Cross-border shipping occurs when goods are transported from one country to the next. This kind of shipping has no inventory being stored in the destination country. The commodities/goods will go through customs and import duties.
As an exporter, you may have to pay this depending on the existing trade agreements and de minimis values. De minimis value is the price threshold below. In simpler words, these are those values of goods for which has no taxes are charged or collected on shipments. Goods with De Minimis Value are considered importations of the negligible amount. These goods are also entitled to immediate release.
In terms of cross-border e-commerce, cross-border shipping only happens when a sale has been made. Creating a traditional local distribution model that involves setting up warehouses and managing fleets is a good alternative to cross-border. This traditional local distribution mode can manage deliveries in the destination country.
Normally, this is done to lessen shipping times when orders arrive, since the inventory is kept closer to the country. However, it is necessary to estimate the demand thoroughly to prevent oversupply or stock-outs.
Is Cross-border a Good Shipping Option?
In view of the amount of opportunity, finding ways to fulfill the demand from overseas markets is worth considering. To fulfill this demand, we are going to discuss cross-border shipping and local distribution models.
Inventory Exposure and Initial Investment Requirements
Holding on to inventory involves certain risks and thorough checking at any given moment. This certain risk is known as inventory exposure. This term comes from inventory spoilage costs, storage costs, and obsolescence. It is also crucial to set up logistics systems, in other countries, with initial investments in operations such as warehousing.
Although you’re tempted to keep inventory closer to your customers, making your local distribution model requires a huge initial investment. To import licenses, set up and maintain offices and warehousing to manage your inventory is an expensive investment.
Moreover, each component mentioned could lead to much higher operating expenses as compared to cross-border shipping. It is indeed risky especially if the demand for your item turns out lower than what is expected.
In addition, those components can also lead to higher storage costs and operating expenditure in the target country. This results in inventory exposure in that market, which is also risky if the demand for your item turns out lower.
Fortunately, with the cross-border model, your inventory exposure will not be as high as a local distribution model. However, you should run a centralized logistics model to make it successful. The reason behind this is, the storage costs are incurred only in the origin country with a centralized logistics model.
Aside from that, shipping costs are only sustained when sales have been made using a cross-border model. Thus, you can have guaranteed revenue for each parcel that you will ship to the target countries. This thing makes cross-border services way cheaper and more resilient logistics options when you’re initially entering new markets.
Speed of Deployment (time-to-market)
When you use a local distribution model you must involve high amounts of initial lead time. In some countries, it may take around 6 months before you finally obtain your import license. Take note that importing a license is compulsory for a local distribution model. You also need more time to build teams, warehouses, and fleets. This slower “time-to-market” can cost you potential sales.
Whereas, existing cross-border shipping partners already have the logistical infrastructure, licenses, and expertise, in place. This somehow can lessen the logistics set-up time when searching the right partners and registering with them. Through this, you can improve the “time-to-market” for your products which is the main key in a fast-growing environment.
Geographical Reach Limitation
In local distribution models, the geographical area of the hub is usually limited and is situated in. Besides, setting up additional supply lines to rural areas in the hub will take time. As a result, it can slow down your sales expansion plans.
Whereas, when you use cross-border shipping, your goods/products can reach even rural areas of your target countries. However, its geographical reach still depends on how extensive your cross-border fulfillment partner’s network is. When you register with the right partner, you will have access to multiple countries with relatively short set-up time.
Cross-border Shipping: Ways to Test Demand in New Markets
Cross-border shipping offers a flexible and effective way of serving the region. The main reasons are its lower initial investment, faster time-to-market, and wide potential geographical reach. As a result, this shipping is more ideal for testing the market demand as compared to the local distribution model.
When seeking out a logistics partner, look out for those partners who can help with the following:
Overcoming the last mile and reverse logistics challenges
Your target customers may be in rural or hard-to-reach areas, where larger forwarders can charge high premiums for shipments. Logistics companies with strong partners or have developed infrastructure for rural areas can help you overcome these logistic challenges.
Manually tracking the shipment through calls and emails is really time-consuming. Having a real-time tracking of the delivery progress can help keep your customers less anxious about their delivery. Find a logistics partner with this real-time tracking.
Equip with the necessary software
Find a logistics partner that has enough software to manage your entire supply chain network on one platform. Having the necessary software simplifies delivery order submission in a hassle-free way.
Facilitates preferred local payment methods
Not all customers have access to modern payment methods such as online banking or credit cards. Having a logistics partner who can facilitate payment options that local consumers are comfortable with, leads to more potential sales.
Cross-border shipping is indeed flexible and has a low initial investment which can fulfil the demand for an e-commerce business. Today, e-commerce business offers more exciting opportunities that involve cross-border shipping. Thus, the prize for entering cross-border e-commerce at this time is worth your time and investment. You just need to look for the right logistics partners to grow with you.
All Freight Shipping offers cross border shipping services to accommodate the movement of freight from the US to Canada. Just like with other forms of cross border shipping, shipping from Canada to the United States will command higher costs. If you are looking for a reliable trucking and shipping company, you can contact us today at 647-691-5535 or email us at email@example.com