The outbreak of coronavirus in China has gravely disrupted the global supply chain. Chinese cross border ecommerce, which since 2016 has long dominated Middle East’s booming ecommerce scene, is facing a severe crunch as well.
What is happening
The challenge is not really on the supply side – a number of platforms and sellers are telling us that they have enough stock in China, however, getting the goods across, and accepted by customers, proves to be a challenge.
There are two major issues impacting the demand and fulfilment:
First is the reduced air freight capacity. Saudia has suspended flights to China until further notice; Emirates has suspended all flights except the ones to Beijing – unfortunately Beijing is nowhere near the manufacturing (and thus, ecommerce) centres in the Southern part of the country.
In addition, Emirates does not ship cosmetics and electronics, which form the bulk of the Middle East cross border ecommerce orders from China.
Because of the reduced capacity, prices of air freight shoot up, and customers experience delays, which result in cancellations.
Second is the cancellations and rejections by the customers who are scared of the virus. Cross border ecommerce companies we have recently spoken to register between 5% to 20% additional cancellations/rejections.
Since most of the orders from the Middle East are Cash on Delivery (COD), cancellations and rejections usually mean losses for the sellers.
Local ecommerce players, or Chinese sellers who have front-loaded their goods in Saudi Arabia, are much less affected by the double whammy. Some even benefited by seeing the sales volume grow.
When will this end?
The real challenge for the players is – they do not know when this will end. The outbreak in China, especially outside Hubei province, has largely been contained – but from that to easing of capacity would probably still take weeks at least.
Ramadan, a traditionally strong ecommerce sales period, this year falls between April and May, earlier than last year. If this situation does not increase significantly by then, the players will see this year’s numbers plummet.
In addition, the outbreak in Iran is seemingly getting out of control; many gulf countries have seen cases increasing largely due to people who travelled or were repatriated from Iran. This adds another uncertainty to the markets.
The worst case scenario, in many players’ minds, would be the shutting of both air and sea ports, as well as suspension of local delivery services. This would be a real disaster that nobody can escape from.
Whether the governments in the region can have the situation under control, or whether the virus will naturally die down because of the weather becoming hot, is anyone’s guess.
Survival is paramount
JollyChic, which already faced a crunch end of last year because of its failure to deliver targets demanded by investors in a ratchet clause, is retrenching more people since Chinese New Year. Some other players are trying their best to survive, too.
One thing is certain, the whole landscape will shift amid and after this crisis – and the survivors will probably reap benefits of the recovery, and become stronger.
Who will survive then?
Thanks for reading The Low Down (TLD), the blog by the team at Momentum Works. Got a different perspective or have a burning opinion to share? Let us know at [email protected]