Erasing the digital borders
After spending decades with the legendary airline Flying Tigers and then with FedEx Corp., which acquired Tigers nearly 30 years ago, Carl Asmus has forgotten more about air freight than most people ever knew. In addition, as senior vice president of e-commerce for FedEx, Asmus works for a company more closely associated with air shipping than any in history.
So it might have seemed unusual that at a recent conference, Asmus described pitching a prospective customer on FedEx's e-commerce solutions that go across national borders but not even mentioning transport services as part of its value proposition. "All I talked about was making the shopping experience easier for the merchant," Asmus, who also runs FedEx's cross-border e-commerce business, told the gathering. "I didn't talk about transportation."
For Memphis, Tenn.-based FedEx, keeping transport out of the customer dialogue is standard operating procedure for its cross-border strategy. Transportation only happens after someone visits a website, orders an item, and pays for it. For Asmus's unit, the secret sauce is helping a customer in Idaho juggle the many cultural, currency, technological, and commercial variables that come into play once a consumer in Istanbul places an order on its site. A merchant that gets it right on the front end—understanding market demand and implementing a flawless user interface from product availability to payment options—could gain access to markets, and potential repeat business, it could only have dreamed of before. Get it wrong, and a business could watch a market valued today at well over $300 billion and which could be worth three times that in just three years, pass it by. In the latter scenario, the delivery promises of the world's largest and swiftest airfreight network wouldn't amount to a hill of beans.
THE RISE OF CROSS-BORDER E-COMMERCE
The definition of cross-border e-commerce is in the eyes of the beholder. Some make no distinction between cross-border and traditional international e-commerce, given that they both involve movements from one country to another. Consultancy ShipStation, however, frames them as different services. As the company sees it, cross-border e-commerce is exclusively business-to-consumer (B2C), while international can be either B2C or business-to-business (B2B). In a cross-border transaction, the "landed cost"—the combined costs of product, customs duties, taxes, and documentation—is paid up front; in an international e-commerce transaction, customs presents a bill to the shipper or consignee after the fact, according to ShipStation's interpretation.
Today, cross-border e-commerce is, for all practical purposes, practiced in only a handful of countries—the U.S. only for outbound deliveries, Japan, the U.K., Germany, Canada, China, Australia, and South Korea, according to ShipStation; other markets' share of cross-border is too inconsequential to count, the firm said. International e-commerce, by contrast, can be conducted anywhere trade is allowed, ShipStation said.
Cross-border e-commerce is not yet a mature market, which might explain why it's expanding at about 25 percent a year, according to estimates from German air-express giant DHL Express. In conjunction with that expansion, global parcel volume leapt to 65 billion pieces in 2016 from 44 billion in 2014, according to data from information technology specialist Pitney Bowes and research firm eMarketer. Global volumes will rise between 17 and 18 percent a year from 2017 to 2021, according to Pitney Bowes data.
Online ordering between countries is not a passing fad, especially as the Internet allows consumers across the planet to buy stuff that they can't get in their home market or that they can find cheaper elsewhere. About 46 percent of U.K. online shoppers order goods from outside the country, while 21 percent of Germans do, according to estimates from multinational freight forwarder Seko Logistics, based in Itasca, Ill. About 78 percent of all global B2C transactions never touch North America, said Hermes Nextec, an e-commerce unit of the German firm Hermes Group.
Given the long distances and customer demands for speedy deliveries, it would seem to make sense for producers and retailers to build distribution footprints across the globe and fulfill over shorter routes. But that's not the case, said a recent DHL survey of 1,800 e-tailers. Retailers and manufacturers that offer a "premium" shipping service grow 1.6 times as fast as those who don't, according to the survey. That's because expedited shipping allows international e-tailers to compete with their domestic rivals for the "home advantage" of shorter delivery times, DHL said. U.S. brands, which are blessed by having nearly insatiable foreign demand for their products, will bring goods made in low-cost regions into the U.S., where they're then air shipped to their final foreign destinations, said Brian Bourke, Seko's vice president of marketing.
International e-commerce is getting a boost from efforts to raise the value threshold of goods not subject to extensive customs documentation requirements. Last year, the U.S. raised the so-called de minimis threshold to $800 from $200 per shipment, enabling a broader range of products to clear U.S. Customs free of cumbersome paperwork. Eugene Laney, head of international affairs for DHL Express's U.S. operations, said DHL is actively lobbying foreign governments to raise their respective de minimis thresholds because it would provide a substantial tailwind to global commercial activity.
DO YOU NEED TO GET IT RIGHT? OUI!
For all its potential, cross-border e-commerce is a challenge to execute, and the risks of failure are high. Asmus reckoned that only 3 percent out of every 50,000 international website hits result in an item's being placed in a shopping cart. Only 7 percent of that sliver results in an actual sale, he said.
Faced with such long odds, nothing can be left to chance, especially since a consumer in Hungary expects the same seamless experience for a shipment traveling from the U.S. that a customer in Boston would expect for an order fulfilled in Philadelphia. A homogenous pOréal is out of the question. Country-specific websites must be built with content containing time zone, language, currency, and landed-cost details customized for the end consumer. A best-in-class mobile payment system is not a luxury for merchants, but a necessity, experts added.
Compliance is also critical, as each country and region has its own cultural rituals. End customers in Asia are more concerned with product authenticity than price because of the many stories surrounding product counterfeiting in the region, added Laney. By contrast, European consumers focus more on price, he said.
Manufacturers and retailers must also be concerned with the specter of government regulation, particularly because most customs inspectors are unfamiliar with cross-border e-commerce transactions and the parties involved in them. The traditional international air shipment has moved in pallets and containers, and as part of a B2B transaction. Cross-border e-commerce often moves in one- or two-item quantities, and typically between a merchant and a consumer. The B2B channel involves participants known in the customs chain, while the B2C channel includes players who are unfamiliar to inspectors, said Laney. What's more, B2C shipments could be composed of low-value items that might be fraudulent, whereas B2B traffic is usually bona fide given the high shipment value involved, he said.
The complexities of cross-border online trade seem to augur favorably for multinational freight forwarders, who have the networks and the expertise to support a merchant looking to expand into foreign markets. Seko has been at cross-border e-commerce for five to six years, according to Bourke. Five years ago, Seko was not involved in Asian cross-border business; today, Asia is its fastest-growing market, Bourke said.
The German forwarding giant DB Schenker is also moving aggressively into cross-border e-commerce, but it is doing so with partners rather than on its own, said Jochen Thewes, chairman of Schenker's board of management. "Digitization requires companies to be fast to market and to build quick solutions," Thewes said. "This means working with providers to buy services and technology."
Asmus may be sanguine about the role of transportation in making cross-border e-commerce work, but others are not. In an October 2017 survey of 1,200 retailers from eight countries and 12,000 consumers from 11 global markets, Pitney Bowes found that 97 percent of retailers understand the need for fast and reliable end-to-end shipping management and that 52 percent are actively evaluating or researching such services. "Clearly, delivery experiences and speed of fulfillment play a key role in securing and retaining new customers and promoting a long-term relationship more now than ever before," according to the survey.
The global airfreight market has been on fire this year following seven years of malaise. The growth of cross-border e-commerce is a part of that surge, and current trends indicate that it will play an even larger role. Consumers' need for speed will demand the fastest route from A to B, and businesses competing for share of this massive market may find they have no other option than air.
Asked if e-commerce could spur the next golden era for air freight, Bourke replied, "You bet your ass. And you can quote me."
