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A ship leaves a container port in the evening in Lianyungang in east China’s Jiangsu province Thursday, July 22, 2021.

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BEIJING — Chinese companies wanting to go global are running into shipping problems.

Access to cheap manufacturing at home gave Chinese businesses an advantage overseas. But it’s turning into a disadvantage now, as the pandemic and trade tensions disrupt international supply channels.

Many goods can’t be shipped out, said Fang Xueyu, vice president of international marketing and general manager for Asia-Pacific at Chinese home appliance company Hisense.

The cost of shipping containers has climbed five-fold from about $3,000 to as much as $15,000 each, while it takes about a week longer for them to get to Europe, she said in a Mandarin-language interview last month.

From the Suez Canal congestion in March to the re-emergence of Covid cases around a major Chinese export hub in Guangzhou in June, logistical disruptions have hit global trade one after the other.

“What you have in Europe, what you have around the world, I wouldn’t call it chaos, but a lot of disturbances in the logistics system,” said Alexander Klose, executive vice president of overseas operations at Chinese electric car start-up Aiways.

“So we had to rebook shifts, we had to delay shifts, because no ships were available, no containers were available. That definitely impacted us,” he told CNBC in an interview in June.

For the company, which makes its cars in China and sells them to Europe, Klose said the disruptions “delayed some shipments by two, three months just because cars were sitting in a port and not being transported.”

Foreign demand for Chinese-made products has remained strong — both by companies’ accounts and official data. The customs agency said in the first half of the year, exports to the European Union rose 35.9% from a year ago to $233 billion, while those to the U.S. climbed 42.6% to $252.86 billion.

Hisense remains keen to expand abroad, and made $7.93 billion in international markets during the pandemic last year. By 2025, the company said it aims to triple the contribution from overseas markets to total revenue to $23.5 billion.

The Chinese multinationals are probably rediscovering what they have known for a long time. Their best growth opportunities are right in front of them.

But the shipping delays mark the latest challenge Chinese companies face in trying to reach international markets.

Out of about 3,400 Chinese companies that operate internationally, only about 200 make more than $1 billion in sales overseas, said James Root, a partner at management consulting firm Bain.

“When you dig through it, the early pioneers — the Lenovos, and the Haiers and the Huaweis — to me look more like real exceptions rather than the (avant-garde) who are sort of blazing a trail for lots and lots of Chinese multinationals to follow them overseas,” Root said, referring to three Chinese brands well-known internationally.

These companies tend to “run more of an export model for their international business,” he said. “The Chinese multinationals are probably rediscovering what they have known for a long time. Their best growth opportunities are right in front of them.”

China is the second-largest economy in the world, and many economists predict it will surpass the U.S. to become the largest in the next several years.

Amazon bans, taxes and other risks

Other Chinese businesses selling abroad have run into challenges recently from a crackdown on fake reviews by Amazon.

“We understand that some sellers’ behavior has been deemed in violation of Amazon’s ‘Seller Code of Conduct’ and other terms, (causing) restrictions on operations,” Li Xinggan, director of the foreign trade department at the Ministry of Commerce, said at a press briefing earlier this month. That’s according to a CNBC translation of his Mandarin-language remarks.

He added: “We have always required businesses to abide by each country’s laws and regulations, to respect local customs and habits, and develop operations in accordance with law.”

Chinese merchants may also face higher costs from the EU’s implementation of a new tax policy for goods exported into the region.

Read more about China from CNBC Pro

“The political, economic, compliance, logistical and personnel challenges that Chinese businesses face when going abroad have significantly increased,” the People’s Daily, the Chinese Communist Party’s official newspaper, said in an article in late June about the latest release of a business association report on the risks for Chinese companies going overseas.

“In recent years, inadequate identification of risks and prevention have become an important problem for Chinese businesses’ (ability) to ‘go out,'” the article said, according to a CNBC translation of the Chinese text.

Alibaba’s air cargo advantage

For Alibaba, a major player in China’s domestic e-commerce market, its strategy to go overseas has included investing in its logistics unit, Cainiao.

Through Cainiao’s partnerships with different companies’ air cargo charters, “we have a stable supply of air shipment to European countries,” said William Wang, general manager of Spain, France and Italy for AliExpress, Alibaba’s international e-commerce business.

He claimed that as a result, sellers on AliExpress have been able to get their products to customers with no extra costs or delays.

However, air freight typically costs far more than cargo shipping, making it impractical for exporting cars or large home appliances.

More overseas warehouses and acquisitions

The logistical challenges mean Chinese companies are going to localize further in international markets.

E-commerce companies have been building or renting warehouse space near customers in Europe, so sellers can pre-ship products for storage there. Once a customer places an order, the product only needs to travel from a nearby warehouse, instead of across a continent.

Figures from China’s Ministry of Commerce indicate Chinese companies have built about 100 new warehouses overseas in the first half of this year, after an increase of 800 last year.

Chinese companies are looking for other ways to establish their presence in overseas markets.

Next year, AliExpress plans to double its staff in France, Spain and Italy from just over 200 people currently, Wang said.

For Hisense, Fang said the company plans more acquisitions and the construction of more factories in different countries — as tariffs make selling China-made products more expensive in some markets, like the U.S.

When the world shut down in March of 2020 and students were stuck at home for months, it gave them time to rethink their career paths. And for some recent graduates, a traditional nine-to-five job wasn’t the answer. Some entrepreneurial students looked at the accelerated adoption of digital technologies, the flexibility of remote work, and the social reckoning of last summer, and saw opportunities to create their own businesses.

The pandemic resulted in an unprecedented surge in new business applications in the second half of 2020, which continued through spring 2021, according to the National Bureau of Economic Research. And, it’s not surprising that some of those were created by young entrepreneurs: More than half of Gen Zers (under 25 years old) said they hoped to own their own business in the next 10 years, according to a recent EY study.

One of those students was 23-year-old Agustin Cortes. In early 2020,  Cortes finished an internship in project management at Google and was applying for positions in Silicon Valley. But then the Covid pandemic hit and his remaining interviews were canceled due to layoffs. That’s when Cortes created Learkn, an online platform that provides free educational content to anyone with an internet connection.

Agustin Cortes, the founder and CEO of Learkn

Photo: Cesar Cortes

 

Another student, Etienne Lunetta, was unsatisfied with virtual learning and left the University of Southern California just 12 credits shy of completing his degree. He formed Leonard Cyber, a web security consulting and aptitude testing firm, in 2020 and Holo AI in 2021. Holo AI is an artificial intelligence text generator that writes SEO content, emails, articles, short stories, and even full novels from a short paragraph or a few sentences.

Mani Kandan, who just graduated from Arizona State University this spring, launched Morality, which uses artificial intelligence software to eliminate inefficiencies in small law firms. By automating tasks completed by paralegals and personal assistants, Morality says it can reduce errors. The pandemic gave Kandan the clarity he needed to pursue entrepreneurship over a more typical career at a Fortune 500 company.

 “Right before the pandemic I was interning for a big company doing software development,” said Kandan. And when I was working there, I hated my life. I hated what I was doing. I really couldn’t see the impact of what I was doing. That’s what mattered to me: seeing that I was creating change or bringing something new to a field and I couldn’t see any of that. [The pandemic] helped me figure out what I wanted.”

 Tips for starting your own business:
1. Leverage the time you have.
2. Keep an idea notebook.
3. Network.
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The massive industry disruptions caused by the pandemic created a multitude of entrepreneurial opportunities. McKinsey & Company reported that, between December 2019 and July 2020, the average share of products and/or services that are partially or fully digitized increased from 35% to 55%, an acceleration that was seven years ahead of the average rate of adoption observed from 2017 to 2019. In other words, during the pandemic, the share of offerings that are digital in nature increased exponentially, particularly in the health care, pharmaceutical, financial service, and professional service industries. These three entrepreneurs saw industry disruption and the massive increase in digital products and services offered as an opportunity to create innovative new ventures to satisfy demand in these extraordinary times.

 In the early days of the pandemic, Kandan noticed the rapid adoption of digital technologies in the legal industry. The legal industry is relatively risk-adverse and not as technologically proficient as other industries, such as health care and finance, Kandan said. But when attorneys were forced to work remotely, many saw the promise of AI technology in the legal field. Kandan explained that the pandemic accelerated both the growth of Morality and the market’s trust of his product as law firms adopted digital technologies at an unprecedented rate.

 Similarly, Cortes noticed a tremendous increase in the demand for online learning – a trend that he expects to continue after the pandemic ends.

“The shift to online learning is here to stay,” Cortes said.

Lunetta noticed a spike in cybersecurity incidents during the pandemic, and formed Leonard Cyber to provide those looking for cybersecurity employment with credentials and certifications.

Etienne Lunetta, Co-founder of Leonard Cyber and Holo AI

Courtesy: Etienne Lunetta

 

Why are so many Americans – particularly young Americans – choosing entrepreneurship over traditional employment and education?

Kandan believes that younger generations are inherently entrepreneurial and risk prone. As they become literate in newer technologies and lifestyles, they “grow into a culture of trying new things.”

 “The younger generation always has the onus of being experimental. We have to be the guinea pigs because if nothing works well on us, it’s kind of doomed,” said Lunetta. “Young people have the widest set of demographics, are the least risk averse, and haven’t lived life yet. We don’t have experiences to scare us from trying new things. So, I think it’s really on the shoulders of the young generation to try new things and convince the older generations to also try new things.”

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As with any entrepreneurial endeavor, there is a great amount of risk that comes with starting a new venture – especially when one leaves a full-time job or educational opportunity to do so. However, these entrepreneurs believe there is no better time to be risk prone than when you are in your twenties. Cortes left a promising career in Silicon Valley and took a chance on Learkn because he has few commitments at 23.

“When you’re young, you have less risk financially. If I lose my money, I lose my money. I don’t have to worry about it that much,” said Cortes. “In 2021, the culture of creating your own ventures has become much more prominent, especially through social media.”

Lunetta agreed the time to take on a risky venture is now.

 “I could make do if something bad happened,” said Lunetta. “I’m not too worried of having to take a secure steady path. There’s a lot less risk for us, I’m still young. Whatever happens these next 10 years, I believe I can gain that back. Even if everything fails. Sure, I’ll be behind people my age, and probably behind people five years younger than I am, but that’s the risk I’m willing to take.”

Another reason Kandan believes he is risk-prone is because of his parents, who immigrated to the United States from India. Their perseverance shaped his entrepreneurial mindset and aspirations:

“I’ve seen the grit and grind of my parents for the last 30 years. It’s almost a shame to me, if I don’t work just as hard, if I don’t try something just as risky,” Kandan said. “My parents did this, just for me to go work a regular nine to five, but personally, my own ambition is to be more risk prone. And we’ll see how that pays off.”

Mani Kandan, graduate of Arizona State University, Founder of Morality

Courtesy Mani Kandan

 

Lunetta, Cortes, and Kandan share more in common than launching tech start-ups during the pandemic: they are all first-generation Americans. These young entrepreneurs are in good company: Nearly half of Fortune 500 companies were started by immigrants or their children, including prominent corporations such as Apple, Amazon, Tesla, and Alphabet, according to the New American Economy research group.

Much like many of their Fortune 500 counterparts, Lunetta, Kandan, and Cortes aspire to disrupt and revolutionize industries by developing unique tech solutions to mitigate inefficiencies and solve complex problems.

Cortes wants to create a solution for people like him – who did not go to college – by providing access to free educational content. Eventually, he hopes Learkn will produce educated individuals and become a pipeline for recruiters, supplying a legitimate alternative to a college degree or credential which often require substantial student loans.

Lunetta wants Holo AI to become a ubiquitous digital office tool, analogous to products produced by Microsoft and Alphabet. He hopes his general-purpose writing utility is used nationwide for drafting emails, documents, long form articles, briefs, non-disclosure agreements and even novels.

Kandan wants to make the justice system less stressful and give clients timely closure by bringing the legal industry up to speed with industries that have embraced digital technologies more fully. He hopes Morality eventually becomes a staple in the legal industry.

Kandan’s advice to prospective Gen Z entrepreneurs? Convince your parents.

“If you can convince your parents, you can convince anyone,” Kandan said. “They will be your biggest doubters, but also your biggest supporters.”

 CNBC’s “College Voices″ is a series written by CNBC interns from universities across the country about getting their college education, managing their own money and launching their careers during these extraordinary times. Ryan Waterman Aldana is a summer 2021 talent development intern at CNBC. He recently graduated summa cum laude with his bachelor’s degree from James Madison University. The series is edited by Cindy Perman.

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When it comes to the lottery, it’s been a good year so far for Uncle Sam.

Winners of Powerball and Mega Millions jackpots — worth an advertised $2.9 billion in all — have collectively paid roughly $515 million to the IRS in 2021 taxes. And that won’t be the end of it.

Whether jackpot winners go with the immediate, reduced cash option (most do) or an annuity stretched across three decades, 24% is withheld for federal taxes. Yet because the top rate of 37% is applied to income above $523,600 (single tax filers) and $628,300 (married couples filing jointly), more ends up being owed.

So far in 2021, there have been five Powerball jackpot winners — and the pace of those wins could pick up, because a third weekly drawing will be added on Mondays starting Aug. 23.

Mega Millions, meanwhile, has had four winners this year (its $55 million jackpot won on June 8 remains unclaimed, however). For all collected prizes, winners have chosen the cash option instead of the annuity.

For the three claimed Mega Millions jackpots — which have ranged from $96 million to $1 billion — winners’ cash options were worth a combined $1.2 billion. The 24% federal tax withholding has totaled $288 million, reducing the collective take to $912 million.

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Powerball winners’ cash options have totaled $945.7 million, with jackpot amounts ranging from $23.2 million to $731.1 million. After the 24% federal withholding of $227 million, winners were left with $718.7 million.

For illustration purposes: If winners were unable to reduce their taxable income at all, another 13% — the difference between the 24% withheld and the top tax rate of 37% — would be due to Uncle Sam. Collectively, that would be another $278.9 million or so going to federal coffers ($793.9 million altogether).

Of course, those lottery wins generally contribute just a drip in the federal tax bucket. Income taxes paid by individuals are expected to comprise about $1.9 trillion (50%) of the government’s estimated $3.8 trillion in revenue for fiscal 2021.

Local coffers also benefit from big lottery wins, as well. Depending on where the ticket was purchased, state taxes ranging from zero to more than 8% also would be applied.

Like the federal withholding rate on jackpot wins, the amount withheld for state taxes might also be less than what you’ll owe.

There are ways to reduce how much of your winnings get taxed, although not many. For 2021, due to a temporary change in federal rules, the charitably inclined can lower their taxable income by making a qualified cash donation worth up to 100% of their adjusted gross income (that limit is scheduled to revert back to 60% in 2022).

Some lottery winners set up their own charitable foundation or similar option, such as a donor-advised fund, and donate a portion of their windfall to it.

The Mega Millions jackpot is $179 million ($129.5 million cash option) for Tuesday night’s drawing. Powerball’s jackpot is $211 million (cash option of $153.9 million), with the next drawing set for Wednesday night.

Your chance of winning Powerball is about 1 in 292 million. For Mega Millions, it’s 1 in 302 million.