The majority of challenges sellers face when internationalizing their operations are related to logistics. Find out how to overcome them in our new article.
While just a few decades ago, you’d have set up shop on your local high street, today budding e-commerce entrepreneurs can start out online using platforms like Instagram and Etsy with a global audience from day one. There’s a lot of money in cross-bordere-commerce: according to Statista, global eCommerce revenue is predicted to reach $4.88 trillion by 2021, with cross-border purchases making up 20% of all e-commerce trade by 2022. However, it also brings numerous challenges and costs to e-commerce businesses too. Most notably in terms of logistics.
Indeed, Statista reports that the majority of challenges sellers face when internationalizing their operations are related to logistics — from navigating complicated customs rules, to handling returns and tracking their items. Longer delivery times and increased shipping costs is one central pain point of international shipment that vendors really struggle with. Forced to compete with local companies who can deliver quick and Amazon’s same-day service, it’s no surprise that 43% of sellers report that managing customers’ delivery expectations is a big issue when going international. To remain competitive, e-commerce businesses need to make sure their cross-border fulfilment is up for the challenge. Read on to find out how to do just that.
Fulfilment can be fairly simple if you’re an e-commerce company just starting out. As a seller, you’ll probably pick and pack the limited number of orders you receive yourself and ship them off within the same country or, at a push, the same continent. When your business starts to grow and, critically, internationalize, things get a little more complicated.
At first, you will probably outsource to a 3PL fulfilment provider within your own country, but what happens when you want to start doing cross-border shipments? Well, you have two central options:
This is where you ship everything from one central warehouse in the country where most of your manufacturing or operations are based directly to your customers in another country.
For example, you might be an espadrille brand based in Spain but you have a budding market in the UK. You are big enough that you no longer do your own fulfilment: instead, you use a Spanish 3PL for domestic deliveries. If you go with the international shipping option, you will ship your shoes directly from your warehouse in Barcelona (where your fulfilment provider is based) to the customer’s door in Manchester.
Compared to cross-border warehousing, this often means fewer upfront costs and can seem like the simpler option. This is because all your fulfilment operations remain in your base country: so, in this case, you (or your local fulfilment provider) stores, picks and packs your items in Spain and ships them abroad via an international carrier (that either they or you select). All your fulfilment operations remain in Spain and under the same fulfilment provider: only shipping is done in the target country. This way, you don’t have to think about customs or tax regulations in the UK or about other practical details, like finding a warehouse or a local or international fulfilment provider that operates there.
However, this can result in much higher shipping costs, much slower delivery times and much less control of delivery and inventory tracking. Subsidizing international delivery fees for customers may sound like a good idea, but it will ultimately just lower your profit margins, while customers might still not buy your product due to slow delivery times.
This involves having local warehouses in the markets that you serve, usually via outsourcing to a local or international fulfilment provider who has its own network of country-specific fulfilment services, including carriers and warehouses. With this option, your products go straight from your manufacturer or central warehouse to a fulfilment provider’s warehouse in the target country.
This way, you have a decentralized storage and distribution network with your goods scattered across various fulfilment centers covering a large geographical area. Often, starter eCommerce businesses will choose to stock only those products that are in particularly high-demand in that specific market, in order to reduce storage fees and expand the product range step by step.
So, if your espadrilles are going from Spain to the UK, with cross-border warehousing, they will go from your central warehouse or the manufacturer to a UK warehouse, and then onto the customer.
As touched on above, most of the time, you would opt to partner with a 3PL or a full-service e-commerce solutions provider to do this. You would, therefore, not be responsible for opening and managing warehouses or operations in local markets outside your country.
Forwarding stock to your target country can be a daunting prospect for very new or relatively small e-commerce businesses who are only just entering international markets. As an emerging brand with little liquidity, you are unlikely to have the funds to rent foreign warehouses across the globe and mirror your entire inventory in them. Even if you go for the easier option of outsourcing fulfillment to an international or local provider operating in the target country, the time needed to find the best service for you might seem like too much work.
However, by using a clever strategy — choosing a small package with an international provider now, for example, and/or selecting to only fulfill your top 10–25 products in your international target market(s) — you can access excellent fulfillment services for a relatively low price and be ready to scale if your sales volumes suddenly rocket in certain markets.
Cross-border warehousing is likely to be the best solution to your international shipping needs in the short and long-term, even if it seems like a bigger decision for your business to transfer some fulfilment operations abroad. This is because it provides two central advantages over international shipping: reduction of overall and, in particular, shipping costs and much quicker delivery times. Once a customer makes an order, the product can be shipped directly to them from within the country, instead of having to be shipped overseas. With most of your fulfilment operations happening in the country of destination, delivery is inevitably much quicker.
While inventory costs may increase significantly, then, as you will be managing stock availability in two (or more) different warehouses, cross-border warehousing ensures a much quicker and smoother customer delivery experience and reduces shipping costs. If you go for a reputable international provider, particularly if you already have an established business relationship with them, they will most likely agree to help you to expand your fulfilment services to your target countries with only a small part of the inventory as well. One thing to note is that fulfilment costs may vary greatly per country depending on average wages there. Fulfilment in Poland, for example, where wages are relatively low will be a lot cheaper than fulfilment in Germany or Austria, where wages are higher. This is something you should take into account when budgeting for expansion into specific target countries.
Choosing which countries you expand into is key when internationalizing. Clearly, the first step is to decide where demand is highest. Once identified, you need to look at which markets are the most feasible to expand into — where can you access services the best? Which ones are geographically the closest? Find out the answers by reaching out to contacts and gathering data about return rates, market size for your category, and shipping costs.
Whether you go for international shipping or cross-border warehousing, you need to make sure you select a provider with local expertise and reliability. You’ll also need to take local cultural preferences into account when expanding into certain markets. For example, in France, most people like to have their parcels delivered to a collection point; in the UK, people prefer their homes. Some populations expect faster delivery than others; some demand tracking features. This will make a big difference to your cross-border fulfilment plan and potentially your end-fees.
Around 51% of all eCommerce sellers say that navigating customs compliance for their international logistics is a central challenge for them. It’s absolutely key when expanding into new markets to understand the specific laws around:
Unless you have a dedicated inhouse legal team, you will have to contract a local legal service or opt for a comprehensive fulfilment solutions provider covering legal compliance. You’ll also want to make sure you’re covered by relevant insurance policies.
For example, in the EU, as soon as you ship your first product to a foreign warehouse within the EU, you have to register for tax in the respective destination country and complete an advance VAT declaration. In most cases, further country-specific obligations are also added to this.
So, keep in mind that while some EU-wide rules might apply, tax and duty percentages vary per country and for each category of goods. For instance, taxable value is usually based on the value of the goods you’re shipping, but depending on the valuation method of a country, it can also include other amounts. You can estimate duties and taxes by using a handy tax and duty calculator tool.
One final thing to be aware of is that the price of your products will also vary by country. In a country with free-trade (no tariffs or duties), low VAT costs and cheap fulfilment services, your product may be much cheaper than in a country with strict and costly customs, high fulfilment rates and lots of taxes.
One of the core challenges for e-commerce businesses going international is addressing the cost associated with cross-border logistics. Without adequate research and planning internationalizing can be a big gamble: shipping and warehousing costs go up, reverse logistics become more costly and more complicated, and profit margins on individual products may fall. This is compounded by customers’ increasing demand for free and rapid delivery and returns, driven by Amazon, Zalando and othe re-commerce giants. This often forces e-commerce businesses to swallow the cost of international shipping as part of their budget.
Cross-border warehousing via a partner is really the best option. Not only does it guarantee quicker deliveries, and happier customers, but it also generally saves you money in the long-run. In the complex world of international shipping and reverse logistics, having a trusted fulfilment partner who can manage all aspects of logistics in your international markets ultimately will save you a lot of time and cash. It also gives you access to the best carriers in the local markets, something that would be difficult to do on your own, again improving the time and quality of deliveries. However, it’s important to get a few quotes for each market before choosing a provider.
Keeping an eye on your supply chain and, notably, tracking deliveries across borders is a challenge for around 46% of e-commerce sellers. Inventory visibility is always important — whether you’re fulfilling locally or across borders — but it becomes a lot more difficult with international shipments. International customers, in particular, often expect to be able to track and sign for deliveries, with concerns over missed or lost shipments being higher.
Finding a collaborative information system that allows details about inventory location and mobility to be visible to both sellers and fulfilment managers is very important. API’s can be useful for this as they allow everyone’s systems to plug into each other easily and quickly. Therefore, it is important to choose a fulfilment provider, if you do outsource, who guarantees easy tracking of your products and good fulfilment technologies. UPS and DHL, for instance, are very good at this. A number of emerging fulfilment platforms and service providers are also emerging who offer the latest technologies and innovative ways of working to make sure you know exactly where your stock is at all times.
IT systems integration or usability are important but often overlooked when it comes to international fulfilment. If you want to maintain stock visibility and good communication across your international fulfilment network, you will need to be able to easily integrate your IT systems with those of your fulfilment, warehousing or shipping provider. So, using an international fulfilment provider that deploys the same technologies across all of their fulfilment centers can save you a lot of time and money.
With the rise of emerging e-commerce fulfilment technological solutions, you can also use an innovative connector-company, like Codept, who will simply allow you to use their API to plug into a range of different international fulfilment companies’ tech systems from the get-go.
Expanding fulfilment abroad can bring many challenges but it is also the only way to truly scale your e-commerce business in today’s globalized world. When it comes to handling international fulfilment, the best option for e-commerce firms is to opt for cross-border warehousing and partnering with an international or several local fulfilment providers. This will guarantee a better fulfillment service and quicker, easily trackable and reliable deliveries to your customers. It might mean more upfront costs, but as you’re likely to be more successful entering new markets with a trusted fulfilment partner at your side, it’s worth it.