Israel’s online shopping mania is due for a body blow administered by the coronavirus. The suspension of thousands of flights to Israel from Europe and the United States is expected to disrupt the flow of orders, initially by causing lengthy delays in deliveries from overseas, and later due to products being out of stock and logistics companies unable to make deliveries at all.
Thanks to lower prices abroad and exemptions of customs and the value-added tax, Israelis do the lion’s share of their online shopping abroad. Some 90% of the deliveries arrive on regularly scheduled airline flights rather than on cargo planes less sensitive to cancellations.
“The minute they stopped flights from China and Hong Kong, the entire shipment industry sustained a heavy blow. Whoever could, did more shipping by cargo plane,” said Yonatan Ivgi, of marketing and sales at the courier company DHL Express.
“Stopping incoming passenger flights to Israel has been very challenging for the logistics sector and, as a result, for the Israeli economy,” he said. “When they stop, the bandwidth for imports and exports is hurt badly.”
At this stage, the main impact has been with online merchants based in China, but as more and more flights are being suspended from other countries, the situation will get worse. Delivery times are going to grow longer and the number of deliveries may be reduced.
The biggest risk is that the U.S. will be subject to some kind of limitation or complete ban on flights, a measure that the Israeli government is now weighing. If it does, said one industry source, it will create “real chaos.”
The Chinese online merchant Ali Express gives a small taste of things to come. Resellers have been warning shoppers of longer delivery times and that has led to a drastic drop in orders. Data from the Israeli credit card issuer Max show that sales from Ali Express were down 73% in February, compared with a year earlier. Non-Chinese sites gained, for example, Amazon, whose sales climbed 63%.
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On the other hand, there is no reason to ascribe the change entirely to the coronavirus. Part of Amazon’s gains is connected to its launch in November, which included enticements like free shipping from the U.S. to Israel on purchases of $49 or more. But other sites have also benefitted from Ali Express’ woes, such as Asos and Next of Britain. Their sales were up 7% and 21%, respectively, in February.
Until now, online merchants have been able to cope with the crisis thanks to a mix of more frequent cargo flights, the use of connecting flights and increased cooperation with other companies. DHL Express, for instance, operates two cargo jets serving Israel, said Ivgi. “This activity hasn’t stopped and has even been increased. There’s a lot of pressure to reduce supply chain times because the Chinese have been out of commission for so long.”
A manager at another shipper, who asked not to be identified, said some courier companies were still relying on cargo jets flying out of countries hit by the coronavirus and are banned lists. “The pilots simply don’t leave the cockpit and aren’t admitted into the country they have flown to, so the regulations don’t apply to them and they can continue to fly between countries.”
He added that some companies that don’t have cargo planes of their own have been helped by others.
Another system courier companies are frequently employing, as has Israel Post, is connecting flights. “Not every country has stopped flights to the degree that Israel has. In Europe and the U.S. they have been less extreme,” said the manager who asked not to be named.”So companies simply fly their good from China via third countries and from there to Israel.”
However, these stopgap measures may no longer work Israel’s Health Ministry has been expanding the list of countries where people arriving from them must go into quarantine. That includes some of the biggest countries in Europe, such as Italy, Germany and France and entire cities in the U.S. The result is more and more cargo flights are being suspended.
Elad Goldenberg, a former business manager at eBay Israel and today an e-commerce consultant, said he is optimistic that the industry will quickly learn to adjust to the new challenges. “The logistics world knows how to adapt: If there aren’t any flights but there’s room on a cargo ship, so they will end it that way. But that means that delivery times will take longer,” he said.
Another courier manager, who asked not to be identified, said he would be using the same strategy. “If there’s no way to send by air, companies will fly packages to cargo ships, but it will take a month on average to reach Israel – which means a big very big delay in getting things,” he warned.
Things may get even worse if the U.S. is cut out of the supply chain. “In the worst case, and we’re closed to the U.S., they’ll be a real pogrom for the delivery sector. It means that deliveries won’t go out at all and there will be real shortages of merchandise,” the manager said.
“The logistics universe comprises of lots of intermediate stops, The expectation now is that every link will be affected. If people are in lockdown, it means warehouse workers, delivery people and customs inspectors – everyone who comes into contact with the package, and that’s scores of hands until it reaches the customer.”
He said he expected that to happen in weeks, maybe days, as the coronavirus, spreads to countries that are relevant to the supply chain that serves Israel. Such as Britain, Germany and the U.S.
“It’s enough that the U.S. issues a lockdown order and warehouse workers can’t get to their jobs. Deliveries can’t get out of the warehouse in the affected area. The same applies to delivery people,” said another courier company manager. “So, somehow packages do get on a plane, but how to fly to the destination still needs a solution. Then, when it gets to Israel, delivery now depends on local quarantine orders. If the lockdown here grows more severe, who will release the package from customs?”