How Europe's Coronavirus Crisis is Affecting Cross-Border Exports to China

As Covid-19 cases in China continue to dwindle, the opposite trend can be seen in Europe. Cases in Italy, Spain, and France have hit 75,000, 50,000, and 25,000, respectively. Many countries are now implementing countrywide lockdowns and prohibiting people from entering and leaving the country.

As Europe is the source of many cross-border imported goods, such a crisis has a large impact on our business. We take a look at what's going on and how it affects supply chain and logistics for those selling to China.  

Brands are Shutting Down Production Amidst the Coronavirus Crisis

With countrywide lockdowns now taking hold in France and Italy, luxury brands such as Gucci, Chanel, and others have shut down production lines to prevent the spread of the coronavirus. LMVH has announced that production lines for Parfums Christian Dior, Parfums Givenchy and Guerlain would start to manufacture hydro-alcoholic gel (aka hand sanitizer) for French hospitals. 

Cosmetics retailers have all decided to close their physical stores in France. While merchants are promising international customers that their supply chains would continue to work as normal, it is questionable that they will be able to do so as the coronavirus spreads and concerns for employee safety increase.

Other categories affected could be beauty & cosmetics, mom & baby, etc. Much of China's imported infant milk formula supply is manufactured in Europe, with major brands such as Nestle and Wyeth being based there. Now European parents are beginning to hoard milk powder supplies, which could be a problem for cross-border e-commerce players selling in China. 

Ongoing Covid-19 Crisis Affects Logistics and Inventory

Flight cancellations have heavily impacted logistics for cross-border e-commerce exports to China. Europe is a major origin for such products on platforms such as Tmall Global and JD Worldwide. 

According to Cainiao Logistics, even ocean freight providers are struggling to deliver goods, with reports showing that merchants need to wait 15-30 days for cargo space on ships.  This may affect inventory that are bound for bonded warehouses in China.  

Now the Chinese government is subsidizing international flight routes for passenger airlines, paying them to keep a portion of their flights open. This is because half of the world's cargo is flown on passenger flights. The government is also reducing airport fees and extending customs clearance hours. 

Given the disruption to international logistics, many merchants selling to China are moving more bulk inventory to Hong Kong and mainland China so as not to disrupt the customer experience. This can be better than shipping packages one by one directly to Chinese consumers, which can be disrupted.

Other Merchants Double Down on Digitalization as China Recovers

Many brands are moving fast to develop digital capabilities to make up for the shortfall in offline retail sales. While some retail executives in the past may have been afraid of e-commerce cannibalizing offline retail sales, the coronavirus crisis has left them with no option, as nearly all offline retail has been closed for the last two months.

Both Prada and Miu Miu launched their Tmall flagship stores in mid-March, as did IKEA. 

IKEA's Tmall store was the first of its kind in IKEA's history, as the Swedish retailer has spurned third-party e-commerce partnerships up until now. Aside from IKEA, more than 1 million Taobao merchants and 12,000 Tmall brand flagship stores have been launched during the coronavirus pandemic. 

Now, China's e-commerce sector appears to be bouncing back as the number of coronavirus cases dwindle and things return to normal. While fashion categories continue to see a slump in sales, other categories such as cosmetics, F&B, sportswear, and health appear to be improving, according to recent figures. 

Key Takeaways

1. Some luxury brands are shutting down production lines as demand declines and more concerns are raised over the safety of their factory employees

2. Since many flights have been cancelled, logistics costs have risen. The Chinese government is providing subsidies to airlines who keep international routes open. Some merchants are moving bulk inventory closer to China to avoid logistical disruptions.

3. Despite recent disruptions to the global supply chain, more merchants such as Prada and IKEA are launching on Tmall as e-commerce becomes increasingly important. China's retail sector is bouncing back and e-commerce sales on Womens Day reflected a sharp recovery. China could be the one bright spot in the global retail sector going forward.