Get Ready for Cross-Border eCommerce—GEODIS Insights

Cross-border e-commerce represents a multi-billion dollar opportunity for brands looking to expand globally. However, this expansion comes with significant logistical hurdles, from intricate supply chains to complex returns management. This research delves into the expanding global marketplace, advocating for a phased approach, addressing cross-border shipping challenges, and offering solutions for international growth.

Key Takeaways:

Industry research projects cross-border e-commerce sales to surge to between $1 trillion and $3 trillion by the decade's end.

A step-by-step approach to international e-commerce sales is often recommended due to the complexities of global expansion.

Returns management and reverse logistics pose some of the most substantial challenges for brands shipping internationally.

The potential revenue and benefits of cross-border e-commerce generally outweigh the risks and challenges, but careful management is essential.

Welcome to GEODIS Insights. Our in-depth articles provide research and industry authority on logistics and supply chain topics. Leverage our findings and expertise to make informed decisions for your business. This article features research originally published on Multichannel Merchant in 2022, republished with their kind permission. Visit Multichannel Merchant to download a PDF of this content.

E-commerce Startups are Embracing Cross-Border from the Outset

Michael Lamia, Senior Vice President, identifies several key drivers behind the surge in cross-border e-commerce:

Increased global export/import of goods and services, coupled with expanding trade.

The rapid growth of domestic small-to-medium-sized businesses (SMBs).

The rising adoption of global technology platforms like WooCommerce, BigCommerce, Magento, and Shopify.

“Newer DTC startups are thinking global right out of the box, while operations that have been around a long time run the gamut in terms of where they’re at in their international journey,” Okamura stated. “The rise in global eCommerce, ignited by the rush of pandemic-era shoppers flooding retailers’ websites, has intensified the necessity of figuring out what to do with international traffic.”

Expanding into Cross-Border E-commerce is a Step-by-Step Process

For many U.S.-based retailers, launching cross-border sales into Canada is a natural initial step, largely due to proximity and brand recognition. This is often followed by broader expansion into English-speaking markets. Lamia outlines the typical entry points for a retailer's global e-commerce journey: Canada, then the UK and Ireland (English-speaking markets), followed by France, Denmark, Spain, and the Netherlands (due to familiarity with U.S. brands and products).

Okamura advises anyone considering cross-border fulfillment to honestly assess its sustainability. He explains that companies exploring international e-commerce should use this opportunity to ensure their operational foundations are solid, including aligning product lines with audience, addressing fulfillment challenges, and optimizing customer care and returns.

Fashion giant H&M Group, for example, largely avoids cross-border e-commerce at scale due to its extensive global network of physical stores. “We generally do not do eCommerce in a country where we don’t have retail presence, and we do cross-border fulfillment only in countries where we have a presence,” said Michaela Wallin, Competence Lead for Customer Fulfillment Solutions, Americas for H&M.

Returns Can Be a Significant Issue for Cross-Border E-commerce

Returns are a primary point of friction in cross-border logistics. Some brands declare international sales as final because handling returns is either too difficult or not economically viable given the product's price point. H&M cited return challenges as a factor in its stance on cross-border shipping. “Returns will always be a challenge in the international space,” Okamura said. “We’ll see secondary markets and recommerce emerge.”

Lamia notes that returns are often an afterthought for freight companies and customers, with undelivered packages also contributing to the problem. He posed numerous questions: “What happens to them? Are they returned to the last-mile carrier’s terminal? If so, are they then destroyed? Who pays for that? If not destroyed, then what? Are they returned to the origin customer’s location? If so, how long do they sit for consolidation, if it’s not too expensive? Is there a valid importer and exporter of record? Does the freight company have the means of delivering to the origin location upon arrival into the U.S.?”

“Best practices (on cross-border returns) are kind of a work in progress,” Okamura observed. “We’ve seen the development of specialty return services domestically get a lot of attention, but I don’t think we’ve seen the same thing from a cross-border or international perspective. Bringing things back across the ocean again, you’ve chewed up any profit.”

Some E-commerce Retailers Have Relaxed Return Policies to Reduce Reverse Logistics

iHerb, a major e-commerce seller of vitamins, minerals, and supplements that ships to 185 countries, integrates this reality into its return policy. The company offers reshipping or refunds but simply advises customers to keep the original shipment. Returns were a key reason H&M avoided widespread cross-border shipping. In describing retailer challenges, Wallin used the example of a Canadian retailer shipping to the U.S. A benefit is that orders valued at $800 or less shipping from Canada to the U.S. are duty-free, based on the de minimis standard.

“For some companies that makes sense, but then all of your fulfillment for that customer needs to come from Canada,” Wallin explained. “So, all of a sudden you can’t really utilize a regional network of your supply chain. It limits your flexibility.” Wallin noted that companies adopting this strategy are confident they can manage all fulfillment from just across the border, that orders will remain under $800, and that they can leverage favorable fulfillment costs and warehouse positioning.

The same principle applies in reverse, for cross-border shipping from the U.S. to Canada, utilizing logistics infrastructure near the border. In either scenario, the retailer “has to have a website that is purely targeting that audience and fulfill it from that warehouse accordingly,” Wallin said. Returns then become a significant factor. “Normally, what you set up is a return node in that market so you can trigger payment back to the customer as quickly as possible, and then you ship it across the border after the customer has been refunded, so you won’t have access to that stock for a certain period of time,” Wallin elaborated. Shipping from Canada didn't suit H&M due to its numerous nodes and the high probability that a U.S. customer would return items to a U.S. retail store, creating duty payment issues.

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iHerb’s Cross-Border E-commerce Logistics

A remarkable 85% of iHerb’s sales stem from cross-border e-commerce. The company manages orders through seven global fulfillment centers supported by two hub warehouses. It also collaborates with over 100 global logistics partners, including GEODIS, enabling typical delivery within 2-5 days for many international markets.

iHerb prioritizes transparent communication with its global customers to foster trust and ensure order visibility. This approach is driving growth, with the U.S. market up over 20% year-over-year, and other markets experiencing healthy gains. “iHerb is in a highly attractive health and wellness market that is large but highly fragmented,” said Miriee Chang, iHerb’s COO. “The global competition is limited and relatively underpenetrated in eCommerce.”

Driving International Growth with Cross-Border E-commerce

Once brands establish a solid foundation, they typically scale operations and allocate marketing budgets to stimulate international demand. “Our strategic framework looks at three distinct stages,” Okamura said. “Cross-border eCommerce is the starting point for a lot of brands. Second is selling through international marketplaces and then social sites like TikTok. The third is an in-region or in-country build for a brand, actually putting people, inventory and a whole separate team on the ground. Those three phases aren’t necessarily linear.”

Industry consensus suggests that the opportunities in cross-border e-commerce outweigh the risks. McKinsey recommends that companies considering reconfiguring their operating models to capitalize on this growth ask themselves three guiding questions:

The geographical stance: Where to play?

The operating model: How to play?

Execution: How to win?

“Once a strategy and operating model have been decided on, a company needs to embed core capabilities across the end-to-end delivery chain,” McKinsey stated. “These capabilities not only are crucial for commercial and operational excellence but also differentiate leaders from the rest of the pack.” For retailers contemplating cross-border e-commerce, the signals from online shoppers are clear: act now. The International Post Corporation’s Cross-border Ecommerce Shopper Survey 2021, which surveyed 33,000 consumers across 40 countries, found nearly one-third make cross-border purchases. Of those, 14% order products from the U.S.

That's opportunity, knocking on the border.