How Can Freight Forwarders Help E-cig Brands Be Compliant?Arvin Peh
An interview with Lily Qian, co-founder of Hosto Logistics, discussing the current status and trends in the e-cigarette freight forwarding industry.
According to Chinese customs data, the export value of electronic cigarettes and heated non-combustible products reached 32.6 billion RMB in the first five months of 2023, a 165% increase compared to the same period in 2022. Guangdong province led the pack among 27 exporting provinces, accounting for over 85% of the total e-cigarette export value, retaining its position as the top e-cigarette exporting province in China.
With the substantial growth in e-cigarette exports and the expanding overseas demand, the e-cigarette industry is experiencing a surge in demand and opportunities for development. However, the industry faces challenges due to stricter global regulations and uncertainties in the international landscape, posing obstacles for Chinese e-cigarette companies seeking international expansion.
Freight forwarding companies play a vital role as the “barometer” of the e-cigarette industry, monitoring e-cigarette regulatory trends in different countries and the ever-changing global situation.
So, under various uncertainties and regulatory policies, how can freight forwarding companies help e-cigarette brands comply with international requirements for overseas expansion? Recently, 2FIRSTS conducted an exclusive interview with Lily Qian, co-founder of Hosto Logistics, an international freight forwarding company, to explore this topic.
Tackling the “Last Mile”: The U.S. Freight Forwarding Model Expands to Europe
According to IRI data, the 2022 U.S. e-cigarette retail market was approximately 7 billion USD. Through querying the U.S. Customs and Border Protection website, 2FIRSTS found that the U.S. imported around 400 million e-cigarette units in 2022, with 99% of those products coming from China. These numbers solidify the U.S. as the largest e-cigarette market worldwide.
“In terms of volume, the U.S. surpasses the rest of the world combined. When we initially started e-cigarette freight forwarding, over 90% of freight forwarders were focused on U.S. business,” recalls Lily Qian. The U.S. has been the primary destination for most e-cigarette freight forwarding companies.
“The U.S. e-cigarette freight forwarding market has become increasingly competitive,” Lily Qian noted. In the past, the rapid growth of the freight forwarding industry was mainly driven by demand from domestic e-cigarette companies, and freight forwarders acted as “connectors” to ride the wave of e-cigarette’s rapid development.
However, the freight forwarding industry is now experiencing increased capital inflows, leading to intensified competition. Additionally, changes in regulatory policies have impacted the industry, prompting freight forwarding companies to seek new development models.
Lily Qian believes that apart from connecting businesses with markets, modern freight forwarding companies should also focus on providing end-to-end services, becoming “solution providers.” “Service and excellent solutions are the core of freight forwarding; this is our product,” she said.
Regarding the definition of “excellent solutions,” Lily Qian elaborated further. “Before 2019, the U.S. allowed e-cigarettes to be shipped using express services, but this method was later banned.” She explained that before 2019, U.S. e-cigarette freight forwarding companies would typically only deliver goods to the airport, and customers had to handle customs clearance themselves. The last-mile delivery was then completed by express services.
In response to this situation, the “dedicated line service” emerged to replace express services for the last-mile delivery, allowing freight forwarding companies to not only avoid regulatory issues but also provide customers with more convenient and efficient services, further maturing the e-cigarette freight forwarding business.
Hosto Logistics was one of the earliest companies to establish a dedicated line service to the U.S. Lily Qian revealed that to address the challenges of long-distance transportation and the lack of local advantages, Hosto Logistics not only established the U.S. dedicated line but also set up branch offices in the U.S.
Due to its competitive advantage, Hosto Logistics replicated the U.S. dedicated line model to Europe and Southeast Asian markets, offering more comprehensive services for e-cigarette exports.
Moreover, Hosto Logistics continues to invest in the UK and the Middle East markets, allocating more funds and human resources to optimize overseas customs clearance capabilities and end delivery capabilities.
Having deep-rooted in the e-cigarette freight forwarding industry for over a decade, Hosto Logistics has established extensive channel relationships in multiple countries and regions worldwide, integrating a comprehensive resource chain for e-cigarette transportation, providing all-around services to meet the diverse needs of different regions and clients.
However, Lily Qian candidly admits that in the current complex international situation and increasingly stringent policies, merely integrating resources is not sufficient to fully meet the demands of e-cigarette freight forwarding.
Maintaining Policy Sensitivity Under “Strong Regulation” Mode
In mid-June, an insider from a freight forwarding company disclosed to 2FIRSTS that the U.S. Customs and Border Protection (CBP) in Los Angeles was conducting rigorous inspections of e-cigarette freight forwarders, leading to several companies being checked and hundreds of tons of e-cigarette products being seized.
Coincidentally, since the end of June, the UK Customs has also been conducting strict enforcement at airports, resulting in the seizure of many e-cigarette products.
For those involved in the e-cigarette freight forwarding industry, having goods inspected and seized by customs is not uncommon, and usually, the problem is manageable. However, the frequency and strictness of recent inspections have exceeded previous levels, putting freight forwarding companies under tremendous pressure. As a result, several freight forwarding companies have suspended their U.S. and UK routes.
Regarding the pressure caused by the U.S. Customs inspecting and seizing e-cigarette products, Lily Qian expressed that freight forwarding companies must bear a significant portion of the warehousing costs and the risk of goods being confiscated during customs inspection. They also face credit damage issues, placing a heavy burden on freight forwarding companies. This tests whether a freight forwarding company possesses competent capabilities.
What makes a freight forwarding company competent? Lily Qian believes that the competence of a freight forwarding company is not solely determined by its financial and hardware capabilities but also by its overall “soft power,” including resource integration ability, channel relationships, and policy sensitivity.
Given that the e-cigarette industry is significantly impacted by regulatory policies, freight forwarding companies should stay highly sensitive to policy changes. Lily Qian emphasized that to assist e-cigarette brands with compliant transportation, freight forwarding companies must closely monitor and understand the compliance policies of the origin and destination countries. According to the regulatory requirements of different countries and regions, freight forwarders need to provide corresponding solutions to ensure that goods meet the legal requirements of each destination country during transportation.
Lily Qian revealed that Hosto Logistics has established a dedicated policy research team to cope with policy changes in the e-cigarette industry. This team closely monitors regulatory and transportation policy changes in different countries, promptly adjusting business strategies and operation methods to ensure smooth transportation, avoid unnecessary risks, and reduce business costs.
Choosing a Freight Forwarder Amid Industry Chaos
However, behind the e-cigarette export boom and the surge of freight forwarding companies, there are also issues of inconsistent freight forwarding services and a mix of reliable and unreliable freight forwarding companies.
According to initial inquiries by 2FIRSTS, there are numerous issues in the freight forwarding industry. Multiple industry insiders revealed that some freight forwarding companies stand out for their “very low prices.” Some freight forwarding companies even offer shipping fees that are around 25% lower than the cost price.
An insider offered an explanation: “To lower shipping fees, some freight forwarders may adopt methods such as underreporting and low reporting during customs clearance.” This has led to frequent inspections of e-cigarette freight forwarders and the seizure of customer products. “In order to secure shipments, they often make excessive promises, but some are unable to fulfill their commitments, or even choose to disappear, resulting in significant losses for customers.”
As a seasoned practitioner in the e-cigarette freight forwarding industry, Lily Qian is also troubled by this issue. She believes that these “unscrupulous freight forwarders” disrupt the normal ecology of e-cigarette logistics.
In the pursuit of resolving these issues, Lily Qian believes that the e-cigarette freight forwarding industry’s environment needs to be jointly maintained by freight forwarding companies and customers. She emphasizes that freight forwarding companies must prioritize business integrity, build a strong brand image, operate with honesty, and avoid making unrealistic promises. Abiding by business ethics and principles is vital to purifying the entire business environment. Only by adopting a “long-termism” approach can the e-cigarette freight forwarding industry continue to develop healthily, benefiting everyone involved.
Regarding customers, she believes they need to enhance their understanding of the freight transportation industry. Customers should place greater emphasis on the importance of logistics services when choosing freight forwarding companies, actively conduct on-site investigations, and understand the qualifications and reputation of various freight forwarding companies. Only by increasing their understanding and awareness of the freight transportation industry can customers make wiser decisions and select reliable and trustworthy freight forwarding partners.