Untangling the complexities of foreign order fulfillment
By Paul Miller
If you’re a bricks-and-mortar retailer, to sell abroad, you have to open stores abroad. A catalog merchant? You have to obtain mailing lists—and in some countries, you even have to obtain permission from individual prospects in order to mail catalogs to them. But the beauty of the web is an online retailer’s ability to reach foreign customers without having to go after them.
E-retailers have certainly jumped at the opportunity to sell abroad lately. According to a web-based survey conducted by Internet Retailer in April, 71% of the 186 respondents to the survey report that they regularly fulfill online orders from customers outside the U.S., and two-thirds of respondents have used the web to serve foreign markets for three years or more.
The sinking dollar
“More merchandise is being shipped abroad today because of the low value of the dollar,” says Todd McGeohan, president of ProShopWarehouse.com, a close-out e-retailer of golf equipment, 35% of whose sales are to overseas customers. “And when the dollar is weak, Europeans and Japanese, in particular, buy tremendous amounts of U.S. merchandise. When the dollar is strong, they back off.”
As great as additional sales from abroad are, of course, Internet retailers must know how to fulfill these orders. And there’s much to know about overseas distribution depending on how retailers handle it—be it on their own from a U.S.-based distribution center, farming it out to third-party fulfillment service firms, or placing it in the hands of international carriers, such as DHL, United Parcel Service and Federal Express. Generally, Internet retailers can opt for one of these approaches or they might choose to establish a physical presence overseas.
Then again, some e-retailers shy away from accepting orders from foreign customers altogether because they’d rather not get involved with all the complexities. For the 29% of respondents to the Internet Retailer survey who do not process foreign orders from their retail web sites, the principal obstacle is the difficulty and cost of shipping goods outside the U.S.
But for those who seek out and accept foreign orders, the web “has certainly enabled merchants of any size to have an international presence and gain brand name recognition,” says Patrick Bartlett, president of Borderfree, a partnership with the Canadian postal service Canada Post Corp. that facilitates transactions from the U.S. into Canada and is planning expansion into other markets. “Online marketers’ ability to mirror their domestic customer shopping experience on a global scale may not have kept pace, due to logistics and cross-border challenges.”
Some marketers, such as Overstock.com, Drugstore.com, Shoes.com, General Electric and Gateway work with e-commerce solutions providers, such as Comerxia Inc., Vcommerce Corp., and Borderfree. Others, such as ProshopWarehouse.com, teddy bear retailer The Boyds Collection, and teen knick-knack marketer David & Goliath work with UPS or other carriers that offer turnkey fulfillment systems. And then there are Amazon.com, Office Depot Inc. and other retailing giants who establish foreign presences and handle it all themselves.
Many options
Clearly, there is no one right way to fulfill a foreign-placed order. Certainly, larger marketers are in a better position to establish their own foreign subsidiaries—complete with local distribution centers—in many countries around the world. And by operating separate divisions around the world, these companies avoid having to ship online orders across borders.
In the case of OfficeDepot.com, the act of shipping overseas orders isn’t an issue, because “we’re in those countries,” says executive vice president of business development and information technology Monica Luechtefeld, who also is head of e-commerce. For example, German customers are steered to the company’s German site—OfficeDepot.de—and have their orders fulfilled from the company’s warehouse in Germany. “We believe in being in the country we do business with,” she says, “and we have country managers and local customer support and warehouse and distribution teams. We won’t go international without that support and infrastructure already in place.”
Office Depot operates more than 40 international web sites and fulfills orders from 22 countries. U.S. orders are fulfilled only from the U.S. Canadian orders are filled by the Canadian division. U.K. orders are filled only from the company’s British distribution center, and so forth, Luechtefeld says. As for orders from other countries, “we link those customers to our sites in their native countries.”
While setting up shop in foreign countries is certainly easier for larger companies to address the issue of shipping across borders, small companies that fulfill overseas orders through other means are also well advised to avoid some of the sticky issues involved in getting orders across borders. Most e-retailers, in fact, avoid dealing directly with such issues as customs, duties, tariffs, and other details involved in getting packages across borders. In many cases, marketers will even allow service firms to handle site translation, e-mail correspondence, cash conversion, and customer service for their overseas customers.
Landed costs
Besides merely making sure that their packages make it into their foreign customers’ hands, e-retailers need to make sure that with each order, they provide customers with guaranteed landed costs: the complete cost of getting each order to the customer. In fact, FedEx estimates that foreign consumers abandon 20% of international orders because they’re not given total landed costs. Guaranteed landed costs software programs are designed to factor in taxes from destination countries, as well as duties, tariffs, fees, and any restrictions.
That’s why some e-retailers turn to e-commerce service providers like Comerxia, Borderfree or Vcommerce—or the carriers themselves—to handle the complexities of overseas delivery. Comerxia handles all aspects of e-commerce as they relate to international business. “A watch with a leather band may have a different tax rate or customs fee than one with a precious metal band, for instance,” points out Comerxia CEO Brent Rusick. These fees can vary because a country might, for example, produce gold and impose higher duties on gold coming in from the U.S. Mexico, for instance, restricts textiles from China because of Mexico’s own textile industry.
Calculating and converting such duties is part of Comerxia’s core technology. “We have a number of resources we go to for information and detailed updates on taxation in various countries,” Rusick says. “We have access to various country web sites, and can take a company’s online catalog and funnel it through our landed cost calculator and charge the right tax. Most of all, we can guarantee it to the customer, who doesn’t have to get any surprise fees.”
Companies like Comerxia can also process payments for foreign orders and convert them to U.S. currency for American e-retailers. That’s crucial in countries like Germany, where less than 20% of the population uses credit cards while the majority of Germans rely on bank transfers. In such a scenario, consumers receive invoices via e-mail generated by Comerxia for orders they place with American e-retailers.
All or some
This kind of checkout technology is one of three major components Comerxia offers to e-merchants. In addition to overseas web marketing services, the company’s technology also can automatically determine which carrier to use for specific shipments. By negotiating with various carriers, Comerxia can determine the best carriers for particular countries—or regions within countries. “So when we quote a landed cost, we have already determined who the carrier will be for that specific order,” Rusick says.
Costs for using service firms can range from $5-$15 per order depending on the characteristics of each order and the level of service the merchant chooses. For Vcommerce, basic implementation costs range from $100,000 to $250,000, based on the amount of modules and customizations clients choose, says senior director of product marketing Scott Mandeville.
As with Comerxia, e-retailers can outsource their entire e-commerce operations to Vcommerce—such as web site design, order payment processing, customer service, site translation and international fulfillment as a whole—or only certain elements. Vcommerce works with a community of partners that includes web analytics firm Omniture Inc., enhanced customer service provider RightNow Technologies Inc., and direct e-mail solutions provider Dynamics Direct Inc.
“Our approach varies based on the business model of our clients: Some prefer to distribute from an in-country warehouse; others prefer to ship from the U.S. to international destinations, either through standard carriers or through global e-commerce logistics providers,” Mandeville says.
Borderfree is a Toronto-based company that is primarily designed to help U.S. e-retailers get their goods in the hands of Canadian customers. “We provide a localized shopping experience that mirrors the feeling of buying from a Canadian merchant, including guaranteed landed costs in Canadian dollars and in-country returns capability,” Bartlett explains. The company’s approach gives U.S. merchants access to the Canadian market without having to invest in changing back end systems and processes.
Working with the carriers
Merchants should expect to spend 20 hours or so to integrate their sites with Borderfree. As part of the set-up, Borderfree builds landed cost technology into merchants’ web sites—all in guaranteed Canadian currency. The company provides credit card verification, which eliminates credit card fraud exposure to U.S. merchants, Bartlett says, pointing to a historically prevalent problem marketers have had in handling foreign orders. In fact, in the Internet Retailer survey, 25% of respondents cited fraud concerns as the biggest obstacle to foreign sales.
Internet retailers may instead opt to work directly with carriers themselves. DHL, UPS, FedEx, and even the U.S. Postal Service all offer a range of services designed to make overseas fulfillment easier. In addition to shipping, DHL GlobalMail, for instance, offers such services as address and parcel fulfillment services, in which marketers can house their goods in DHL-hosted foreign distribution centers; inventory management; pick and pack; insurance; and database management. “Our solution is pretty limitless in terms of where you want to go and what you need,” says senior vice president of marketing and commercial affairs David Marinkovich.
FedEx offers a free service, Global Trade Manager, which uses the country of origin and the consumer’s country of destination to estimate the cost of duties and taxes for marketers and their customers. “By integrating GTM to online retailers’ web site/checkout process, retailers are able to provide total landed costs,” says FedEx senior marketing specialist Jose Li. To complement Global Trade Manager, FedEx offers a comprehensive suite of international shipping options for e-retailers. With Global Trade Manager, FedEx incorporates an online visibility tool called Insight—also a free service—that informs e-retailers of order status, so they can contact customers if their packages are held up in customs or otherwise delayed.
Partnerships
Some FedEx services, such as Global Express Guaranteed, are in partnership with the US Postal Service. In addition to offering several international shipping services, the USPS is developing a solution for e-retailers to present landed costs to overseas customers, says package services manager Jim Cochrane. He says USPS hopes to launch the service early next year.
And then there’s UPS, which works with such e-merchants as Nike.com and Jockey.com, handling foreign warehouse management and fulfillment through its supply chain solutions group. In January, UPS launched its own landed cost engine designed for small to midsize e-retailers.
Several UPS clients leave most of their foreign fulfillment details in UPS’s hands. “We designed our site in cooperation with UPS,” says McGeohan of ProShopWarehouse. UPS handles the logistics end of its overseas business, although all orders actually originate out of ProShopWarehouse.com’s Franklin, Ohio-based fulfillment center. ProShopWarehouse.com handles some matters on its own. “You have to put together some paper work—four forms have to go into customer invoices,” he says.
Part and parcel of its strong partnership with UPS, ProShopWarehouse.com has been aggressive in gaining favorable contracted rates with UPS. What’s more, “We look at our bills to make sure there aren’t any extra charges in there—and that we’re at least breaking even on the shipping,” McGeohan says.
A DIYer
For some e-retailers, such as intimate wear e-merchant Figleaves.com, handling all overseas matters internally can work. Launched six years ago in London, the company set up a U.S. headquarters and web site a year ago. And although the company ships all orders out of its British-based fulfillment center, plans call for Figleaves.com, which serves consumers in 66 countries, to open a distribution center this year in the U.S. and Canada. United Kingdom orders account for 70% of Figleaves.com’s sales, U.S. orders 20%, and the rest of the world 10%, according to senior vice president and U.S. headquarters leader Ed Bussey.
Figleaves.com has developed proprietary warehouse management software that allows the company to convert its sale prices to individual country currencies. And unlike most other merchants who lean on service firms to calculate guaranteed landed costs, Figleaves.com handles that on its own as well. “Factoring in all the duties, taxes, tariffs, etc., you need expert advice,” Bussey says. “But it so happens that our products are very lightweight and compact. And with our good relationships with the USPS, FedEx and Royal Mail, we can ship very cost-effectively.”
But even Bussey, who has figured out how Figleaves.com can handle the complexities of cross-border shopping, cautions: “That whole area is an absolute minefield.”
Paul Miller is a Somers, N.Y.-based freelance business writer
