05/17/2024
Get Ready for Cross-Border eCommerce—GEODIS Insights
There are huge opportunities for brands that want to expand internationally, but you have to be ready for the logistics challenges, too.
Cross-border eCommerce is a multi-billion dollar marketplace for brands that want to sell worldwide—but there are significant logistics challenges, from complex supply chains through to returns management. In this research, we dig into the expanding global marketplace, why a phased approach is a good choice, challenges for cross-border shipping, and solutions for driving international growth.
Key takeaways
- Industry research says that cross-border eCommerce sales could increase to between $1 trillion and $3 trillion by the end of the decade
- Due to challenges expanding internationally, it's often best to take a step-by-step approach to international eCommerce sales
- Returns management and reverse logistics are some of the biggest challenges that brands will face when shipping internationally
- The benefits and potential revenue for cross-border eCommerce often outweighs the risks and challenges, but must be handled carefully
Welcome to GEODIS Insights. These longer pieces provide you with deep dives, research, and industry authority for logistics and the supply chain. Use our findings and expertise to help decide what's right for your business. In this article we're sharing research originally published on Multichannel Merchant in 2022, lightly edited and republished here with their kind permission. Visit Multichannel Merchant to download a PDF of this content.
Cross-border eCommerce is a huge opportunity for growing brands
Cross-border eCommerce is booming and the ceiling on anticipated global revenues keeps increasing. Global management consulting firm McKinsey expects cross-border eCommerce merchandise value to reach $1 trillion by 2030, up from $300 billion currently in 2022, with a more aggressive model calling for $2 trillion. Vantage Market Research conducted an in-depth industry analysis that projects the growth will be even more rapid. The analysis predicts cross-border B2C eCommerce will grow at a compound annual growth rate (CAGR) of roughly 25.1% through 2028, reaching $3.04 trillion by 2028.
“Consider what the pandemic did with the surge in digital commerce taking place around the world,” said Jim Okamura, a partner with McMillan Doolittle and co-founder of the Global E-commerce Leaders Forum (GELF), “International and cross-border selling opportunities had a big bump.” The magnitude of growth and the profit potential has catalyzed brands and retailers of all sizes to seize cross-border opportunities. At the same time, it brings a multitude of challenges in terms of regulatory requirements—such as taxes and duties—and logistics, from shipping to fulfillment.
Want to find out how GEODIS can optimize your international shipping? Talk to us to learn more.
eCommerce startups are focusing on cross-border straightaway
Michael Lamia, Senior Vice President, identifies the principal factors driving the spike in cross-border eCommerce:
- An increase in global export/import of goods and services along with rising expansion of trade
- The rapid development of domestic small-to-medium-sized businesses (SMBs)
- The growing use of global technology platforms such as WooCommerce, BigCommerce, Magento, and Shopify
“Newer DTC startups are thinking global right out of the box, while operations that have been around a long time run the gamut in terms of where they’re at in their international journey,” Okamura said. “The rise in global eCommerce, ignited by the rush of pandemic-era shoppers flooding retailers’ websites, has intensified the necessity of figuring out what to do with international traffic.”
Expanding into cross-border eCommerce is a step-by-step process
Launching cross-border selling into Canada is a natural first step for many U.S.-based retailers, in part because of proximity and brand recognition, followed by expanding to English-speaking markets more broadly. Lamia breaks down the entry-point markets on a retailer’s global eCommerce journey this way: Canada, the UK, and Ireland (English-speaking markets), followed by France, Denmark, Spain, and the Netherlands (due to familiarity with U.S. brands and products).
Okamura advised anyone looking at cross-border fulfillment to take stock and “be honest with yourself on the sustainability of doing so.” He explained that companies exploring an expansion into cross-border eCommerce should use the opportunity to ensure that their operational house is in order, including alignment of product line and audience, fulfillment challenges, customer care and returns.
Fashion retailer H&M Group is among a group of prominent retailers whose business model for the most part isn’t aligned with cross-border eCommerce at scale, largely because of its global footprint of physical assets. “We generally do not do eCommerce in a country where we don’t have retail presence, and we do cross-border fulfillment only in countries where we have a presence,” said Michaela Wallin, Competence Lead for Customer Fulfillment Solutions, Americas for H&M.
Dealing with cross-border logistics and shipping challenges
While H&M does offer some international eCommerce, primarily for high-end products where customers pay duties and a third-party carrier handles the shipping, its focus is on retail and digital expansion. Wallin said compliance issues (countries being tougher on duties and what’s allowed in) and concerns about sustainability, both environmental and in terms of customer experience, are why H&M doesn’t have a major focus on cross-border eCommerce.
“It’s very hard to do that in a sustainable way,” she said. “We’re talking about the emissions and time to customer.” Lamia understands the reasons behind hesitation or anxiety for retailers and SMBs. “The biggest challenge most cross-border shippers face is obtaining the confidence to make the decision to ship internationally, as it can be quite intimidating,” he said. Primary issues that must be mastered include shipping options and capacity constraints, duties, taxes and tariffs (calculation and payment), customs clearance, reporting, warehousing and logistics, including last-mile delivery.
“This is not a static situation but constantly changing,” Okamura said. “Who’s the importer of record? Merchant of record? How do you handle product harmonization codes? Understanding all that for a specific market can cost a company a lot of money or save a lot of money. In the early years, it’s a no-brainer to lean heavily on a third party for something like duties and taxes, navigating the regulatory environment and any other friction points.”
As brands consider expanding internationally, the costs, logistics and profit horizon aren’t the only issues to keep in mind. “Shippers should be watching the conflict in Ukraine and inflation,” Lamia said. “Every consumer globally is aware of the impact COVID had on supply chains. Brands need a trusted logistics partner with proven expertise in order to best prepare for future challenges.”
Chang said the grounding of passenger flights due to the pandemic and war in Ukraine took away more than 50% of air capacity, increasing air freight costs due to supply and demand as well as surging fuel prices. “It took many of us by surprise and had a major impact as we closed one of our largest markets overnight,” she said. iHerb’s global presence and sophisticated logistics network allowed for a quick pivot, but smaller brands lacking a footprint that offers flexibility can be hit hard by social or political instability.
Inflation is another factor driving costs and negatively affecting shippers’ ability to price aggressively for services. “Global inflation is spreading to a wider range of goods and services due to the fact that the recovery in spending post COVID is generally exceeding output from manufacturers, freight firms and service providers,” Lamia said. “It has increased faster than previously anticipated.”
Want to find out how GEODIS can optimize your international shipping? Talk to us to learn more.
Returns can be an issue for cross-border eCommerce
Returns are a primary friction in cross-border logistics. Some brands say international sales are final because many returns are either too difficult to handle or not economical based on the price point. H&M cited the challenges of returns as one factor in its position on cross-border shipping. “Returns will always be a challenge in the international space,” Okamura said. “We’ll see secondary markets and recommerce emerge.”
Lamia said that in most cases, returns are simply an afterthought of freight companies and customers, noting that undelivered packages are also part of the problem, and the questions to be dealt with are legion. “What happens to them?” he asked, referring to both cross-border returns and undelivered packages. “Are they returned to the last-mile carrier’s terminal? If so, are they then destroyed? Who pays for that? If not destroyed, then what? Are they returned to the origin customer’s location? If so, how long do they sit for consolidation, if it’s not too expensive? Is there a valid importer and exporter of record? Does the freight company have the means of delivering to the origin location upon arrival into the U.S.?”
“Best practices (on cross-border returns) are kind of a work in progress,” Okamura said. “We’ve seen the development of specialty return services domestically get a lot of attention, but I don’t think we’ve seen the same thing from a cross-border or international perspective. Bringing things back across the ocean again, you’ve chewed up any profit.”
Some eCommerce retailers have relaxed return policies to cut down on reverse logistics
iHerb, a major eCommerce seller of vitamins, minerals and supplements that ships to 185 countries, incorporates that reality into its returns policy. The company provides reshipping or refunding, but simply advises customers to keep the original shipment. Returns were one reason why H&M didn’t make the leap into cross-border shipping in many geographies. In describing the issues retailers face, Wallin used the example of a retailer in Canada shipping into the U.S. On the plus side, orders with merchandise valued at $800 or less shipping from Canada to a U.S. customer are duty-free, based on the de minimis standard.
“For some companies that makes sense, but then all of your fulfillment for that customer needs to come from Canada,” Wallin said. “So, all of a sudden you can’t really utilize a regional network of your supply chain. It limits your flexibility.” Wallin said the companies that do this know they can handle all of the fulfillment from just across the border, that the orders will be under $800, and that they can also take advantage of favorable conditions in terms of fulfillment costs and warehouse position.
The same is true in reverse, with cross-border shipping from the U.S. to Canada utilizing a logistics infrastructure positioned near the border. In either case, the retailer “has to have a website that is purely targeting that audience and fulfill it from that warehouse accordingly,” Wallin said. Then returns enter the picture as a factor. “Normally, what you set up is a return node in that market so you can trigger payment back to the customer as quickly as possible, and then you ship it across the border after the customer has been refunded, so you won’t have access to that stock for a certain period of time,” Wallin explained. Shipping from Canada didn’t make sense for H&M because it has so many nodes, and the potential was high that a U.S. customer would take returns to a U.S. retail store, causing issues with duty payments.
Solutions for jumping into cross-border eCommerce
Another looming question for SMBs and retailers thinking about cross-border ecommerce is this: If there’s a solution to all the challenges, can it be done economically? Okamura said the cost of moving a product from point A to B in the international market can be prohibitive. He warned that it’s unrealistic for retailers and SMBs to expect to be profitable right out of the gate. “You need a profit horizon,” he said, stressing the importance of finding and working with the right logistics partners. “It may take years to get there.”
“It takes a village,” Okamura said. “You can’t do this on your own, especially when it comes to international. You really need to choose your partners wisely because, especially in the early years, you’re really going to rely heavily on them.”
Want to find out how GEODIS can optimize your international shipping? Talk to us to learn more.
iHerb’s cross-border eCommerce logistics
85% of iHerb’s sales come from cross-border eCommerce. The company processes orders from seven global fulfillment centers supported by two hub warehouses. It also has more than 100 global logistics partners, including GEODIS. One key result of that partnership is the ability to offer delivery typically within 2-5 days for many global markets.
iHerb relies on engaged communication with its global customers to ensure order transparency and earn brand trust. The formula is driving growth, with the U.S. market up more than 20% vs. a year ago, and other markets seeing healthy gains as well. “iHerb is in a highly attractive health and wellness market that is large but highly fragmented,” said Miriee Chang, iHerb’s COO. “The global competition is limited and relatively underpenetrated in eCommerce.”
Driving international growth with cross-border eCommerce
At a certain point, when brands feel a solid foundation is in place, they begin scaling operations and dedicating marketing budget to drive international demand on the front end. “Our strategic framework looks at three distinct stages,” Okamura said. “Cross-border eCommerce is the starting point for a lot of brands. Second is selling through international marketplaces and then social sites like TikTok. The third is an in-region or in-country build for a brand, actually putting people, inventory and a whole separate team on the ground. Those three phases aren’t necessarily linear.”
The industry consensus is that the cross-border opportunities outweigh the risks. According to McKinsey, companies considering reconfiguring their operating models to take advantage of the growth opportunity in cross-border eCommerce need to ask themselves three questions to guide their priorities:
- The geographical stance: Where to play?
- The operating model: How to play?
- Execution: How to win?
“Once a strategy and operating model have been decided on, a company needs to embed core capabilities across the end-to-end delivery chain,” McKinsey said. “These capabilities not only are crucial for commercial and operational excellence but also differentiate leaders from the rest of the pack.” Retailers feeling a bit like Hamlet — to embrace or not embrace cross-border eCommerce — should know all the signals being sent by online shoppers urge action. International Post Corporation’s Cross-border Ecommerce Shopper Survey 2021, which polled 33,000 consumers across 40 countries, found nearly one-third of them make cross-border purchases. Of those, 14% are ordering products from the U.S.
That’s opportunity, knocking on the border.
How GEODIS can help
GEODIS is one of the biggest warehousing and logistics providers in the U.S. and around the world. We provide several best-in-class services to make international shipping fast and easy:
- Complete integration with your existing eCommerce systems for end-to-end automation
- Pickup, customs clearance, shipping, and delivery within two to nine days, door-to-door
- Competitive, fully inclusive pricing at the shopping cart, including tax and duties
- Retain total control of your brand and the customer experience, including tracking and tracing
- Express customs clearance and cross-border support, including all codes and compliance
- A single point of contact for any questions or requests
Get in touch with us today and learn how GEODIS will help you claim your share of the enormous cross-border eCommerce marketplace.