Cross-border eCommerce in China continues to be a booming market in 2024, with rapid growth driven by increasing consumer demand for international products. For foreign brands looking to enter China, understanding the two primary logistics models—Bonded Warehouse and Direct Mailing—is essential for success. In this article, we’ll break down each model’s key differences, benefits, and drawbacks, helping you choose the best solution for your business.
China CBEC Logistics: Process Overview
Suggested Read: Top 5 Chinese Cross-Border eCommerce Platforms (Updated 2024)
Bonded Warehousing Model
The Bonded Warehousing model—also known as the Bonded Zone model—has become increasingly popular among businesses looking to store bulk goods in China without immediate duty payments. This model allows merchants to store products in Chinese free trade zones (FTZs), which remain duty-free until consumers purchase them.
Used by: Tmall Global, Kaola (Netease), JD.com, Fengqu (SF Express), Ymatou.com, Suning.com
Benefits of the Bonded Zone Model:
- Faster Delivery: Since goods are already stored in China’s bonded zones, customers receive their orders faster than with direct shipping.
- Lower Shipping Costs: Bulk imports help reduce per-unit shipping costs, benefitting both merchants and consumers.
- Simplified Returns: Returns are handled within China, speeding up the process and improving customer satisfaction.
- Flexible Duties: Commodities entering the zone are not subject to duty and customs clearance and are otherwise paid only when goods leave the bonded warehouse, allowing businesses to manage cash flow better.
Challenges of the Bonded Zone Model:
- Higher Initial Investment: Registering and renting a warehouse in a bonded zone requires a significant upfront investment.
- Exchange Rate Fluctuations: As products are imported in bulk, exchange rate changes can impact profit margins. 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.
- Product Limitations: Goods stored in bonded zones must meet China’s regulatory standards, and some categories may be restricted by the country’s “negative list”
- Overstocking Risk: Retailers should accurately estimate the quantity of products sent to China that can be sold within a given period, since holding excessive inventory can hurt cash flows and increase storage costs.
Direct Shipping Model
The Direct Shipping Model, on the other hand, allows foreign brands to ship products directly from their home country to Chinese consumers. This model is particularly attractive for brands that want to avoid high upfront costs.
Used by: Amazon China, hai360, iherb, 6PM, GiltGroupe
Benefits of the Direct Shipping Model:
- Authenticity Perception: Chinese consumers often prefer direct shipping because it guarantees authenticity, which is especially important for categories like luxury goods. On the other hand, a lot of Chinese customers are not familiar with the term “bonded zone”, and thus can be skeptical about it.
- Wider Product Variety: Direct shipping doesn’t limit product categories by regulatory lists (ie. the negative list), offering more flexibility since it will be delivered from your own country to your customer’s door directly.
- Lower Initial Costs: Since there’s no need to rent warehouse space, this model is ideal for businesses looking to minimize their initial investment.
Challenges of the Direct Shipping Model:
- Delivery time & cost: direct shipping can come with longer delivery times and higher shipping costs, factors that must be carefully weighed depending on the product type. Plus, the time for customs clearance will also add up.
Pick One? Why Not Pick Both?
Deciding between the Bonded Zone and Direct Shipping models depends on various factors, including your product category, target market, and business goals. For high-volume goods like baby products, the Bonded Zone Model may be the best fit. For niche, low-volume products like luxury watches, the Direct Shipping Model could be more suitable. (Source: TMO Group)