The concept of international shipping — and cross-border trade in both business-to-consumer and business-to-business environments — has been a vexing issue for merchants and shippers in general. According to the 2015 UPS Pulse of the Online Shopper, 80% of global shoppers abandon their carts due to questions about the total order cost, high shipping cost, and missing local options. Thus, transparency of costs, delivery options, and the customer experience for the 97% of online shoppersoutside of the US become critical to success.

    Defining Cross-Border Trade: Cross-Border vs. Just Shipping Internationally

    B2C cross-border trade is defined here as the convergence of a seller and recipient for the delivery of goods in two distinct foreign markets, the selling price of the goods sold, the value a customs authority places on the good, the cost of transportation, the cost of clearance and ancillary fees, the necessary documentation for customs authorities, and finally, the duties and taxes associated with the product.

    The key component here is the “fully landed cost;” that is, the cost of the product sold, along with the cost of transportation, duties and taxes, and any clearance/ancillary fees that are either collected before the transaction is completed (i.e. in a shopping cart checkout) or in a collection process after the fact that makes it clear to the recipient that these charges will be part of the transaction. The table below demonstrates the differences between a cross-border trade transaction versus a typical international parcel shipping transaction (US outbound).

    Issue

    B2C Cross-Border Trade (CBT)

    Shipping Internationally

    Duties and Taxes

    Typically paid up front as a “fully landed cost” unless utilizing a tax treatment program (i.e. NRI, low value clearance)

    Shipper/recipient receives a bill back from a customs authority

    B2B or B2C transaction

    B2C (especially B2C e-commerce)

    B2B or B2C or B2B2C

    Typical transaction size (including duties and taxes)

    Single package or a few parcels; typically less than $70 per item sold (excluding duties/taxes & shipping)

    Can vary greatly

    Mode of shipping

    Typically air parcel, ground parcel, or an international parcel post product

    Can be parcel, air/LTL/TL freight, rail, ocean,

    or forwarding

    Documentation required

    Typically only Commercial Invoice and/or Pro Forma Invoice. A packing list is sometimes required/encouraged.

    Can vary greatly, but can include Commercial Invoice, SED/EEI, Consular Invoice, Export licenses, etc.

    Typical countries involved (US outbound)

    US, UK, AU, CA, China, Germany, South Korea

    All countries where trade is allowed/permitted

    Commodity/Product Shipped

    Typical categories include consumer electronics, children’s toys, apparel, consumer items

    Varies based on shipper, shipment, and recipient

    Common Pitfalls in Starting Cross-Border for Retailers

    There are many pitfalls that come with starting a B2C cross-border shipping practice. The biggest of these challenges are the customs and regulatory laws of bringing a product (or products) into a market. These laws can vary by market. Some of the more interesting ones are regulations that were likely implemented years ago to either protect a certain industry in a market or for cultural reasons, but have little relevance now in the age of e-commerce. For example, there are strict regulations and prohibitions on bringing in used goods, especially textiles and clothing, into India. Additionally, there is a regulation prohibiting the importation of horror comic books into the United Kingdom. Many of these regulations are not enforced now, but some can have serious consequences for shippers, as well as the importers. For example, many countries have a prohibition on “items offensive to Muslim culture.” The interpretation of what this can mean, as a very broad based regulation, is often left to conjecture and guesswork. Thus, it is important to find out exactly what items can be imported into each market — and without the customer being the one to find this out the hard way.

    Along the same lines as the regulations, the actual paperwork associated with international shipping can be vexing to many. Often times, the penalties for completing this paperwork incorrectly or not submitting it with the shipment can result in fines, penalties, returned shipments, and shipments held or seized by a customs authority.

    Another key pitfall in starting a cross border trade shipping practice is that certain companies or specific parties have exclusive rights to import/distribute certain brands. While this can be easy to ascertain for certain “tier one” brands, it can be more difficult to know this for less commonly known brands. Often times, a retailer will depend on adding this to their vendor contracts with distributors and the parties with whom they purchase from as a way of managing this issue, but it remains a major challenge in starting a cross-border practice, as many items can be held up in customs as a result without a clear indication beforehand that a party had exclusive rights to the brand in market.

    Finally, a major stumbling block in expanding cross-border trade for retailers are importation value limits (often known as “de minimis values”) that can be imported in without duties. Many markets, such as Australia, have a high de minimis of around $1,000 USD, while others can have very low limits of less than $100. Other markets, such as Russia, have personal importation limits of goods less than $1,000 in a 30-day period.

    An additional wrinkle here is that the US has loosened the restrictions on imports coming from Europe to the US; the de minimis limit has been raised from $200 to $800 as of March 2016. Thus, cross-border trade is expected to rise on the “other side of the pond,” as more European retailers attempt to get into the US market and sell to US consumers.

    What to Look for in a Cross-Border Trade Provider?

    With the many potential stumbling blocks related to cross-border shipping, many would wonder if it is even worth the investment. The answer is a resounding “yes.” According to Forrester Research, cross- border retail sales are expected to grow by nearly 40% by 2021 and to over $400 billion in sales. Additionally, the share of retail e-commerce sales that come from cross-border is expected to be 15% of online retail sales by 2021. With that in mind, here are some considerations to keep in mind when considering a cross-border provider:

    1.Does the partner guarantee their landed cost estimates? What information does the provider need to make the landed cost estimation? How much liability will you then assume?

    2.What is the source of their landed cost estimates? Is it an algorithm, a human being, another company’s engine? What will be the timing of sending them the information on the item you are sending and the value returned?

    3.How do they manage exclusivity and branding? Do they leave you “on your own” or can they be consultative to help with a solution to this problem?

    4.What carriers do they utilize for shipping? Do they single source or use different ones? A single carrier may offer consistency of tracking events but may not offer the cost benefits that a company that has many carriers can offer.

    5.Does the partner have BOTH capabilities to complete international documentation and/or allow you to complete it? Is there a fee for completing international documentation?

    6.What is their experience with launching the “easiest” CBT markets like Australia, Canada, and the United Kingdom?

    7.How are they managing the returns process? Do you even want the returns coming back to the US, and if not, do they have capabilities or partners for liquidation?

    While cross-border can be complex to navigate at first, it is critical to growth in the future and the payoff can be high for B2C retailers.

    Krish Iyer is Director, Strategic Alliances, ShipStation. An expert in cross-border e-commerce, international fulfillment and supply chain technology, he has more than 16 years of industry experience with FedEx, Pitney Bowes, Neopost, and ShipStation. At the time this article was written, Krish held the title of Director, Shipping and Tracking Solutions, Neopost USA.

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