Cross-border E-commerce

20154

*OriginSince last half year , we had made an investigation on Import cross-border E-commerce and matched SITC container line resource to see if theres any opportunity.

However, due to national policy of the time, cross-border e-commerce with normalized mode were operating only by direct mailing B2C, where SITC has no relevant qualification or supported resource to serve.

Until the beginning of this year, the national customs made the relevant policy about gradually releasing pilot cities and crystallizing operation on cross-border electronic commerce. Normally ,except the direct mail B2C,bonded (Free-trade) B2B2C is also popular along with it.

*Potential Cross-border E-commerce Bonded Mode (B2B2C)Air port or sea portPlane or shipB country bonded areaA country manufacturerB country make orderPersonal postal articles tax customs clearanceGoods deliver to customers in B country

Bonded Mode: also known as Free-trade Mode, oversea goods are stored in bonded areas after entry; once customer purchases, goods will be cleared as personal items in terms personal postal articles tax; and then will be delivered to customers by means of domestic logistics. Bringing sunlight to cross-border e-commerce requires platform order, logistics and payment voucher together; the supervision convenience under bonded mode is relatively higher than that of scattered express mail customs clearance. Bonded mode will be the best choice of sun lighted cross-border e-commerce.

*Bonded modeshipping bonded mode will be the trendDirect mail modeVendor warehouseExpress packageDeliver to air portTrunk airlinePersonal postal articles customs clearanceLand distributionBonded modeVendorPurchaser Order confirmationPersonal postal articles customs clearanceDistribution Purchaser Bonded warehouse

VendorDeliver to airportSea freight FCLSea freight LCLTrunk airlineSea transportLogistics time after ordertwo weeks or a monthLogistics time after order: 4-7dyasExpress packageVendor warehouse

*+Personal postal articles customs clearanceDistributionThe bonded warehouse at port of entry owned by e-commerce or its outsourced logistics carrier:1) have the function of goods labeling, postal parcels, flow distribution and so on; 2) distribution of sea transportation LCL has to be completed by a qualified company in principle; 3) electricity commerce tends to select ports with convenient customs clearance and logistic settings to set up the central bonded warehouse; 4) the customs sets 1210 code for regulation.Deliver to airportOcean freight FCLOcean freight LCLAir lineExpress packageE-commerce plateform as the uniformed consigneeOcean line1Customs declarationVendor1Warehouse 1Vendor 2Warehouse 2Vendor 3Warehouse 3Vendor 4Warehouse 4Vendor nWarehouse n2Payment vorcher3Logistics waybillPurchaser 1Purchaser 2Purchaser 3Purchaser 4Purchaser nB2BB2CBonded modeB2B2C in essenceOpportunity for Shanghai and Ningbo companyOversea companies cooperate by utilizing available resources

SITC Container Lines coversJapan, Korea, Taiwan, Hongkong, Southeast Asia and so onTake advantage of SITC high frequency and high density liner service, Shanghai and Ningbo will be the main ports of import cross-border e-commerce.

0versea warehousing and matched logistics service in Asia:Supply the service of overseas goods collection, selection, packing and others for cross-border e-commerce.

SITC SEA FREIGHT SERVICE ADVANTAGE FOR CROSS-BORDER E-COMMERCE

Build the logistic ability of cross-border e-commerce

Prepare the training both for domestic and abroad companies

Carry out marketing with domestic and abroad companies Target customerOverseas direct customermanufacturer, brand owner, e-commerce, agents);Domestic customers who set up shops on cross-border platform;Direct cross-border ecommerce client, for instance, TIANMAO, JINGDONG, NO.1 SHOPPING MALL

Current progress of SITC cross-border e-commerce ocean transportation service

*Personal postal articles taxThe Customs shall impose import duty on personal articles mailed from other areas and exempt duties for articles with import duties not more than RMB 50. Main commodity tariffGeneral trading tariff VS personal postal articles tax The reason for the rise of B2C cross-border e-commerce: trade-price difference

Commodity classificationGeneral tradingPersonal goodsCustoms duty most-favored-nationValue-added taxConsumption taxPersonal postal articles taxCosmetics10%17%30%50%High-end watches and accessories11%17%20%30%Luggage 20%17%-10%Shoes and hats15%17%-20%clothing14-17%17%-20%Electronic products10%17%-10%Milk powder10%17%-10%Accessories 10%17%-10%Personal sports equipment12-14%17%-10%Overseas specialty10%17%-10%

The reason for the rise of B2C cross-border e-commerce: trade-price difference*Price difference between domestic and overseas products(yuan)SPEEDY 25LV vanity Swarovski LOVELY CRYSTALS watchIPHONE616GLancme black bottle 30mlEnfamil2Domestic higher 64%Domestic higher 71%Domestic higher 19%Domestic higher 26%Domestic higher 64%

*Consumption taxValue added taxCustoms dutyCIF COSTFOB cost + insurance + freight costA tariff or tax imposed on goods when transported across international borders. Different tax rates are applicable.Applies to the market value added to a product or material at each stage of its manufacture or distributionA taxon spending on goods and services.VAT662 YuanCT 1169 YuanCD 248 YuanCIF2480Tariff for goods under supervisionCASE-make-up productstax-paid cost 4559 Yuan, of which taxes total are 2079 Yuan, accounting for 47%

STEP1:FOB COST=$380Freight=$10, insurance=$10Exchange rate=1:6.2CIF COST=380+10+10*6.2=2480 YuanSTEP2Import customs duty rate=10%most favored nationCustoms duty=2480*10%=248 YuanSTEP3Consumption tax rate=30%Consumption tax=CIF cost + customs duty/1-consumption tax rate*consumption tax rate=2480+248/1-30%*30%=1169STEP4VAT RATE=17%VAT=CIF+CUSTOMS DUTY+CONSUMPTION TAX) *17%=2480+248+1169*17%=662 The reason for the rise of B2C cross-border e-commerce: trade-price difference

*Cross-border e-commerce tradethe blue ocean of e-commerce

Import cross-border e-commerce portShanghaiPlatform modedirect mode& portal settlement

Potential tenantsThe merchant must be the entity registered overseas, and must provide one domestic company to be under government regulation and undertake post-sales service. Presence requirements

1the merchant provides the brand authorizing documents from overseas manufacturer or retailer, so as to prove the genuine source;

2needs to offer one domestic entity as the entrusted which could operates the store and provide post-sales service( if FTZ model, the entrusted must be registered in Shanghai free trade zone). At present, the approved imported goods category of cross-border e-commerce by CHINA government include: costume, baby products, foods, health care products, digital products, and luggage items ,etc. ( Alcohol, tobacco and drugs is beyond the scope of the license.)

PaymentEasipay, Unionpay, Tenpay

Logisticsmain partners include SF-EXPRESSTNTDHLUPS (mainly targets direct mail) and domestic logistics companies.(Shops settled in portal could select from the list of domestic express provided by KJT)

Commodity admittanceeasy for admittance, as long as commodity conform to the overseas standard, then could entry (no need for Chinese)

0203Products filingShops settlement01Enterprise filing04Online salesStationed ProcessImport cross-border e-commerce port Shanghai

Charge modeSales commission & DepositCPSDifferent rates for different catalogueFree registration Fee wavier for special activity

{0.5%-5%Capped feeFree of charge until end of yearDeposit of 1000 Yuan is required before setting up stores

Charge modeother possible feesWarehousing chargesOrder sortingSecondary packagingCustoms declaration fee

{Charge when actually happenedNo charge for detailsShanghai

Plan for SITC cross-border e-commerce trade1) Operation qualificationSITCSUPPLY CHAIN MANAGEMENT ( SHANGHAI) COMPANY LIMITED as the guarantee enterprise within the territory of Shanghai;SITC LOGISTICS COMPANY LIMITED as the foreign operation enterprise (cross-border e-commerce).Enterprise filing on the portal of KJT of Shanghai2) Operation procedureEnterprise filing in the customs systemdomestic (SITC supply chain); overseas (SITC logistics HK)Commodity filing in the customs systemmaternal & child, grocery life , cosmetics, small appliances. For example, milk powder, napkin, toothbrush, vacuum cup, mask, shampoo and so on. Overseas merchandise purchase: SITC overseas company is in charge of purchase or SITC headquarter purchase from direct channel, and paid by SITC LOGISTICS HK.Offshore warehouseafter purchase, Japanese company take responsibility for receiving goods, sorting, booking for ocean freight, preparing for export documents, delivering container to terminal and other logistics operations.Domestics receiving goodsafter container arrives at Shanghai port, Shanghai branch company finishes the customs transit to nominated warehouse under customs supervision of KJT (FTZ of Shanghai airport)Website online salesOnce goods are delivered and stock-taking is done, KJT approves our application, then we could do the online sales. Products purchase and settlementpurchaser could buy on the website (http://www.kjt.com) or other e-commerce website integrated with that of KJT. After a time, we could apply to KJT for purchase payment to SITC LOGISTICS HK.Overseas settlementafter SITC LOGISTICS HK receives the payment, we could calculate the earned profit.

3) Risk management and control Customs Policy Riskpolicies might changeAt present the nation opens policy, early entry, early benefit.Risk of combination of Postal articles tax and trade tax : relying on our SITC container liner high density service, the logistics cost of cross-border e-commerce will be more competitive with transparent trade purchase cost . Exchange Rate RiskSince the purchase of the good may be paid by local currency, while the sale will be paid by CNY, payment with KJT will use the foreign exchange rate quoted by the middle (the foreign currency is confirmed when enterprise filing in customs system, SITC LOGISTICS HK will settle accounts by US dollar).Change the price of goods sold online in time when the exchange rate fluctuates substantially; or take foreign exchange rate hedging when the purchase is large ( in need of the technical support of financial center).Relying on SITC container liner service, take the LCL transportation pattern of small batch high density, so that the foreign currency funds could be reduced. Overstock riskfor part of goods with poor salesIn the initial stage, the goods we purchase are the good our staff are most interested in, so there might be no big worries about the expiration date. Later we could take the pattern of small batch high density of LCL, this might be another way to reduce the risk of expiration of goods. Fake riskWe only purchase from Japanese local manufacturer or direct retailer in the beginning, rather than overseas personal buyers, that could make our products genuine and traceable. If any problem, we could transfer risk by contract terms and legal means.Plan for SITC cross-border e-commerce trade

*For LCL, ***1****