The Role of Logistics in International Ecommerce: How Online Retailers Can Create an Integrated, Global Experience to Meet Growing Consumer Expectations
Packages and goods seem to seamlessly flow around the globe, but there’s a tremendous amount of logistics involved that businesses have to conduct in order to meet increasing customer desires. The rise of ecommerce in the last 20 years has shifted the way vendors need to address logistics.
According to research conducted by Accenture and AliResearch, cross-border online consumer purchasing is increasing 28 percent a year and will reach $1 trillion by 2020.1 Additionally, the research detailed that by 2020, more than 900 million people around the world will be international online shoppers, with their purchases accounting for nearly 30 percent of all global B2C transactions.
This monumental change has forced logistics service providers to alter their relationships with retailers. These providers are no longer “safe” — silos are breaking down as providers integrate new services and retailers rely on them more for operational support. This new relationship, driven by retail giants like Amazon and eBay, pressures retailers to rapidly catch up or risk losing relevance and ultimately revenue.
Logistics service providers have historically been averse to adopting new technology — the implementation, configuration, and notion of switching all processes is daunting. But as these providers take on new responsibilities with retailers, they need more sophisticated systems and technology. This whitepaper will address the renewed focus on the technology required to succeed in cross-border commerce as well as how to move packages and shipments across the globe in a more efficient and economically sound manner.
Keeping up with rapid change
The management of logistics has been largely untouched and consistent across the years. Retailers focused on selling, warehouses stored products, and shippers ensured items reached buyers. There was a strong reliance on traditional postal services for smaller packages. It worked for a while, but globalization before the new millennium saw retailers’ expansion into new, global markets and an increase in partnerships with third-party logistics providers.
The rapid growth of countries like China and India drove this shift as they became more developed and active in commerce. This growth caused retailers to increase their footprint, moving manufacturing operations to these countries and regions to help their bottom lines and improve efficiency. Logistics service providers were obligated to adapt and update processes as complexity increased.
Moving into the new millennium, technology continued to advance. The internet was a forcing factor to drive providers to adopt expansive technology platforms to manage logistics and meet supply chain needs. Retailers and logistics service providers now have a more synergistic and strategic partnership with both more deeply involved in all facets of the business from start to finish, tracking the movement of goods to ensure they’re meeting consumer expectations.
In 2017, 90 percent of domestic Fortune 500 companies used third-party logistics providers for supply chain management — a significant increase from 2001 when only 46 percent of Fortune 500 companies collaborated with third-party logistics providers.2 Outsourcing this management lessens the burden on retailers, as they’re able to shift focus to strategically grow their business instead of devoting large amounts of time to ensuring logistics are organized and meeting consumers’ current desires. And it proved lucrative for third-party logistics providers with research from Armstrong & Associates outlining that such companies drove $870 billion in revenue globally in 2017.3
The opportunity is there
You might expect that the increasing demand and rise in retailers using third-party logistics providers, coupled with the rapid revenue growth these providers have driven, would create a multitude of options for retailers. However, despite the improvements made in recent years, there are still only a handful of logistics providers that have an expansive enough footprint to offer a truly integrated global experience.
For example, UPS has long excelled as a global logistics provider. As early as 1992, the company was reaching more than 200 countries and territories. Since it formed its own logistics group, international logistics and management of the supply chain was simplified. Today, UPS services more than 220 countries and territories. Global delivery volume as of 2018 was 5.2 billion packages and documents. In 2018, UPS supply chain solutions alone accounted for $14 billion dollars of net revenue.
But challenges still exist
The opportunities for global expansion are available for retailers looking to increase their footprint. These retailers must examine their current delivery methods and identify pain points to get a clear picture of the advantages logistics service providers can offer. M&A activity can be a consideration for retailers looking to gain new specialties, such as logistics. It’s critical for retailers to carefully plan and incorporate the considerations needed to manage the complexity associated with cross-border commerce. Growing consumer segments in Asia and Latin America are also putting the pressure on retailers to figure out and streamline logistics. Those who don’t miss the opportunity to address these growing regions with a multitude of eager consumers looking to buy goods.
Even if retailers have an efficient and trustworthy partnership with a third-party logistics provider or if they rely on an internal logistics management system, they still cannot plan for maintaining global supply chain expertise. International compliance regulations are constantly changing. Keeping up with rapid changes associated with international documentation and customs rules can seem like a near-impossible task.
Additionally, there’s the weight retailers feel with meeting customer expectations and providing a positive experience that can increase and ensure brand loyalty. Avoiding customs delays is paramount to providing quick delivery. Surprise duty and import fees can negatively affect the customer experience, which can lead to returns, added costs, and dissatisfied customers unlikely to become repeat buyers.
Navigating regulatory upheavals, not to mention the influx of “trade wars” around the world, creates an urgency for retailers to respond and adapt to country-specific changes in tariffs. By managing an efficient technology stack, retailers can ensure smooth integration between ecommerce platforms and logistics service providers. This has led to increasing numbers of retailers who are leveraging automation and machine learning to recognize patterns, increase the efficacy of deliveries, and improve overall operations across the board.
The way forward
The last two decades have seen an explosion of growth in ecommerce — and for a good reason. Not only has this had a significant impact on retailers and logistics service providers, but the shift in technologies used and processes updated have incredibly benefited consumers. Business operations have evolved to address this changing landscape; the partnership between retailers and logistics providers has completely changed. Logistics providers have retail customers, and those retailers in turn have consumer customers. The collaboration between these two entities allows for a seamless experience for all parties.
But what about what’s actually required as the goods cross the border? Complex customs issues frequently arise that neither logistics companies nor retailers are fully equipped to handle. Luckily, technology can help here. Using automated solutions like Avalara Item Classification and AvaTax Cross-border allows for the seamless assignment, application, and communication of pertinent compliance details needed to mitigate the risks of customs delays. Meeting the right compliance requirements can ensure the smooth passage of goods across borders, resulting in happy customers.
Leaders in the ecommerce space will constantly look for new and innovative ways to tackle the ever-changing challenges that arise concerning cross-border commerce. Staying on top of change by partnering with specialist services will allow logistics companies and retailers to adapt faster so they can get back to focusing on the core competencies of their individual businesses.
1 “Cross-border B2C E-commerce Market Trends,” Accenture and AliResearch. June 2015.
2 “Trends in 3PL/Customer Relationships – 2017,” Armstrong & Associates. 2018.
3 “Global Logistics Costs and Third-Party Logistics Revenues (US$ Billions),” Armstrong & Associates. 2018.
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