January 4, 2006, 12:00 AM

Hands Across the Water

Cross-border delivery is one of the biggest challenges of international sales. Here`s how some retailer solve the problem.

The Internet may have made it easier for retailers in the United States to generate traffic and sales from consumers in other countries, but fulfillment remains a tremendous challenge. Logistically, retailers need to be on top of a wide range of issues that include daily fluctuations in currency conversion when billing a customer, duty fees levied by each country to which they ship, and whether the courier used to ship the package can reach remote locations.

Factor in the marketing dollars needed to drive consumers to a site and generate enough sales to make it worthwhile to ship internationally and it is easy to understand why the resources required of Internet retailers to coordinate cross border fulfillment on their own are often greater than the resources available.

A lean team

Most Internet retailers looking to open foreign markets do so with a lean team of employees, largely due to budget constraints. Creating an international sales unit is the equivalent of launching a start-up business. Only the largest retailers with the deepest pockets are likely to have capital to properly fund such a venture.

With that in mind, many Internet retailers are opting to outsource much of the fulfillment duties for international sales, freeing staff to focus on their core competencies of marketing and merchandising. “Internet retailing is in the early stages of international sales and retailers really don’t have the critical mass to justify an in-house fulfillment center,” says Jim Okamura, senior partner with consulting firm J.C. Williams Group. “Moving to an outsourcing relationship for international fulfillment makes a lot of sense from a financial standpoint.”

The services provided by cross-border fulfillment companies are typically full end-to-end solutions that include establishing relationships with payments processors, foreign banks, and couriers, to delivery tracking and coordinating retailer shipments to one or more of their staging warehouses in the U.S. where packages are prepared for international delivery. Fulfillment companies are also charged with staying current with items restricted both for export from the U.S. and for import to foreign countries.

In the case of the export restrictions, the intention is to prevent software applications and computer hardware that can aide terrorists and international criminals in harming U.S. interests from leaving the country. On the importation side, many foreign countries aim to prevent products from entering the country, such as guns, ammunition, and fruit.

Navigating the maze

Given the maze of restrictions and challenges facing cross border fulfillment, the benefit of using a third party outsourcing firm is to create a seamless fulfillment process for the customer that enriches the retailer’s brand equity in foreign markets without straining personnel, even if the retailer ships only a few dozen orders a day internationally.

“It is more efficient to outsource these functions because it enables us to make certain we have the resources available to provide the best shopping experience possible to customers outside the U.S.,” says Steven August, operational vice president, customer marketing for Brookstone Co. Inc.

Brookstone partners with fulfillment outsourcing firm Canada Post Borderfree, a division of Canada Post Corp. Prior to partnering with Canada Post Borderfree in 2003, Brookstone undertook its own efforts to sell to Canadian consumers. The process left much to be desired, since Brookstone, like many U.S. based retailers, struggled with fulfillment issues.

“A lot of U.S.-based retailers did not provide Canadian consumers with a great online buying experience because they lacked the relationships with Canadian companies to provide satisfying fulfillment,” recalls Patrick Bartlett, president of Canada Post Borderfree.

Canada Post Borderfree, which provides fulfillment services for 38 U.S.-retailers and catalog marketing for about 70 more, handled more than 40,000 shipments from U.S. retailers into Canada in November 2005. Retailers ship packages to Canada Post Borderfree’s warehouses in Detroit and Chicago, where they are readied for shipment into Canada.

Canada Post first partnered with Borderfree in 2002 as a way to increase its volume from U.S.-based retailers and acquired Borderfree in April 2005. The company plans to expand into the U.K. in 2006.

Accurate shipping costs

One of the biggest problems facing U.S.-based merchants shipping into Canada was accurately calculating the complete shipping costs for merchandise, according to Bartlett. Taxes and duty, which vary by weight of the package, its origin, and where the item was manufactured, were often estimated on the low side at the time of purchase. That led to many unhappy customers when the final bill arrived.

Fulfillment companies such as Canada Post Borderfree are responsible for accurately calculating shipping costs and will typically cover the difference if they end up higher than originally quoted. If the cost is lower than projected, the difference is refunded to the customer.

“There are a lot of factors that affect shipping costs and duty fees, so it is important to get an accurate price quote in the local currency of the customer and make good if the quote is off,” adds Bartlett.

Other factors contributing to a quality shopping experience for international customers is offering payment options native to them. In Germany, less than 20% of consumers carry credit cards, which creates a significant barrier to Internet retailers in doing business with a large portion of the shopping populace. To clear the hurdle, cross-border fulfillment companies partner with German banks on behalf of their retail clients to accept bank transfers, a popular form of online payment. In the United Kingdom and Italy, consumers prefer to pay with debit cards or bank-issued prepaid Visa and MasterCard cards.

Knowing preferences

“It’s important to know consumer preferences for doing business with retailers when entering any foreign market,” says Brent Rusick, CEO for cross-border fulfillment firm Comerxia Inc., which has 60 merchant clients, including Ashford.com and Ritzcamera.com “Cross border fulfillment is about localizing the customer experience.”

Localization means more than just catering to customer preferences for payment and accurate calculation of shipping costs, it also means striking the best deals with couriers for each retailer. Not surprisingly, international couriers have strengths and weaknesses when it comes to reaching remote towns and villages in rural areas of Asia, say, or the mountains of Europe and Canada.

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