Supply chains of cross-border e-commerce Arkadiusz Kawa Poznan University of Economics and Business, al. Niepodleglości 10, 61-875 Poznan, Poland
[email protected]
Abstract. A feature of e-commerce is worldwide coverage. Almost any person or company can be a customer of an online shop. However, this common availability is in practice quite apparent. Despite the dynamic development of ecommerce, communication in other languages, the form of payment, currency, legal and tax conditions, as well as the delivery of products remain barriers to the free cross-border flow. The article focuses on the last factor mentioned above. The lack of delivery of goods to a distant place or a relatively long time and high cost of providing the purchased product hinders further development of e-commerce. This problem can be solved by introducing an intermediary that consolidates shipments from many retailers and delivers them to many clients scattered in different corners of the world. The main contribution of this article is to develop a model facilitating cooperation between online shops dealing with cross-border trade. The purpose of the idea is to reduce costs and accelerate the delivery of goods ordered abroad via the Internet. Keywords: e-commerce, cross-border, supply chain, CEP (courier, express and postal) industry.
1 Introduction The rapid development of the Internet, and thus also e-commerce, has created new distribution channels for many trading, service and manufacturing companies. According to the European Commission, e-commerce is one of the main factors leading to better prosperity and competitiveness of Europe. It has significant potential that may contribute to economic growth and employment [2]. It is expected that its further development will have far-reaching effects, perhaps even exceeding the changes that concerned trade over the past several decades. Physical presence while shopping is becoming less and less important. Customers buy products, placing orders electronically, and the purchased goods are delivered to their workplaces, homes, click & collect points and parcel lockers. Placing ordering in this way replaces the trip to a store, and the delivery of the consignment eliminates the way back with the purchased goods. In contrast with traditional trade, online shopping is inseparably associated with the delivery to the final customer (so-called last mile), i.e. the most complicated and costly process in the whole supply chain. Internet retail businesses carry out a very large number of small orders. Unfortunately, there are delays in deliveries about which buyers are not informed at all. Customers often do not have too much influence
on the choice of the company that will deliver the goods, either. The delivery of the goods is most frequently performed by CEP (courier, express and postal) companies. Additionally, more and more attention has recently been paid to expanding business activities beyond the borders of a single country. Sellers look for new buyers abroad, while customers want to have a greater choice of suppliers. A trend in ecommerce arises, then, which is defined as cross-border trade. It is particularly evident in the countries of the European Union. It is based on selling products to customers who are located in another country. However, it is related to several problems, such as a high cost and long delivery time, language barriers, different legal regulations and taxes, etc. [8]. The high cost and long delivery time are, in turn, associated with the aforementioned problem of the last mile, but also with the problem of the relatively small flow of goods between countries which is realized by a single CEP operator. So the economies of scale do not take place yet. Therefore, there is a real need to offer e-commerce to retailers and to, indirectly, recommend comprehensive services to their customers, which would include, on the one hand, logistics services in Europe, and, on the other hand, full information on the quality of the service. The aim of this article is to develop a model of an intermediary facilitating cooperation between online shops dealing with cross-border trade. This model is expected to contribute to cost reduction and acceleration of the delivery of goods ordered abroad via the Internet. The structure of the article is as follows. Section 2 describes the electronic crossborder trade in Europe. Section 3 presents logistical problems in e-commerce. Section 4 proposes the above-mentioned model. Section 5 summarizes the article and points to future directions of the research.
2 Cross-border e-commerce in Europe Currently, e-commerce can be divided into several trends in the field of logistics, which will determine further development of the CEP industry. These are: reverse logistics, same-day delivery, development of new models of cooperation in logistics (dropshipping, fulfillment, one-stop e-commerce), broker services and cross-border transport [7]. This article focuses on the latter trend. Cross-border e-commerce still has a relatively small share in the whole market of e-commerce. In 2014, approx. 15% of the EU inhabitants made a purchase from sellers from a different country. This represents an increase in the share of this type of trade by 25% compared to the previous year. Not everywhere, however, is crossborder e-commerce equally developed. For example, in 2014 only 4% of Poles made a purchase on the Internet from a seller located in another country, which placed Poland on the penultimate place in the European Union. Most foreign shopping is done by Luxembourgers (65%) and Austrians (40%), and the least by Romanians (1%). The EU average is 15% [1]. The total value of the commodity circulation in e-commerce within individual countries and among the EU Member States is estimated at about €241 bn. Of this amount, €197 bn (80%) are traded on domestic markets. Only about €44 bn (18%)
cross the borders between the EU Member States, and another €6 bn (2%) come from import from countries outside the EU [9]. It can be seen from these data that the potential of electronic cross-border trade within the EU still remains unexploited. Only 8% of companies are involved in crossborder selling. Managers of these enterprises argue that it is too complicated and too expensive. As part of the efforts to unleash the potential of e-commerce, the European Commission has adopted a package of proposals to stop the unjustified geo-blocking, increase the transparency of package delivery prices, and improve the enforcement of consumer rights [4].
3 Logistics proble ms of cross-border e-commerce The logistics of products offered by online stores is one of the basic factors influencing the consumer's decision about making purchases in them. Deliveries and product returns are one of the most important issues for both online shoppers and online stores in the EU. The European Commission indicates that the problem lies in particular in cross-border deliveries of packages realized for the needs of small and medium enterprises and those sent to the less developed and less accessible regions. Therefore, it puts a lot of effort into increasing the availability of e-commerce for all EU citizens and businesses, regardless of their size and location [2]. Another problem is the relatively little access to information about the CEP market, in particular about the available services, operators and prices. Many customers know only certain operators whose services they could use. In the case of cross-border transport, they can choose between an international courier service or a common service provider, so the postal operator. This makes it difficult for new entrants to gain market share and reduces the competitive pressure on the existing operators, which in turn limits the incentives to improve the service quality and leads to higher prices [6]. Currently, online stores selling their products abroad incur a very high cost of shipping - depending on the country it is up to 5 times higher than the cost of a consignment realized within the country. The lower price of the product sold does not often compensate for the cost of delivery, which discourages buyers from abroad. It is one of the greatest barriers to the development of cross-border trade conducted via the Internet [5]. Consumers and small enterprises claim that the problems with the delivery, in particular the high prices, prevent them from increasing the sales or purchases in other Member States. Foreign exchange in e-commerce could be completely different if these costs were significantly reduced. Apart from the cost of delivery, another barrier to the development of cross-border e-commerce is the delivery time. It results mainly from the distance between the vendor and the customer. In most cases (mainly outside the border regions) it will be much greater than in the case of domestic shipments. In international trade, shipments often have to undergo additional operations, go through a greater number of hubs and branches, which further prolongs the time of delivery [8]. Operating activities of CEP companies are based on the hub and spoke concept. It is a system used for the distribution of small size or weight loads. In contrast to direct
deliveries, hubs are used that connect the individual places where shipments are posted and received. The hub and spoke (H&S) concept minimizes storage costs and reduces the individual costs of transportation. Although a single consignment is transported over a long distance, the total distance for all shipments counted separately is shorter than in the case of direct deliveries. This solution works very well for a large number of items that are posted and received in multiple locations. An example is distribution within a country where most large cities are connected with one another by means of one or more hubs. Fig. 1 illustrates the delivery distribution system within a country X using the H&S system. In this case, customer A places an order for selected products at store S. In the next step, S performs pick and pack operations, and orders a courier service from company C. The courier collects the shipment and delivers it to the local cargo terminal C1X. Then, the consignment, together with items from nearby cities, is transported to hub C. Shipments from all branches across the country are delivered to hub C. They are then sorted and transported by linehaul (usually at night) to local branches. In this case, the merchandise goes to local cargo terminal C2X. In the morning the shipment is picked up by a courier from the local branch and delivered to customer A. As is shown in Fig. 1, the distance travelled by a shipment is much longer than in a direct connection from point S to point A. This extends the delivery time, but significantly reduces the unit cost thanks to the consolidation with other consignments. Customers must wait for the ordered goods until the next working day, but, in return, the cost of delivery is a dozen to several hundred times lower than in the case of direct delivery.
Customer A
C2 X
Online shop S HUB CX C1 X
Fig. 1. Hub and spoke system in distribution within a single country
A problem with the H&S system occurs in the case of routes along which few consignments are transported. Underutilization of the vehicle cargo space causes the unit cost of transportation to increase significantly. Moreover, in the case of small packages (which prevail in e-commerce) the total cost of delivery rises considerably when the consignment passes through many local terminals and hubs. It is associated with additional costs of sorting and handling. Such a complex and costly system occurs in the case of cross-border transportation. Fig. 2 presents the route of delivery of the goods ordered by customer A in store S. In relation to Fig. 1, here hub CY has been added. Although points A and S are close to each other, the product passes through the individual points in the H&S system, which increases the total cost of the delivery. Due to the fact that there is a very little flow of goods between the CX hub and the CY hub, the cargo space in the means of transport is not fully utilized. In addition, the freight rates in international transport are higher than in domestic transport. Furthermore, relatively little competition (there are only a few enterprises) in express cross-border deliveries causes the CEP operators to use their bargaining power. It all makes the cost of cross-border delivery several times higher than that of distribution within a single country. This discourages customers from ordering goods from foreign online stores, which deepens the problem of under-used cargo space. Therefore, a solution is needed to overcome this problem, reduce the number of the sorting and handling operations, and thus reduce the costs of cross-border deliveries.
HUB CX
HUB CY
Customer C1 Y
C1 X
Online shop S
A
Country Y
Country X
Fig. 2. Hub and spoke system in distribution between two countries
4 Exemplification of the model facilitating cooperation between online shops dealing with cross-border trade Fig. 3 shows a simplification of the cross border e-commerce market. There are two online stores located in country X (S1 and S2) and two customers in country Y (A1 and A2). A1 orders a product in shops S1 and S2, and A2 orders in S2. The stores are separately served by two independent CEP operators (C1 and C2). C1 delivers the shipments to A1 through its H&S system, while C2 - to customer A2. C2 benefits from the economies of scale [10] and delivers the goods together to A1 and A2 from point S2 to hub C2Y. Then the shipments are separated and delivered to points C2Y1 and C2Y2.
HUB C1X
HUB C1Y
S1
A1
C1 Y
C1 X
Online shop
Customer
Online shop S2
C2 Y1
C2 X HUB C2X
HUB C2Y
C2 Y2
A2
Customer
Country Y
Country X
Fig. 3. Hub and spoke system in distribution between two countries with two customers and two online shops
In the case of a small flow of shipments between hubs C1X and C1Y, C2X and C2Y such a system of distribution of goods in cross-border e-commerce is ineffective. Relatively high costs of delivery of products to customers appear due to the underutilization of the cargo space and a large number of the sorting and handling operations. This problem can be solved by introduction of an additional entity to the crossborder e-commerce in the form of a consolidator. In the literature, such an entity is defined as the fourth party logistics (4PL). It manages the flow of information between the supplier, customer and logistics service provider. The consolidator proposed in this study acts like the CEP brokers, already present on a number of
national markets for several years. The difference between them is that the broker only wins transport orders and passes them on to the CEP operator which decides how to transport the consignments; the consolidator, in turn, additionally selects the carriers for the service. The consolidator does not possess any means of transport. It can be said that it configures a temporary supply chain for the needs of a single transaction. The consolidator has a website which enables to find offers, compare them, monitor shipments and make payments. However, the consolidator automates their business with continuously cooperating customers by providing the API (application programming interface) and integrating with sales platforms. Such platforms group and systematize up-to-date information about CEP services and prices, which helps make the decision about the company that delivers shipments. On the basis of specific criteria such as the place of origin and delivery, dimensions and weight of the parcel, the user is given appropriate cross-border transport offers by the system. The consolidator’s system automatically recommends the shipping options that are adjusted to the ordered products to the customer of the online store. For example, for a larger package courier or mail services are suggested rather than delivery to a parcel locker. Depending on the planned date of delivery, the system may offer different prices. Express deliveries by air freight will be more expensive than the economical road transport. Moreover, the system automatically generates the shipping documents (picking list to the warehouse, labels to be stuck on packages), monitors the realization process and informs the e-seller and the customer about the current status of the delivery. For customers, besides time, certainty of delivery of the product is important. Ordering in foreign stores, customers express concerns not only about when, but also whether at all and in what condition they will receive the shipment. They must therefore have constant access to the information about where the consignment is located and what the expected date of delivery is. This will be possible thanks to the track & trace system. The consolidator does not need to invest in infrastructure, because it uses the resources of other organizations. Its key task is the right choice of carriers assigned to the individual routes and time synchronization of the operation of individual vehicles in the region and between regions and of the work in the terminals and hubs. The consolidator, collecting orders from a number of senders, becomes a “big” customer of courier and postal companies. This increases the bargaining power and allows to get much better cooperation conditions than individual customers are offered, sending small numbers of shipments. Managing the consolidator‘s activities organized in this way requires application of complex IT systems. Such a system should integrate all the terminals and hubs of many different logistics service providers. This requires interoperability between the systems, and so mutual access to necessary data. In addition, standardization of the processes and the used infrastructure is needed. For example, shipments are transported in certain loading units, and the barcode labels describing the shipment (details of the sender and recipient, terms of delivery, etc.) must be processed by the various entities dealing with the shipments. All the data concerning the shipments and carriers are placed in a data cloud by the consolidator. This ensures access to the system for all stakeholders anywhere in the
world. Moreover, each driver is equipped with an electronic device which is used to scan the code from the shipment, receive information about the shipment and send the data. Customers of consolidators may mainly be micro, small and, partially, mediumsized companies that run their business on the Internet, i.e. online shops and sellers at online auctions. Fig. 4 shows the pattern of a consolidator’s operation in cross-border e-commerce. In every country it has access to the hubs (IX and IY) which are connected to the local terminals. In practice, this may be more than one hub, and they may belong to more than one CEP operator. Hubs between individual countries are connected by linehauls. The process in fig. 4 differs from the one shown in Fig. 3 in that stores S1 and S2 are operated by one consolidator I which selects appropriate carriers to collect shipments from shops S1 and S2 and deliver them to hub IX through the terminals of these carriers - I1X and I2X. Then, the consolidated shipments are transported from the IX hub to the IY hub. Loads from shops S1 and S2 are transported to customers A1 and A2 by a single means of transport. Organization of the transport between the hubs is done by the consolidator, but it can also be done by the CEP operator itself if it is a better solution. In the next step, unloading, sorting and shipment of goods from the IY hub by local courier companies (IY1 and IY2) to customers A1 and A2 takes place. As a result of this process, hubs C1X and C1Y and the carrier terminal C1Y have been eliminated (compare Fig. 3 and 4). This makes it possible to achieve the benefits in the form of fewer handling and sorting operations. Thanks to the selection of offers competitive to those of the CEP operators by the consolidator the costs of transportation between the terminals and hubs can, in turn, be reduced.
Online shop
Customer
S1
A1
Online shop S2
I1 X
I1Y
I2 X HUB IX
HUB IY
I2Y
A2
Customer
Country Y
Fig. 4. Cross-border e-commerce with a consolidator
Country X
5 Conclusion The model proposed in the study significantly reduces the number of the sorting and handling operations. It solves the problems of the organization of international logistics, and in particular the one with the high cost of deliveries, by consolidating shipments from various senders depending on the country of delivery. This will help to achieve the economies of scale - the CEP operator can offer better price conditions for a larger number of shipments. Additionally, thanks to the support of the supply chain by a single system it will be possible to track the shipments. Apart from the possibility to lower the costs, the limited number of operations reduces the risk of the goods being damaged during loading, unloading and so on. Moreover, the proposed solution is consistent with the assumptions of the Green Paper of the European Commission [3], according to which the attractiveness of purchases made over the Internet is determined by three main factors: the price of the product together with the cost of delivery, ensured quality of the delivery of the product, and access to information on the order status. In addition, the European Commission places great emphasis on integration of the systems of companies throughout the whole e-commerce supply chain, particularly among smaller CEP operators in the field of cross-border transport. Increased interoperability can accelerate the exchange of information, facilitate the consolidation of the needs for transportation, parcel delivery and invoicing, develop multimodal transport and reduce administrative costs [3]. The study hereby proposed a general concept of cross-border e-commerce using an integrator. The further direction of the research will be the development and verification of the model in practice. For example, a larger number of countries can be included in the model, the reverse logistics process may be added, or the crowdsourcing solutions can be used for local courier services etc.
Acknowledgements This paper has been written with financial support of the National Center of Science [Narodowe Centrum Nauki] – grant number DEC-2015/19/B/HS4/02287.
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