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Cross-border e-commerce: Rethinking distribution networks

White Paper. Cross-border e-commerce: Rethinking distribution networks 2

Cross-border e-commerce is on the up 3

Evolution of the distribution network 4

Obstacles limiting cross-border e-commerce 5

Complex returns logistics 5 Online payments 6 Closed borders 6 Pricing: VAT systems and import taxes 6

Eliminating supply chain inefficiencies 8

Unstoppable change 9

Sources 10


Table of content

Currently, around 2.7 billion people — 39% of the

total world population — have Internet access1.

Increasingly, those 2.7 billion people are making

online purchases every year. The Central Board of

Excise and Customs (CBEC) expects both internal

and domestic e-commerce will generate global

revenues of 1.4 trillion dollars this year.

Cross-border e-commerce will represent a

significant chunk of this. In 2012 alone, global

revenue from cross-border e-commerce was 300

billion dollars2. This number is expected to double

by 2018. The United States, United Kingdom,

Germany, Australia, Brazil, and China are the six

most important markets today when it comes to

online shopping. Where do these online shoppers

buy online if they shop cross-border?

The United States is the most popular country for

buying online goods (45%), followed by the United

Kingdom (37%), China (26%), Hong Kong (25%),

Canada (18%), Australia (16%) and Germany (14%).

The revenues generated by cross-border

e-commerce in these markets alone are set to

reach approximately 307 billion dollars in 2018,

three times more than the global amount in these

markets in 20133. The Boston Consulting Group

expects that by 2025, the Asian market will

account for around 40% of the revenues generated

by cross-border e-commerce, making Asia the

global epicenter of e-commerce4.

The strong growth of cross-border e-commerce

is creating an unprecedented opportunity for

e-tailers. However, an efficient and flexible

distribution network is required in order to fully

reap the rewards of this growth. The e-tailers

that will be successful in the future will be those

that are capable of optimizing their distribution

networks and challenging the barriers of cross-

border e-commerce5.

Cross-border e-commerce is on the up



45% of online cross-border shoppers buy from the

USA, which makes this the most popular country for

buying online goods.

Germany

14% 16% 18% 25% 26% 37% 45%

Australia Canada Hong Kong China UK USA

Retail logistics has rapidly evolved over the past

forty years. In the 1970s, most e-tailers were

stocked directly through suppliers or wholesalers.

In the 1980s, e-tailers began to centralize their

inventories by means of distribution centers.

In the 1990s, the global procurement policy

entered the equation, allowing e-tailers to establish

import centers in order to process imported

goods and distribute them. E-commerce began

its rise in the 2000s, when solely internet-based

e-tailers appeared on the market, leading to the

establishment of e-fulfillment distribution networks6.

E-fulfillment requires rethinking traditional

distribution networks. Traditional network design

models have become largely insufficient due to

the variables involved in internet logistics, such

as the number of deliveries and collection points.

This makes it very different from bricks-and-mortar

logistics. It is important for e-tailers to determine the

optimal location for their Internet Order Fulfillment

Centers (IOFC), as well as the number of IOFCs they

want to have.

The required storage space, the number of orders,

and the profiles and addresses of the consumers

are important considerations in this. Other factors

also play a role, including the availability of items,

accessibility, and delivery times7.

E-commerce also stimulates the demand for certain

kinds of e-commerce facilities: mega e-fulfillment

centers, parcel sorting centers (hubs), local parcel

distribution centers for last-mile supply chains,

local city logistics depots, returns centers, and

e-fulfillment centers for online food purchases.

Furthermore, Jones Lang LaSalle (JLL) expects a

merging of these e-fulfillment centers with urban

logistics, since most online consumers live in cities.

With cross-border e-commerce, e-tailers stand to

significantly increase their turnover by tapping into

new markets. But there are many barriers involved in

playing in new markets, and this is where

The e-tailers that will be successful in the future will be those that are capable of optimizing their distribution networks and challenging the barriers of cross-border e-commerce.



E-fulfillment requires rethinking traditional distribution networks.

Evolution of the distribution network

international e-fulfillment often poses a challenge.

Unfortunately, there is no perfect model that can be

applied by every organization. Some e-tailers opt

to develop a global network with local distribution

centers, while others prefer to work with third

parties8, or work with logistical operators that

not only offer delivery but also provide fulfillment

solutions — Landmark Global, for example. The

importance and the complexity of returns logistics

cannot be underestimated. Data from Kurt Salmon,

a management consulting firm, shows that online

consumers return between 20% and 30% of clothes

and other “soft” goods bought online and a little

less than 10% of the “hard” goods, such as toys

and products for home use9.



Obstacles limiting cross-border e-commerce

Although cross-border e-commerce is expected to

grow up to 75% by 2020, only one in four Europe-

based e-tailers is selling across borders. This has

to do with the barriers that still discourage e-tailers

from selling internationally10.

Complex returns logistics

As many as 47% of European e-tailers claim to

be discouraged by the different legislations with

respect to product returns, and 44% cite the

complexity of processing returned cross-border

e-commerce orders as a reason for holding back11.

In Europe there’s a legislation that guarantees a

14-day return period during which consumers may

decide to cancel their online purchase12.

A quick look online shows that international online

transactions are still handled differently from e-tailer

to e-tailer. For the consumer, the only solution is to

carefully read the returns policy.

With some e-tailers, cross-border e-commerce

orders can be returned free of charge, while others

demand that the purchaser pay the shipping cost

as well as the tax and customs charges if goods are

returned.

Many retailers also decide per product category

whether a product can be returned or not.

International postal operators put initiatives in place

to make cross-border returns just as transparent

and easy to use as domestic returns, with the use

of a “postage paid” label and a track-and-trace

service, among other means13.

International postal operators put initiatives in place to make cross-border returns just as transparent and easy to use as domestic returns.


Online payments

In order to make buying online more attractive to

consumers in target markets, e-tailers have to be

familiar with local payment preferences. Credit

cards may be the norm in some countries, while in

other countries this may be a completely unfamiliar

option14. In Russia, it is still very common to pay in

cash upon receipt of the goods, whereas this rarely

happens anymore in Western economies. Brazilians

prefer to make their purchases in interest-free

installments (the online consumers borrow from the

e-tailer and pay back in installments, instead of

paying the total amount in once) instead of paying

for online orders using traditional credit cards15.

An increasing number of payment options are now

available, such as e-wallets and mobile payment

methods. E-tailers also face the challenge of

managing the different payment methods, which

can vary greatly from region to region. Another

factor that can have a direct effect on an e-tailer’s

profits, and influence fulfillment decisions, is

the cost incurred in converting prices to local

currencies.

Closed borders

If there is a clear benefit attached to purchasing

products across borders, consumers are prepared

to wait longer for their orders17. Similar to domestic

purchases online, the customer expects faster, more

precise delivery within a more reliable timeframe.

For this reason, unpredictable customs checks can

be a thorn in the side of many e-tailers18. The World

Economic Forum estimates that lowering the supply

chain barriers between countries — barriers such as

customs formalities — would increase cross-border

e-commerce by 60% to 80%19.

Online consumers also want insight into the status of

their delivery process. Presently, many e-tailers fail

to provide online consumers with sufficient insight

into the overall delivery process for cross-border

purchases. In recent years, there has been a lot of

investment in track-and-trace solutions. The Internet

of Things also opens up new possibilities.

Pricing: VAT systems and import taxes

The lack of a Europe-wide VAT system is one of the

greatest obstacles for cross-border e-commerce

within Europe. The complexity of the


In order to make buying online more attractive to consumers in target markets, e-tailers have to be familiar with local payment preferences.

Lowering the supply chain barriers between countries — barriers such as customs formalities — would increase cross-border e-commerce by 60% to 80%.

various VAT systems and import taxes worldwide

is slowing the growth of e-commerce. It is often

difficult for customers to estimate what the ultimate

cost of the product will be when making a cross-

border purchase online20.

We are slowly seeing examples of e-tailers who go

the extra mile to make pricing as transparent as

possible for consumers. This is to the advantage of

both the e-tailer and the consumer.

The e-tailer will see fewer customers bowing out

before the end of the purchasing process21. To

make pricing more transparent, e-tailers can offer

their customers a «total landed cost price». This

price includes the total cost of shipment, including

delivery, taxes and duties.

Atlas is Landmark Global’s plug-and-play landed

cost solution tool. The responsive Atlas application

seamlessly integrates more than 40 currencies and

150 payment methods. Presenting the right currency

along with the familiar local payment methods and

calculating the customs and excise duties is done

automatically based on the ordering location, which

is identified using the customer’s IP address.



To make pricing more transparent, e-tailers can offer their customers a «total landed cost price». This price includes the total cost of shipment, including delivery, taxes and duties.


Online consumers are becoming more demanding

and aren’t as deterred by geographical limitations.

They’re only concerned about one thing: getting

their product. These consumer expectations

influence supply chain operations in significant

ways, such as by creating a greater focus on

near-sourcing, omni-channel, and faster transport

solutions22.

The trend toward an e-commerce world that is not

limited by physical borders will ensure that specific

routes will be optimized to meet the demands of the

online consumer. Today, for example, if Australian

consumers purchase goods from an e-tailer based

in the United Kingdom, the products will first be

sent from China to the United Kingdom before

finally arriving in Australia. These unnecessary and

expensive routes will disappear in the future23.

The increasing complexity of global trade means

that distribution decisions have to be more strategic

and efficient. In some countries, such as Brazil, the

cost of re-exporting goods that have been brought

into the country can be enormous. In such cases,

the redistribution of goods to other countries is

no longer an option. Partnerships with logistical

operators with knowledge of the domain in question

can offer an invaluable solution24.

For online e-tailers, it comes down to finding the

right balance between cost and speed of delivery.

This is where efficient distribution networks hold the

key. For a consumer that values fast delivery above

all else for example, the flexibility of the distribution

network is the most important. Large companies

often adopt a more segmented approach with

centralized warehouses for slow-moving goods

and a more local distribution model for fast-moving

products25.

Different parties are coming forward to respond to

the differing requirements of the consumer in the

cross-border e-commerce ecosystem. There are

integrators who provide an end-to-end service, but

partnering with postal operators can also create

opportunities, allowing e-tailers to take advantage of

their well-developed door-to-door networks.


Eliminating supply chain inefficiencies

Online consumers are becoming more demanding and aren’t as deterred by geographical limitations. They’re only concerned about one thing: getting their product.


Cross-border e-commerce will continue to grow

in the coming years, due to the gradual removal of

barriers to entering the market and the fast growth

of e-commerce as a whole. The more logistical

e-commerce models continue to develop, the more

changes we will see in the physical distribution

networks. One of the tendencies currently gaining

momentum is that e-tailers are starting to have their

own physical stores and are delivering directly to

the online consumer from these stores instead of

from national warehouses or regional distribution

centers27.

If the obstacles holding back cross-border

e-commerce can be removed, it won’t matter to

the consumer whether they purchase from their

own market or across the border. This represents

a golden opportunity for e-tailers to rethink their

business models. Instead of organizing their

businesses by region, they could, for example,

organize based on customer requirements, the

products sold, and the services provided, without

specifically taking the location into account.

Ultimately, e-tailers won’t be able to ignore the

figures: it is expected that cross-border retail will

grow at least twice as fast as domestic retail. To get

a piece of the pie, it’s crucial to have an efficient and

flexible distribution network. Long-term partnerships

with distribution partners stand to add significant

value in realizing this ambition. The e-tailers that

manage to jump the hurdles standing in the way of

cross-border retail have the advantage in the global

market29.


Unstoppable change

If the obstacles holding back cross-border e-commerce can be removed, it won’t matter to the consumer whether they purchase from their own market or across the border.


1 E-commerce boom triggers transformation in retail logistics, JLL, November 2013

2 http://www.crossborder-ecommerce.com/international-expansion, cbec

3 Modern Spice Routes, The Cultural Impact and Economic Opportunity of Cross-Border Shopping, PayPal, 2013

4 Cross-border e-commerce makes the world flatter, The Boston Consulting Group, September 2014

5 18th Annual Third-Party Logistics Study, Capgemini Consulting, 2014


7 http://www.logisticsresearch.nl/index.php/network-design/overzicht


9 https://www.internetretailer.com/2013/05/29/reducing-rate-returns

10 Retailers attitudes to cross-border trade and consumer protection report, European Commission, 2011

11 European Cross-border E-commerce, The Challenge to Achieving Profitable Growth, Accenture, 2012

12 http://europa.eu/youreurope/citizens/shopping/shopping-abroad/returning-unwanted-goods/index_nl.htm

13 http://www.bpostinternational.com/en/content/tips-handling-international-returns#sthash.ufw40NXZ.dpuf

14 http://www.entrepreneur.com/article/239203, November 2014

15 http://www.digitalriverpayments.com/news/full/avoid-hitting-the-bric-wall-local-payments-key-to-

entering-emerging-markets16 http://www.entrepreneur.com/article/239203,

November 201417 E-commerce and delivery, EU, Copenhagen

Economics, July 201318 Cross-border e-commerce makes the world

flatter, The Boston Consulting Group, September 2014

19 Cross-border E-commerce Trade-Engine for Growth, GEA, November 2014

20 Position Paper Cross Border e-Logistics, Ecommerce Europe

21 Offer your customers what they want, when they want it, bpost International, 2014

22 Adapting your supply chain for the future…now, Inbound Logistics, November 2014


24 18th Annual Third-Party Logistics Study, Capgemini Consulting, 2014

25 Re-engineering the supply chain for the omni-channel of tomorrow, EY, February 2015




29 http://www.entrepreneur.com/article/239203, November 2014


Sources


Documents

White paper Cross-border e-commerce: …landmarkglobal.com/.../White-Paper-Cross-border-e-commerce-EN.pdfWhite Paper. Cross-border e-commerce: Rethinking distribution networks 2 Cross-border