China: New e-commerce platform to shake up imported fruit business

February 17 , 2015

A new e-commerce platform in China is able to offer customers far lower prices for imported produce than normal, as it has been authorized by the government to operate within the Shanghai Free Trade Zone (SFTZ).

The first Tasmanian cherry shipment

The first Tasmanian cherry shipment

Imported fruit has become increasingly popular among Chinese consumers in recent years as they look for safer produce products with higher quality from abroad.

But due to often-prohibitively high tariffs, imported produce has so far been limited to a relatively small niche in the immense Asian market.

Now, a cross-border e-commerce platform called Kuajingtong – the only one of its kind authorized by China’s General Administration of Customs to operate within the SFTZ – has sought to tackle this problem.

Kuajingtong is a joint venture between Shanghai Kuajingtong International Commerce and Shanghai Esen International Commerce. The latter is an SFTZ-based subsidiary of Shanghai Esen Agro Products & Technology Development, which acquired the major Shanghai Longwu Import Wholesale Market in 2013.

The platform officially launched on Feb. 9 with a test shipment of Tasmanian cherries, which were imported by e-commerce site Fruitday.com and sent out for delivery the day they arrived.

Esen director of international commerce Zhongyong Yu told www.freshfuritportal.com Kuajingtong had been able to offer far lower prices than the cut-throat e-commerce competition in China due to its unique business model based on the “personal postal articles tax” policies introduced by the Chinese government.

Savings through ‘personal postal articles’

“Kuajingtong is the only cross-border e-commerce platform designated by the Shanghai’s General Administration of Customs to operate within the SFTZ,” Yu said.

“So whoever makes purchases through our website is able to enjoy the preferential tax policies in the form of personal postal articles tax.”

Personal Postal Articles refers to inward/outward passenger baggage, gifts exchanged and other personal articles, limited to reasonable quantities for personal use, according to Chinese customs, and already includes value-added-tax (VAT) and consumer tax (CT) incurred at the point of import.

According to Chinese authorities, tax falls into four different categories ranging from 10% to 50%.

During the trial period for Kuajingtong’s fresh produce services, imported products enjoy a low rate of 10% of personal postal articles tax, and the 10% can even be avoided if value of any given individual order is lower than CNY500 (US$80).

“Let’s take the Tasmanian cherries for example. If they were imported through regular channels, there would first be the 10% import tariff, then you add on top of it 13% value-added tax, bringing the overall tax rate up to around 24.3%,” Yu said.

“But, if consumers purchase these cherries using Kuajingtong, say it’s less than CNY500’s worth, then they save 24.3% of tax.”

Even bigger savings can be made with fruits like Mexican avocados, which have a tax rate as high as around 40%.

“The regular import tariff for Mexican avocado is 25%, then there’s 13% value-added tax. Altogether it’s close to 40% tax, while products like this on Kuajingtong could save you all these taxes mentioned above,” Yu said.

“So overall the price we offer is much cheaper. If it wasn’t then there’d be no point for us to build this new platform. But still, the price margin is within an acceptable range, meaning our service will not fundamentally impact regularly imported products.”

Sales uptick expected

Products apart from fruit, such as seafood, will also likely stand to benefit from the new platform. For example, Yu explained that Canadian Botan shrimps are sold on e-commerce site Yiguo.com at CNY450 (US$72) per box, while the same product is available on Kuajingtong at less than CNY400 (US$64).

He added that although the extra profit may be small for a number of traders, the price differential was a very strong incentive for ordinary consumers.

“As soon as we bring the price down, we anticipate a quick uptick in sales volume. Think about it, if the average Joe could save CNY50 (US$8) every time he shops online, he’ll be smiling,” Yu said.

As customer-friendly as it sounds, there is no such thing as a free lunch in e-commerce. The Chinese government sets a strict limit on how much an individual may buy from Kuajingtong.

Each customer must register an account with official I.D. before they can purchase online, and the items they purchase are limited to personal use – reselling is prohibited by law.

In addition, the total value of products any individual consumer may purchase annually is capped at  CNY20,000 (US$3,200).

But in spite of these restrictions, Yu believes the current policy allows enough room to meet the average family’s needs.

“Say there are three people in a household, then they could buy up to CNY60,000 (US$9,600) of food, which is almost enough for a family three,” he said.

Asked whether Kuajingtong might dwindle the already-slim profitability of e-commerce platforms, Yu explained that each importer still had some room to set their own prices.

“We are still at the stage of initial development, so we will have to figure out a plan to share the profits with our importers,” Yu said.

“With regard to customs, the importers must operate according to custom law – namely, declaring the prices according to their trade agreements. But their internal pricing mechanism is their own business.”

National expansion reliant on cold chain development

As Kuajingtong has been officially certified by the Chinese customs, the platform has chosen to partner up with professional agencies and organizations in payment, customs procedures and logistics.

All customs clearing and quarantine inspection affairs are being dealt by Esen, which is the owner of more than 200 import permits.

In terms of online-to-offline logistics, Kuajingtong has four registered logistics companies, including SF Express, which is hoping to launch a cold storage train delivery service soon, Yu said.

“Our business is taking off, so if cold chain transportation can achieve significant progress next year, it will no longer be a problem to ship products from Shanghai to all major cities in China at a lower cost, especially with SF express’ cold storage train service,” Yu said.

There are currently more than 15,000 square meters of regular and cold storage within the SFTZ, and the area is expected to expand to 100,000 square meters in the future.

Photo: Fruitday.com

www.freshfruitportal.com

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