With supply chain issues being common the past couple of years, many businesses have looked to local, U.S. fulfillment to try to make their supply chains more consistent. However, we’ve noticed that businesses see local fulfillment as a magic bullet for their supply issues, when the real problem is that they aren’t leveraging China fulfillment to its full potential.
Let’s take a look at the history of China fulfillment, how it’s changed to provide incredible benefits when leveraged correctly, and how businesses can learn to leverage China fulfillment to its maximum potential by partnering with EcommOps.
A Brief History of China Fulfillment
China fulfillment hasn’t always been so reliable. It initially started getting popular with the rise of dropshipping (around 2018), and services like YunExpress grew along with dropshipping. In fact, this is right around when EcommOps got started, too. However, dropshipping has some noticeable drawbacks, and many of these services (including EcommOps) have grown past dropshipping.
For example, while YunExpress has been a staple service for dropshipping, the majority of their business has nothing to do with dropshipping at all. The majority of their business is Amazon FBM (Fulfilled By Merchant), which carries strict requirements on fulfillment timelines, and does not utilize dropshipping.
Even EcommOps has evolved. While we originally focused on dropshipping, we always had a goal of elevating dropshipping customers to use a more traditional supply chain. Currently, we have no dropshipping clients. Instead, most of our volume is from clients who send us stock for fulfillment (where we act as a China-based 3PL), but some of our volume involves us sourcing products and planning supply chains for our customers.
Compared to traditional dropshipping, the benefits of China fulfillment are overwhelming. It was an easy choice for us to pivot entirely away from dropshipping and to help our clients realize the best that China fulfillment has to offer.
Benefits of China Fulfillment
Direct-from China fulfillment has incredible benefits for businesses, especially businesses that are already partnered with a China-based supplier.
Reduce Risk Without Sacrificing Opportunity
With traditional bulk purchasing from China suppliers, businesses are generally faced with two options: either overstock to avoid selling out, but tie up a large amount of capital in inventory, or understock to free up capital but risk selling out and losing potential sales. Let’s take a look at some hypothetical examples of this.
Using a U.S.-based 3PL and Traditional Bulk Ordering
Let’s say you use sea freight for a large volume order to deliver to a U.S.-based 3PL. You probably need to plan for at least 90 days of inventory, since it can take up to 60 days to get products from the factory to a local fulfillment center. For easy math, these examples assume zero lead time from factories (which won’t happen). Let’s take a look at bulk ordering a $3 product and shipping it via sea freight:
90 days of inventory x 100 orders per day x $3 COGS (cost of goods sold) = $27,000 in inventory risk.
Now, let’s look at the same math by using air freight. Since shipping is faster, you probably only need to plan for 30 days of inventory, and it can take 20 days to get products from the factory to a local fulfillment center:
30 days of inventory x 100 orders a day x $3 COGS = $9,000 in inventory risk (keep in mind, air freight shipping will be far more expensive than sea freight, but we’re only looking at inventory risk costs right now).
Using DTC China Fulfillment
How does China fulfillment compare to these options? It only takes around three days (and sometimes faster) to get products from a China factory to a China fulfillment center. Since inventory gets to your fulfillment center so quickly, you only need to plan for around five days of inventory. So how does the math look?
5 days of inventory x 100 orders a day x $3 COGS = $1,500 in inventory risk.
Direct-from China fulfillment slashes your inventory risk without increasing the risk of selling out. It’s an incredible solution for businesses that have struggled with supply chain disruptions that impact bulk shipments, like container shortages or port congestion.
The faster you can get inventory to your fulfillment centers, the easier it is to scale.
Wait, Sea Freight Shipping Doesn’t Take That Long!
When we talk about these numbers with businesses, we often get objections that our time frame for sea freight shipping is much longer than what freight companies advertise. The reason there’s a discrepancy is that the “shipping times” that are given are usually “time on water” or “time in air.” More simply, you’re being quoted on only the time frame it takes to get products from one port to another.
This isn’t the real total shipping time, and there’s a lot of buffers you need to include to get the actual, total shipping time, like:
- Loading freight to be shipped
- Clearing customs
- Shipping to 3PLs
- Processing new inventory
- Unexpected delays, like port congestion, container shortages, chassis shortages, truck freight driver shortages, labor strikes, etc.
You have to consider all of these factors when trying to get a real idea of how long shipping times take.
China Fulfillment Is Often Cheaper than Local 3PLs
China fulfillment not only makes it easier to plan for inventory without over or understocking, but it’s often directly cheaper than using local 3PLs. As an example, take a look at this spreadsheet we’ve developed comparing our prices to ShipBob, a popular, U.S. based 3PL. These prices have been pulled directly from their online calculator for fulfillment costs.
The following math includes sample prices and weights of real products we have fulfilled for clients. These prices also assume LCL (less than container load) shipments, and these prices were current in February of 2022 (note that prices fluctuate regularly).
With that said, let’s take a look at our sample products:
From those products, we can see ShipBob’s standard shipping costs in the U.S. for those three products:
Once we include their fulfillment costs, we also need to add the cost of freight shipping for the three products, which is as follows:
With all of these prices seen, we can calculate the full price of using ShipBob (and the shipping times) for each of these three products. (note: there are no customs costs included in the formula, though those costs will be part of bulk shipping):
As you can see, there’s a steep increase in price for heavier products (which is common). More importantly to this example, is the shipping times. The freight shipping times pulse the U.S. shipping times make for potentially very, very long shipping times. How do these prices and shipping times compare to direct fulfillment with EcommOps?
Using the same sample products, this is what pricing looks like when using express, regular, and ordinary shipping lines (note: these prices are standard shipping prices when fulfilling orders from Shenzhen, China):
The regular is the most common shipping line we use for our clients, which is why we’ve highlighted it. The shipping times here are the average spans of time it takes to get products from the factory to customers. Even compared to the fastest shipping option with ShipBob, our regular shipping takes half the time to make it to the customer, on average.
But how does the overall cost compare? Below, we’ve highlighted the shipping routes in green that are cheaper than ShipBob’s advertised pricing:
With EcommOps, every shipping option is more affordable than ShipBob for the lighter product. There’s even some savings on the heavier product options, too. Also, this price comparison is the most favorable comparison for ShipBob we could make, since it doesn’t include customs cost (which will increase the overall cost of using bulk sea freight instead of direct fulfillment).
A final note on this general pricing: since the sea freight pricing assumes LCL shipments, it’s possible to get better, overall pricing by using FCL (full container load) shipments. It takes more logistical planning to do so (and often requires consolidated shipping), but the price differences often make it worth it for many businesses.
International Fulfillment Comparison
We ran the same products for international fulfillment, and the differences are stark. Take a look at the pricing from ShipBob for international fulfillment (and keep in mind that these prices do not include freight shipping costs)
The weeks it takes to fulfill international orders often prevents businesses from successfully entering a new, international market. EcommOps has helped many businesses overcome this hurdle, especially by the pricing we can offer:
When businesses use direct-from-China fulfillment for international orders, it can save 60% (or more) on shipping costs, while keeping order fulfillment times down to a maximum of 1-2 weeks. This opens the doors to new markets in a scalable way, allowing for consistent growth without having to fight against high shipping costs or long fulfillment times.
Other Costs to Consider
While this section focused on shipping costs and the savings that EcommOps provides, some extra costs that businesses need to consider include:
- Faster shipping: the faster the shipping, the more expensive the price
- Freight costs and tariffs: when fulfilling orders from China, you’ll avoid most tariffs on your products (there are no U.S. tariffs for any parcel valued $800 or less
- Warehousing costs: ShipBob charges $40 per pallet, and since you’re often holding products for months at a time, these costs can add up. To compare, EcommOps doesn’t charge for warehousing for products that move within 30 days.
- Opportunity costs: Remember, if demand spikes and you sell out, you’ll have to stop selling while you restock with traditional sea freight. China fulfillment lets you restock in a matter of days, instead of weeks or months.
- Receiving costs: ShipBob charges $25 for the first two man hours, and $40 for each additional man hour. To compare, EcommOps doesn’t charge receiving costs for direct-to-consumer fulfillment.
China fulfillment offers additional savings that you don’t necessarily see when just looking at the shipping costs, especially when you partner with EcommOps.
Flexibility and Easy Scaling
Since businesses don’t have to choose between over or understocking, China fulfillment is less expensive than local 3PLs, and international shipping is dramatically less expensive, direct-from-China fulfillment offers the flexibility and easy scaling businesses need to reliably grow.
Since China fulfillment is consistently less expensive, businesses can save money and invest resources in other areas (like marketing). Remember, businesses won’t have to tie up resources by overbuying inventory, China fulfillment will free up resources in ways many businesses may not have experienced before.
Opening doors to new international markets is one of the easiest ways to grow, and since China fulfillment offers such low international shipping, brands can potentially offer free shipping to international customers. Even if a business doesn’t offer free shipping, they can still offer shipping that is low enoughto entice new customers to buy.
While both domestic and international shipping isn’t 2-day shipping, it’s still fast enough to create a positive experience for customers. This helps to create brand loyalty and repeat customers, which are important to helping businesses reliably scale.
How to Leverage China Fulfillment
While the benefits of China fulfillment are amazing, businesses only get those benefits when they appropriately leverage a direct-from-China strategy. Properly leveraging this kind of strategy involves picking the right products and right fulfillment center:
Fulfillment Center Must Be in Shenzhen
In order to get the real benefits of China fulfillment, your fulfillment center must be in Shenzhen, China. It’s where the major shippers for ecommerce are based (like YunExpress, 4PX, and UBI), and it is located very close to Hong Kong, where the best shipping lines leave from.
If you’re serious about using a China fulfillment center, you’ll need to make sure that you choose a supplier close to Shenzhen. This helps keep your lead times from the factory low and allows you to quickly respond to changing demand.
EcommOps’ fulfillment center is located in Shenzhen for this reason.
Make Sure Products Are Shippable from Fulfillment Center
This may seem like common sense, but this is a common mistake. Businesses will mass produce a product, only to find that their chosen fulfillment center isn’t capable of shipping their product. This could be a regulation issue, a packaging issue, or other unforeseen problem that would prevent products being shipped individually to consumers.
Fortunately, it’s easy to avoid this mistake. Just make sure a fulfillment center can ship your product before you commit to mass production. They may require you to send them a sample, which is a great way to guarantee that there won’t be issues.
Fulfillment Center Must Be a Real Warehouse
Proper fulfillment takes a lot of space. Inventory needs to be organized and easily picked and packed for fulfillment, and as your orders grow, your warehouse needs to have space to hold inventory while you fulfill those orders. If a fulfillment center doesn’t have space for you to grow, you won’t be able to scale appropriately.
EcommOps uses warehouses with enough space for our clients to reliably scale as order volume increases.
Make Sure Fulfillment Center Has Efficient Receiving Process
How fast a fulfillment center can receive and process new inventory directly impacts how quickly you can ship products to customers. While most fulfillment centers process pretty quickly, others can take a frustratingly long time. For example, a common complaint against ShipBob is that it can take them up to three days to process inventory, which is a huge hunk of time.
It’s an EcommOps standard to process received inventory the day-of to ensure that our clients get orders to customers as fast as possible.
Understanding Shipping Options (and how to set customer expectations)
Some fulfillment centers aren’t upfront about the shipping options they provide to fulfill customer orders. If you don’t take the time to understand what the shipping options are, you may end up setting inappropriate customer expectations, causing frustration with delayed shipping.
For example, some warehouses say they use YunExpress, and then try to pass off their standard shipping as “express” shipping. Another example is ShipBob, who advertises that they use USPS (United States Postal Service), but actually uses a mix of USPS, FedEx Smartpost, and UPS Surepost, with the two later options being notoriously slow and unreliable.
Take time to understand the actual shipping times, and make sure that customers understand the real shipping times, too.
Consider a Hybrid Fulfillment Model, Combining China Fulfillment and Local Fulfillment
Finally, businesses don’t have to choose between China fulfillment or U.S. fulfillment. We actually encourage many of our clients to take advantage of both systems, since local fulfillment still has a lot of advantages, like:
- The ability to offer genuine two-day shipping
- Uninterrupted fulfillment during Chinese New Year
- Extending shipping cutoffs prior to Christmas
- Better pricing by using FCL sea freight
- Shipping products that can’t be shipped from China (like products that are very heavy, very sensitive, etc.).
How Combined Fulfillment Works
If you have scaled your business enough and have the appropriate amount of cash flow, combined fulfillment can be an incredible fulfillment strategy. This is how combined fulfillment generally looks:
- First, establish a system to determine when U.S. warehouses fulfill orders and when China warehouses fulfill orders (like when local inventory hits a critical threshold, or if you are fulfilling international orders). If the wrong warehouse fulfills at the wrong time, you lose the benefit of combined fulfillment and you potentially create a poor customer experience.
- Then, you occasionally make FCL sea freight orders to lower your average cost, but you aim to understock instead of overstock.
- Finally, If/when stock runs out, switch to China fulfillment while you wait for more stock to arrive via sea freight.
Combined Fulfillment by EcommOps
While China fulfillment started as dropshipping, the industry has turned into full-fledged, traditional fulfillment operations. Direct-to-consumer fulfillment from China is still a newer idea, but it already has offered businesses extraordinary benefits,as long as the process is leveraged properly.
EcommOps specializes in helping businesses create plans to fulfill directly from China, as well as creating combined fulfillment strategies that combine the advantages of local and China fulfillment. If your business works with a supplier in China, we would love to talk with you about whether our services are a good fit for your business.
Contact us today to speak with a fulfillment expert from EcommOps. Our experts will examine your business needs in order to create a fulfillment strategy that cuts costs, reduces shipping times, and makes it easier for your business to sustainably scale.