By Gary Huang
As we get closer to the holidays, more and more shipments from China are trying to beat the holiday rush to get their products onto store shelves in the US and around the world.
Because of this, shipping rates skyrocket around this time every year in the 4th quarter or holiday shopping season. This is magnified as e-commerce is playing a bigger role as more products need to arrive in to be sold on Amazon and other online marketplaces for gift giving season.
What’s different this year is that there’s the additional factor in the China tariffs. There is a key date to pay attention to if your products are currently tariffed with an additional 10% as of November 2018.
Barring any last minute changes to the tariff policies, on Jan 1, 2019 these tariffs will rise from 10 to 25%.
As a result, freight forwarders have told me there is a surge in shipments of tariffed products that are rushing to land them in the US before the Jan 1 cutoff date.
This “double whammy” of pre-holiday shipment rush PLUS the race to beat the tariff rate increase is causing shipping freight rates to increase even more than the standard seasonal rate increases seen past years.
Why does this matter?
From the ecommerce sellers perspective, when shipping costs rise this will squeeze your margins. This could make the difference between a product with healthy margins and a product that has thin margins or one that may even become unprofitable.
Who is affected?
If you have shipments in production now in China and plan to ship them from China to the US (or EU) you will be affected between November and February you will be affected.
Which shipping routes are affected?
Routes originating from China to US are especially impacted due to increased demand from a combination of holiday seasonality and trade tariffs.
Routes from China to the EU will be affected as well due to Q4 and Pre-Chinese New Year high demand price increases.
When will the peak season high shipping rates end?
Freight forwarders have told me that rate increases are in line with the surge in demand from Nov-Dec all the way until Chinese New Year in February.
Note however that things may change based on the outcome of the tariffs being negotiated between Trump and Xi and this will affect freight rates in Q1.
But as a general rule of thumb, expect peak season rates to continue until after Chinese New Year in February.
Are sea shipments affected?
Are air shipments affected?
According to Flexport: “Air freight capacity is continuing to tighten and rates are continuing to rise as we push further into peak season. Because e-commerce draws out the amount of time consumers have to purchase goods, a break in the market is not expected between the December holidays and Chinese New Year.”
I would expect longer delivery times for air shipments due to the increased number of shipments.
For example, in previous years some Fedex shipments that normally took 7 days to arrive from Shenzhen, China to Dallas, Texas were taking as much as 21 days during the pre-holiday rush!
What do you think is the wise thing to do if the shipping numbers just come back as too high?
I recommend the following:
- Get the best price shipping rate possible – Shop around for better quotations. Some forwarders may offer more competitive rates than others. But realistically given the peak in shipping demand you may not save much.
- Consider your overall product strategy and if this may make your product unprofitable. Given the increase in trade tariffs, a lot of ecommerce sellers are reconsidering their overall business strategies.
- Consider holding back on growth and investments until this period of uncertainty passes.
- Experiment with adjusting prices higher to see if the market can absorb these price increases. At the same time they are testing if they can maintain their profit margins this way.
- Re-negotiating prices with their Chinese suppliers to get them to absorb some of this additional cost to maintain the business relationship.
“With crisis comes opportunity.”
In Chinese, the word Crisis is made of two characters: “Danger” and “Opportunity”
In other words during a time of crisis there is both DANGER and OPPORTUNITY. I believe this describes the current situation perfectly.
First there is a danger to your business given these cost increases from increased shipping rates and China tariffs. If you ignore or do not adapt then your business may die.
But at the same time there is an silver lining. Now is time for you to innovate, optimize, or pivot your business and look for new opportunities.
Within these seemingly challenging times smart sellers will seek more competitive shipping options, reconsider the product that is underperforming, test pricing to see if the market can absorb the increase and end up with higher margins, and look for new horizons in countries to source products from that are not affected by tariffs.
I’m curious what will you do with the looming shipping rate and tariff increases? Hit reply and let me know!
Gary Huang is an American based in Shanghai, China, and working in sourcing since 2008. He is the creator of 80/20 Sourcing, which helps small business importers quickly and efficiently source from China. Gary also serves as the Co-Chair of the American Chamber of Commerce in Shanghai’s Supply Chain Committee. You may contact him at www.8020sourcing.com/contact.