. Since your don’t need an extra warehouse in China, you can save the fees on storage.

Meanwhile, You Should Also be Aware of:

Delivery time & cost. If your customer chose “direct shipping”, they will have to wait longer while paying more. Plus, the time for customs clearance will also add up.

Pick One? Why Not Pick Both!

A lot of eCommerce are combining both methods, since each model works best for different kinds of products. The most important factor to pick your logistics model, is to find what are you selling and who are you selling to.

For example, baby products are one of the top sellers among all the cross border eCommerce platform in China, so “bonded zone model” could help better; Items like luxury watches don’t have such a huge sales volume on the other hand, so “direct shipping” will fit better.

Still wondering how to set up your logistics network in China? Contact TMO Group and we will lay out the best plan for you.

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