Trade Logistics in a Digital World
Crossborder Distribution is a Difficult Barrier to be Overcome by Online Sellers
The global B2C crossborder ecommerce market is expected to increase in size to $1 trillion in 2020, from $230 billion in 2014, according to a report from global consulting firm Accenture and AliResearch, Alibaba Group’s research arm.
Another report by DHL says that crossborder ecommerce accounts for 15 percent of global ecommerce sales. By 2020, that share is expected to rise to approximately 22 percent.
DHL also states that around 20 percent of crossborder purchases are worth over $200, a higher share than in domestic markets, providing especially high profit potential. In addition, every tenth US dollar of crossborder ecommerce revenue is made through a time-definite premium shipment.
The scope of crossborder ecommerce is expanding. Fashion and electronics have long been crossborder top sellers, but consumers are now branching out further. Presently underserved product categories include beauty and cosmetics, pet care, food and beverage, and sporting goods. Researchers forecast that crossborder online shopping will see compound annual growth of over 25 percent over the next five years. This is double the rate of worldwide online retail sales as a whole. By 2020, more than 900m people around the world will be international online shoppers with their purchases accounting for nearly 30 percent of all global B2C transactions.
Of course, crossborder ecommerce dynamics vary country by country. In the US, for example, ecommerce consumers exhibit low levels of crossborder shopping. According to a PayPal study only 22 percent of digital buyers in the US had made a crossborder purchase in the past 12 months: the lowest level of overseas buying behavior in the Americas. This contrasts with 67 percent of internet customers in Canada.
Crossborder online shopping is gaining popularity particularly in emerging markets, where consumers can find it hard to find affordable products in local shops. In many cases the only alternative is shopping on websites in other countries or from marketplaces such as Alibaba Group’s Tmall.com, a Chinese B2C website that hosts merchants from around the world.
China is expected to drive much of the growth in coming years, due to the country’s large and growing middle class’ hunger for foreign products. China’s middle class today is equal in size to the entire US population and is expected to reach 630 million by 2022, according to McKinsey. Crossborder ecommerce in China is growing particularly fast, increasing more than 70 percent year-on-year.
Widening out to a look at South East Asia, the ecommerce market is expected to grow with a CAGR of 32 percent over the next five years. The region is home to some 600 million consumers, 260 million of which are already online. This makes the South East Asia region the largest market of internet users globally. It is for this reason that both Amazon and Alibaba have increased their interest in this wider region.
The Mexican ecommerce market is estimated to be growing at an annual rate of 17 percent. Online purchases currently only represent two percent of the country $203bn in annual retail sales, representing a huge opportunity as Mexicans have only recently been introduced to the benefits of online shopping. There are currently 37.9 million online shoppers in the country, expected to rise to 55.3 million by 2020.
However, the growth of this sector is being hampered by security concerns over payments. To combat this, Amazon has partnered with a local retailer allowing its customers to pay for their purchases with cash.
The Indian ecommerce market is predicted to grow spectacularly by 1,200 percent to $200 billion by 2026, up from $15 billion in 2016, according to Morgan Stanley. At this time, it has been estimated that the online retail market will account for 12 percent of the country’s overall retail sales. Morgan
Stanley believes that this growth is being driven by increasing internet penetration, a drop in data access costs, a shift to smartphones, and a flow of credit to consumers.
A survey from Ecommerce Europe, called “Barriers to growth”, shows that 44 percent of companies selling abroad view crossborder logistics and distribution as a difficult barrier to overcome. Also, 15 percent of companies that do not sell internationally refrain from doing so because of excessive transportation costs.
Apart from the obvious language and currency barriers, there are a raft of additional factors that can impact a retailer’s ability to successfully operate on a crossborder basis.
In Europe – an economic grouping governed by a set of compatible customs, taxation and trading regulations, with the vast majority of markets adopting a single currency – crossborder ecommerce
is a far simpler proposition than in many parts of the world. Trading conditions become far more complicated in regions such as Asia, where developed markets trade with emerging economies, all countries have independent regulatory environments, different languages and currencies and most are separated by large bodies of water. This results in a completely different, or at least exacerbated, set of issues the ecommerce companies must navigate.
Fraud is a major challenge faced by e-retailers operating on a crossborder basis. Ecommerce sites need to use a reputable and robust payment system that is cognizant of local customer behavior to reduce possible fraudulent purchases. Many emerging economies will comprise cash societies, e.g. not being heavy users of bank credit or debit cards. Consumers in these markets often rely heavily on COD payments which comes with its own set of unique issues.
Crossborder payments should be fully transparent to ensure that all transport costs, local taxes, duties and fees are included so that customers are not surprised by additional government levies when their online purchases arrive at their final destination. Understanding local taxation and ensuring that the customer pays accordingly is crucial; otherwise the purchase may be returned, incurring additional, expensive, costs.
The returns element is just as important as the last-mile delivery and can negatively impact the perception of a business by local customers. However, unlike domestic ecommerce, crossborder returns are far more expensive, and some retailers have adopted different strategies to try to reduce this expense. When UK e-retailer ASOS, for example, started servicing US customers it did so from its UK stockholding. To reduce returns cost, ASOS directed all US returns to a US distribution center, the intention being not just to reduce costs but to also build up some inventory in the country.
Regulations surrounding local and overseas ecommerce sales will differ country by country and crossborder ecommerce sellers must be aware of these in order to adapt their approach in each target market. A number of countries are implementing additional taxes on online goods purchased from non-domestic sellers. Changes in tax free import tariffs can impact growth opportunities, turning what was previously a profitable crossborder market into an unattractive proposition for overseas sellers within a very short time-frame.
Trust is one of the biggest issues facing companies wanting to sell their products online internationally. As ecommerce sites need robust payments systems to reduce fraudulent purchases customers must be convinced that the websites they buy from are reputable and honest—a task that is far harder to check and police internationally.
John Manners-Bell, is CEO of Ti-Insight. This is an extract of remarks he made at the recent UNCTAD Ecommerce Week in Geneva.