New Articles

Trade Logistics in a Digital World

Ecommerce will represent more shipments of export cargo and import cargo in international trade.

Trade Logistics in a Digital World

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, 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.

New logistics technologies help deliver shipments of export cargo and import cargo in international trade.

The Great Recession, Ecommerce, Innovation, and Disruption

When Transport Intelligence was established in 2002, the global economy was still coming to terms with the fall-out from the dotcom bubble and, of course, the September 11 terrorist attack on the World Trade Center the previous year. The US and Europe were struggling with recession, with Germany and France amongst the hardest hit. Prospects of future economic growth were gloomy.

However, the fallout from the recession was short-lived, especially when compared with the prolonged market weakness experienced following the Great Recession of 2008. In fact the following few years were what could be described as a golden era for the logistics industry. Asia was driving economic growth and globalization was gathering pace helped by China’s rapid market liberalization. These forces were about to transform the supply chain and logistics industry.

Back in 2002, one of the first issues we wrote about was Deutsche Post’s plans to buy the remaining 25 percent of DHL it didn’t already own. The company had already acquired some big names in the industry, such as AEI, and would go on to buy Exel and countless other well-known brands as it became a major player in the consolidation of the sector.

In fact the market moved rapidly from one characterized by multiple medium-sized operators to one in which a few companies came to dominate, at least in terms of scale, building out global networks and multiple capabilities.

The intervening period has seen companies emerge from seemingly nowhere to achieve prominence and then be acquired themselves by rivals on an even more meteoric rise. French logistics provider, Norbert Dentressangle, was one such example aggressively buying in the UK and US markets, before being bought by new-kid-on-the-block, XPO.

TNT went from being a market leader in the early 2000s, receiving plaudits for the way it combined express, mail and logistics functions, to being broken up and then acquired by players such as CEVA and FedEx. At the same time US giants, UPS and FedEx, have both gone from being largely US focused express parcels carriers to being global providers of parcels and logistics services.

During this time many companies were brought to their knees by overly ambitious acquisition strategies. Even DHL felt considerable pain when its decision to buy Airborne Express in the US back fired, costing the company billions. Only the size and success of the rest of its business allowed it to cope with such losses.

Unfortunately for the industry, the recession of 2008 (the effects of which are still being felt) brought to an end the plentiful supply of money which had been available to make acquisitions.

Even more importantly, international shipping volumes fell off a cliff plunging the air cargo and sea freight sectors into crisis. Although an initial bounce back came quite quickly, all markets subsequently stagnated and it took years to regain the ground which had been lost.

Following globalization, the next big demand-side trend to impact on the industry was ecommerce.

After a false dawn in the late 1990s, shopping on the internet eventually became mainstream and this created major opportunities and challenges for the logistics and express sectors. Multi-channel retailing became an essential revenue stream although it has taken many years for operators to adapt to the new demands which B2C deliveries have placed upon them.

Now, however, the zeitgeist for the second half of this decade is “innovation and disruption.” The talk is all about the Fourth Industrial Revolution (4IR) and the impact that it will have on the underlying demand-side trends as well as the opportunities it will provide for logistics and express operators themselves. Development of autonomous and electric trucks, 3D Printing, robotics in manufacturing and in warehouses, drones, blockchain and the Internet of Things have resulted in media attention for the industry as never before. However, there is also the risk of over-hyping these innovations, leading to one senior logistics executive asserting, ‘The only disruption we’re seeing is in Powerpoints.

Perhaps an alternative characterization of the state of the industry would be that disruption and innovation is occurring; it is just that it is being assimilated into logistics companies’ existing operations and technology offerings. Consequently the next few years will see an evolution of the sector rather than a big-bang revolution. Undoubtedly there will be change, and those companies who cannot adjust to the new environment will drop out of the market. However, for most of the largest providers at least, the new technologies offer another way of differentiating their products and services; of driving down costs and of creating efficiencies in their networks. Looking ahead over the next fifteen years of Ti’s life, the technologies which we are analyzing on a daily basis today will become mainstream and, in a positive way, forgotten. A new generation, for example, will grow up regarding ‘smart-contracts’ as the norm and will have little understanding or concern for the blockchain technology which underpins them. Real time shipping quotes will be standard, supply chain visibility complete.

Will the largest shipping, air cargo and logistics companies be owned and run by Amazon or Alibaba with vast, automated 50,000 TEU ships crossing the oceans as some analysts predict? Possibly. However, the future is likely to be much more unpredictable than this, as demand-side trends transform, and potentially eliminate, global supply chains. 3D Printing and automation could structurally change production costs allowing manufacturing to take place in Europe and North America reducing the importance of Asia-Europe and transpacific goods flows. Mega-cities in Africa, Asia and Latin America may create their own supply chain ‘eco-systems’, local production serving local markets.

Whatever the future holds, the need for high quality research and analysis will always remain. Changing times will mean that only the most agile and adaptable companies will succeed with business models based on knowledge capital and its application. Over the next fifteen years we at Ti look forward to providing logistics and supply chain companies around the world with the tools necessary for them to achieve these strategic goals.

John Manners-Bell is CEO of Transport Intelligence.

Commerce Department has imposed antidumping duties on shipments of export cargo and import cargo in international trade. New NAFTA will govern North American shipments of export cargo and import cargo in international trade. New NAFTA will govern North American shipments of export cargo and import cargo in international trade.

US International Trade Policy Set To Harden, Suggests BDP Survey

How does the US perceive free trade with its global partners?

For many years, as various US administrations forged deals with markets and trading blocs around the world, this question barely seemed worth asking. Of course there were trade disputes, but these were usually short lived and resolved effectively through the World Trade Organization. On the whole, it seemed that the world, led by the US, was moving inexorably towards a regime of free and open trade, a situation which seemed to benefit not least its giant manufacturers.

This is no longer the case and not just because of the new Trump administration. Although it is true that one of Trump’s first acts was to withdraw from the Trans-Pacific Partnership as well as undertake an existential review of NAFTA, recent events reveal more deep-rooted tensions. For example, the Commerce Department has threatened to levy countervailing duties of 200 percent on Canadian aerospace manufacturer, Bombardier, as a response to alleged government subsidies. In addition the US International Trade Commission (ITC) has passed judgment on a case involving solar panels, saying that cheap imports have harmed domestic manufacturers. A report will now be sent to President Trump which may include recommendations for tariffs.

The ITC is now also being asked to adjudicate on alleged unfair competition in the washing machine sector prompted by a complaint from big US manufacturer Whirlpool Corp involving South Korean rivals Samsung and LG Electronics. This comes at a time when Trump is looking to renegotiate (or even exit) the US-South Korean trade deal, Korus.

Although these three cases (and others such as Canadian lumber) involve trade dispute mechanisms which have been in place for many years, there is a perception worldwide that, backed by a president skeptical of free trade, protectionist powers hold sway in Washington.

Therefore a survey undertaken by US-based freight forwarder BDP International comes at a very apposite time. The survey involved polling a number of US shippers who attended one of BDP’s recent customer days in Houston, Texas.

The first question asked regarded their opinions of current free trade agreements. An overwhelming majority of attendees (83 percent) believed that the US needed to be aggressive in their approach to new FTAs. This hawkish view was backed up by their opinions of NAFTA. A similarly large majority (90 percent) believed that the agreement was old and in need of updating. Only six percent thought it should be left alone. Respondents were more split over the benefits of Free Trade Agreements. 46 percent believed that they kept US manufacturing costs down, although over a third thought that this wasn’t the case. Two thirds of those surveyed also thought that the Government should do a better job of enforcement outside of the US.

There is no doubt that attitudes towards free trade in the US are complex. Although many outside of the country blame President Trump for the increased levels of protectionism this is only part of the story. Many of the cases which were referred to above were brought by US companies using an existing trade dispute structure agreed under international law. Indeed it remains to be seen whether or not these cases will result in sanctions. However, if the survey conducted by BDP International holds true across US industry as a whole, there is evidently a wider desire for a more robust position on trade relations. This may well mean that politicians and President Trump himself will feel that there is a strong mandate to conduct uncompromising negotiations on future or existing free trade agreements.

John Manners-Bell is CEO of Transport Intelligence.