When Ladislav Klimeš, an entrepreneur in the field of video transmissions, needs to buy small accessories for technology, he enters the address of the largest Chinese and world online marketplace Aliexpress into a search engine. “I choose Aliexpress when I plan to buy some goods in advance and I don’t need them very quickly,” he explains. The reason is not only the price, but also the availability of the necessary goods in local shops.
“In the district town where I work, these goods are not usually available in stock, and shops in the Czech Republic very often supply the same goods as those I can order on Aliexpress myself,” explains the businessman, who spent around five thousand crowns on the Aliexpress website this year. “This year, in connection with the pandemic situation, there was a large fluctuation – a reduction in investment in general, but previously I was able to spend a similar amount per month,” Klimeš argues.
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During the last year, Česká pošta delivered almost seventeen million packages from China worth up to 22 euros, approximately 580 crowns, to customers. The most sought-after goods included small electronics, stationery or haberdashery products. The high interest in Chinese small items is often motivated by the low price and free shipping.
Česká spořitelna’s clients spend around two million euros a month on Aliexpress, of which 92 percent of purchases, according to the largest Czech bank, are below 22 euros. Above it, the customer would already have to pay VAT and customs duties on the shipment. However, the tax exemption for small consignments is due to end.
Klimeš has partially prepared for the planned customs change – he has selected local shops that offer the required type of goods at affordable prices. “Someone
However, I will continue to order all things at Aliexpress, because they are so specific that they can be imported to the Czech Republic by two or three stores, where they often have a problem with availability in the warehouse, ”explains Klimeš.
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If he orders a product up to 22 euros in the future, he will probably have to pay not only the tax, but also the customs fee. “The abolition of the exemption will make the purchase of small goods more expensive with VAT of 21 percent and, in addition, the price of the customs declaration, which in these cases is higher than the price of the goods themselves,” explains Luděk Procházka, head of Gerlach, a customs services company.
To the higher price is added a possible delay in delivery. The customs procedure can significantly extend the time of delivery. “Today, the customs office clears all low-value goods from one means of transport with a single stamp, for example, hundreds of consignments at once. Newly, it will be necessary to issue a customs declaration for each individual consignment, ”explains Procházka.
The price of transport is rising
The final price of Chinese packages may also be affected in the future by the rising price of transport due to reduced air connections due to the corona crisis. “It is estimated that about seventy percent of the goods were transported by air before the covid as a loading volume on passenger flights, which were practically canceled in March to May,” says Petr Rožek, executive director of the Association of Forwarding and Logistics.
At the same time, the return of air traffic to the pre-crisis level is slow. As a result, foreign sellers are trying to look for cheaper alternative routes and modes of transport. “We are already seeing an unprecedented increase in demand for twice as slow but half cheaper rail transport,” he says. If the customer wants to deliver the goods faster, he has to pay extra now. “Prices of air freight from China have tripled compared to the end of last year,” says Rožek.
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According to the expert, there are several possible development scenarios. In a favorable case, air transport will quickly return to its original volumes, thus regaining control of the parcel delivery market from China. “There may also be a drop in demand and then a substantial part of non-urgent shipments would probably return humbly to the sea, where virtually any volume can be secured at relatively stable and low transport prices,” says the second extreme.
Local shops are skeptical
The European measure aims to bring up to seven billion euros in VAT collection while at the same time leveling the business environment. “Given that most goods coming from China to Europe are not subject to the basic VAT rate, unlike products from the Union, the Czech manufacturer would have to offer a 21 percent lower price than its Chinese competitor in order to be the final price for the Czech customer. comparable, which is not the case, “says Petr Vondraš. BDO’s tax manager explains why many customers prefer Chinese e-shops.
However, local traders tend to be skeptical about the impact of the new legislation on Chinese competition. “The degree of change caused by the new law will depend most on the consistency of law enforcement authorities, both in the case of direct imports from China and in cases where goods are delivered from the warehouses of Chinese e-shops in the EU,” believes Jiří Ponrt , CFO of Alza.cz.
Alza does not consider Chinese Aliexpress to be in direct competition. “Speed of delivery, a high-quality and well-arranged website, the possibility of complaints, warranty and post-warranty service or non-stop customer support are essential for customers – all Chinese e-shops are usually unable to offer at the same level as local retailers,” says Ponrt.
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A similar opinion is held by Jakub Skácel, Sales Director of Stoklasa Textile Haberdashery. “Customers usually need goods made of textile haberdashery immediately and in good quality, so only a few of them choose to wait for the sometimes uncertain delivery from China,” he explains.
Even so, after the introduction of customs duties and VAT on small Chinese goods, it expects a slight increase in demand for seasonal goods, which customers buy long in advance, and therefore now sometimes choose Chinese e-shops. “We expect more interest in fashion accessories or in creative and decorative goods, such as wedding and Christmas decorations and other seasonal decorations,” he predicts.
Aliexpress strikes back
The question remains whether an increase in Chinese commodity prices and demand for local alternatives will actually occur. Chinese suppliers can protect their customers from customs duties by opening their own stone shop or dispensary warehouse in Europe. For example, Alibaba has already started building its own network of European warehouses and last year opened its first European stone shop near Madrid. European customers have been served from local warehouses for a long time by a Chinese seller of remote-controlled Hobbyking models.
The Czech Republic has also become a popular place for storage, assembly, packaging and distribution of goods. “In the Czech Republic, Aliexpress is represented by a logistics center in Jenč near Prague,” points out Miroslav Diro, a spokesman for the Chamber of Commerce. According to him, the abolition of the tariff exemption will not lead to a decrease in demand for goods from third countries.
“For small consignments, however, the scope for VAT circumvention will be reduced by fictitious underestimation of the price of small goods and for subsidizing transport to the EU. Goods from distribution centers will also be under greater control by domestic authorities, “he adds.
In addition, at the beginning of November, Czech Post established a long-term cooperation with Aliexpress. During the largest Chinese discount offer on November 11, the post office undertook to deliver tens of thousands of shipments of the Chinese e-shop to Czech customers in the shortest possible delivery time, typically within two weeks.
The consignments will be distributed by the Belgian warehouse of Aliexpress, so they will not be subject to additional taxes or duties. According to Rožek from the Association of Forwarding and Logistics, the interest of Czech customers can be considerable. “If Aliexpress offers Czech customers cheap deliveries from its e-shop through the Czech Post, it will overwhelm it,” he warns.
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