Position Paper Cross Border e-logistics

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1 Position Paper Cross Border e-logistics A Need for Integrated European E-Logistics Solutions

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3 POSITION PAPER 3 Table of contents Summary Summary & Recommendations 3 Introduction 4 Current situation 4 Objectives 5 Online customer requirements 5 Shopping experience 5 Delivery options 5 Delivery costs 5 Pan European transport network solutions 6 Availability of information 7 Returns 7 Security 8 Taxation 8 And as a result: becoming more sustainable 8 E-commerce is booming business in the European Union. The number of countries where e-commerce is a key contributor to gross domestic product, is growing rapidly, increasing its impact on economic growth and employment. The total Gross Domestic Product (GDP) of Europe in 2012 is estimated to have reached 16 trillion. The share of the European Internet economy is estimated at 3.5%, a percentage that is set to double by 2016 and to triple by 2020 given the fact that the Internet economy grows much faster that the economy in general. The number of jobs created directly and indirectly by the B2C e-commerce sector is estimated at 2 million in Europe. 1 High European delivery performance is a key driver for success for web merchants and their business models. Improving logistics on a European scale could have significant results in terms of growth and jobs. Better functioning crossborder e-commerce logistics will deliver benefits to all actors involved in e-commerce activity, customers as well as web merchants and logistics service providers. The lack of integration between the communication systems of enterprises in the transport and logistics chain is a major hurdle, limiting the available transport and logistics options for web merchants. Increased interoperability will improve information exchange and consolidation and will reduce administrative and IT-implementation costs. Poor tracking and tracing capability, and many handovers in the total e-fulfillment supply chain increase the risks of damage, loss and theft. As web merchants want to attract customers from other countries, there is a growing need for reliable and transparent European delivery solutions that meet the expectations of the online consumer as well as those of the web merchant. Given the complexity of the European delivery chain, these solutions are more fiction than fact. 1 Source: European B2C Ecommerce Report 2012, Ecommerce Europe Therefore, Ecommerce Europe presents 5 recommendations to boost cross border e-commerce in Europe. Ecommerce Europe is the association representing companies selling products and/or services online to consumers in Europe. Founded by leading national e-commerce associations, its mission is to advance the interests and influence of e-commerce in Europe through advocacy, communication and networking.

4 4 POSITION PAPER Service expectations have increased over the years and the online customer is demanding, especially concerning logistics requirements when sending parcels and use an up-to-date address verification tools as early as possible. solutions, a variety of delivery options (e.g. home delivery, pickup points, time window delivery), suitable payment methods, reliable and realtime track and trace information, competitive delivery fees and reliability. Unfortunately there is no integrated European delivery system at the moment that meets all the customers specific needs. Many European web merchants create their own dedicated network of hubs, involving multiple logistics service providers and transport companies. Increased harmonization in e.g. packaging methods and IT applications would substantially improve costs and effectivity: eliminating non-standardized parcel labels, non-integrated track and trace, different transport related packaging (e.g. consolidation of parcels on pallets or in bags), country specific tariffs and conditions, different address formats among the European countries, etc. Recommendation 5: Simplify and modernize the EU VAT system. Create One Stop Shops for VAT issues. Introduction Current situation E-commerce is booming business in the European Union. The number of countries where e-commerce is a key contributor to gross domestic product, is growing rapidly, increasing its impact on economic growth and employment. The total Gross Domestic Product (GDP) of Europe in 2012 is estimated to have reached 16 trillion. The share of the European Internet economy is estimated at 3.5%, a percentage that is set to double by 2016 and to triple by 2020 given the fact that the Internet economy grows much faster that the economy in general. The number of jobs created directly and indirectly by the B2C On top of that, managing the logistics of returns is a real challenge for web merchants, as it has a direct influence on profitability as well as on customer satisfaction. For companies starting up e-business, managing reverse logistics may well be more complex than managing the delivery process. e-commerce sector is estimated at 2 million in Europe 2. Besides a sound commercial strategy, one of the most important key success factors in e-commerce is getting the ordered goods/products to the customer at the required service level This position paper identifies 5 recommendations to boost cross border e-commerce in Europe: and costs or in other words: e-logistics. The European Commission identified the delivery of online purchased goods as one of the top five priorities to boost e-commerce by Cost efficient and smooth delivery contributes to customers Recommendation 1: A European standardization of delivery options (and features) would remove dissimilarities in customers cross border delivery preferences for web merchants and provide more transparency towards customers concerning the available delivery options. trust in webshops and as a result supports e-commerce growth. Online customers expect delivery in a way that facilitates their daily lives as best as possible. People buy online because of the ease of shopping: buying from home and saving precious time. Consequently, offering just home delivery service is no Recommendation 2: Create pan-european transport network solutions for more harmonization in the methods and applications used; increase interoperability between communication systems of logistics service providers; and enhance transparency in pricing to limit the gap on cross border parcel delivery. longer a sufficient proposition. Web merchants and delivery service providers try to meet customers expectations and as a result the number of different delivery options has grown. Offering convenient customer service requires more than a flashy website and a wide range of delivery options. Customers want to be updated continuously about their order Recommendation 3: develop a decision support model for (small) webshops with regard to outsourcing logistics activities. status and the ease with which products can be returned is a decisive factor for choosing one webshop versus another. Recommendation 4: In order to avoid unnecessary returns web merchants/e-fulfillers should take care of country specifi An important trend in European e-commerce that increases the complexity of the delivery chain, is internationalization or 2 Source: European B2C Ecommerce Report 2012, Ecommerce Europe 3 Source:

5 POSITION PAPER 5 cross border e-commerce. More and more consumers are shopping across the borders of their home countries, requesting similar service levels compared to the levels they are used to in their domestic market. On their part, web merchants are looking for opportunities in international markets but are confronted with higher costs, greater complexity and a lack of transparency when it comes to cross-border shipments. As a consequence, there is a growing need for standardized, affordable and reliable European delivery solutions that meet the expectations of the online consumer as well as those of the web merchant. Given the complexity of the European delivery chain, this is a genuine challenge. Objectives Ecommerce Europe identifies in this paper a number of opportunities for more effective and efficient cross border E-logistics. These opportunities have been described in 5 recommendations which are addressed to all stakeholders: web merchants, retailers, logistics services providers, fulfillment providers, parcel and express service providers and companies operating pick-up points. The objectives of this Position Paper are: an overview of the most important topics with regard to cross border e-logistics; to formulate the most important recommendations for more effective and efficient cross border e-logistics; to address stakeholders in cross border e-logistics with short and longer term actions for innovation and cooperation. Online customer requirements Shopping experience The e-commerce market place is evolving quickly. Customers have increasing service expectations, especially concerning delivery solutions. The delivery experience determines largely their trust in a specific webshop. The moment of delivery is the only physical contact and determines for a large part the customer experience. significantly. In B2C (Business to Consumer) transactions, as opposed to B2B (Business to Business), one single failure in not respecting customer requirements, a product and/or delivery shortcoming, often means that the customer will never again shop at the webshop involved. Delivery options The shopping experience starts with a well-functioning website, on which it is a pleasure to shop and easy to order. Besides a wide range of available products, customers also expect to be able to choose from various and flexible delivery options. Just offering home delivery is no longer a sufficient proposition. Customers want flexibility with regard to when and where the order can be delivered and want to choose a delivery option that fits their daily schedules in the best possible way. Most common e-commerce delivery options are: Home delivery, Delivery at work, Delivery at customer chosen address, Pick-up points (in stores, lockers or other place), Express shipping. Relatively new delivery options are: Same day delivery, Customer selected time window delivery. Customers preferences may differ substantially when crossing borders. Remarkable cross-border differences exist between preferred delivery options and accepted transit times. These dissimilarities are an important obstacle for web merchants who intent to explore the international e-market. A European standardization of delivery options would remove this hurdle towards web merchants. Recommendation 1: A European standardization of delivery options (and features) would remove dissimilarities in customers cross border delivery preferences for web merchants and provide more transparency towards customers concerning the available delivery options. If consumers/customers are confident that their purchases will arrive in good condition, within the announced time frame, and easy return procedures are in place, the chance of a consumer returning for additional purchases in the future increases Delivery costs Another major factor influencing customer decisions to buy online is the delivery fee or cost. High cost of delivery is one of the main reasons for customer dissatisfaction concerning on-

6 6 POSITION PAPER 5 line shopping. Customers increasingly expect free or low cost delivery (and return) when buying online. On the other hand the variety of products sold online is growing rapidly. These products represent different values, weights and volumes, that make delivery related requirements increasingly diverse. Therefore offering cost effective and reliable e-fulfillment is a definite challenge for web merchants. Prices for cross-border delivery services cause a competitive risk for small web merchants. They do not have the bargaining power to negotiate competitive tariffs and conditions with delivery operators compared to larger web merchants. Tariffs vary significantly per provider, for orders containing the same range of goods and sent to the same destination. Small web merchants do not have the capacity to invest in a logistics network of their own. Price gaps on cross-border parcel delivery prices should be limited by special pricing regulations to protect small players and to provide more price transparency to customers. Pan European transport network solutions Selling online to customers throughout the European Union requires the capability to deliver to customer home addresses across the European market place. The total supply chain for e-fulfillment, in a European cross-border environment, is complex (see simplified in figure 1). Various market players are involved: web merchants, national postal services, parcel service providers, express delivery services, transport companies, warehouse operators, express delivery services, companies operating pick-up points, etc. Pan European transport solutions do not exist at this moment, forming a huge obstruction to the growth of cross border ecommerce. There is no logistics service provider that will ensure a quick and cost efficient delivery in all European countries at home address level. Parcel delivery services are offered by domestic and international players, working with their own distribution networks. Some of the larger logistics service providers are offering services in most or all member states, but the question is whether these companies have sufficient network coverage to provide the various delivery options (e.g. home delivery, pick-up points, time window delivery) at an affordable cost. In order to cost effectively manage and control the international shipment/delivery process, web merchants often need to work with multiple delivery operators. These operators work through their own dedicated network of hubs and systems, in which delivery and transport is done by multiple carriers, each having their own track and trace web applications, labels, service procedures and may also use different transport related packaging. Some use pallets, while other use boxes and/or bags for parcel consolidation. As a consequence the e-tailer is required to manage various forms of packaging in combination with the selected delivery service provider. More harmonization in the methods and applications (for packaging as well as IT) used by those carriers would substantially reduce costs, improving efficiency and effectiveness. Organizing such a dedicated network requires expertise and time, which is surely an issue for traditional European retailers, that want to open up and develop e-commerce channels for their existing customer base in Europe. These retailers need to put a comprehensive, reliable pan-european delivery network in place immediately and do not have time to build up expertise and develop their own dedicated network step by step, compared to some national pure players who expand their assortment and market over time. Figure 1: E-business supply chain on a EU level In some cases it may be more efficient to choose one distribution partner that carries out and manages transport and contracts with local parcel delivery services. This method provides the advantage of one point of contact. Nevertheless outsourcing is a strategic as well as an operational consideration.

7 POSITION PAPER 7 Many small webshops have limited insight and awareness of their own operating costs, making outsourcing seem like a costly alternative. Decision support tools for outsourcing need to be developed in order for small webshops to obtain a better understanding of their operating costs and to better understand the cost and quality of proposed services by delivery operators. Recommendation 2: Create pan-european transport network solutions for more harmonization in the methods and applications used; increase interoperability between communication systems of logistics service providers; and enhance transparency in pricing to limit the gap on cross border parcel delivery Recommendation 3: develop a decision support model for (small) webshops with regard to outsourcing logistics activities. Availability of information The availability of information (or lack thereof) is a serious obstacle in cross border e-commerce. Customers require information in advance/during the shopping experience on the delivery process and return procedures. The importance of providing real time information during the delivery process is growing. Especially the younger generation wants to be in control of their delivery, and expect to have the possibility to track orders online. They also want information services to anticipate delivery ( , smart phones applications, SMS alert, ). Furthermore they expect more transparency with respect to the conditions under which their orders are shipped and most notably when packages are delayed, damaged or lost. And in case of questions or problems: how to contact the Customer Service department. Providing timely information increases the chances of a successful first delivery attempt and as a consequence reduce costs and ensure customer satisfaction. Technological solutions are available. However, a large percentage of webshops does not provide this information adequately. Options are (real-time) online track and trace and notifications or text messages to update customers (automatically) on order status, up to and including Proof Of Delivery (POD). With different logistics service providers involved in the crossborder delivery process, the availability of real time track and trace information for customers is limited. The lack of integration of the communication systems of companies in the delivery process is the cause of this limited availability of information. Increased interoperability will facilitate information exchange and consolidation and will reduce administrative and IT-implementation costs. To optimally meet the need of transparency, web merchants would need to be able access one platform/ interface to share this information, regardless of the logistics partner being used. Returns In order to avoid delivery problems and unnecessary returns it is important to pay attention to dimensions and other country specific requirements when sending parcels. It is also recommended to pay attention to the different address formats of each country (f.e. postal codes) and to use an up-to-date address verification tool as early as possible in the e-fulfillment process to check the address of the recipient before delivery. Returns may also be caused by consumer behavior, as e- customers are legally allowed to return orders. The use of this possibility by consumers depends on the product category. The return rate of fashion products for instance is up to 40% of items purchased. Costs related to returns should not be underestimated. Managing the logistics of returns is a real challenge for web merchants, as it has a direct influence on profitability as well as customer satisfaction. For companies starting up e-business, managing reverse logistics may be more complex than managing the delivery process. Customers should be provided in advance with all necessary information concerning a possible return. The easiest way to facilitate returns is to include a return label in the parcel or to provide it by . The customer can then bring the parcel with the label to the post office, from where it will be returned. Another option is to work together with local shops, so customers can deliver the parcel at a convenient shop. The parcel delivery provider can then provide full tracking information from the point at which the parcel is scanned-in at the shop. From that moment the web merchant or the e-warehouse manager knows that the order is being returned. Recommendation 4: In order to avoid unnecessary returns web merchants/e-fulfillers should take care of country specific requirements when sending parcels and use an up-to-date address verification tools as early as possible.

8 8 POSITION PAPER Security Compared to local distribution, goods distributed internationally will pass more hubs and transport lanes. More handling increases the risks for damage, loss and theft. Moreover the more complicated the supply chain and the more parties are involved, the more difficult it becomes to find out who is responsible for the damage, loss or theft. Strong packing materials are no luxury, and can be of utmost importance for certain product types (e.g. electronic equipment, luxury goods, ) in order to reduce the risk for damage. A standardized track and trace system would increase direct costs, but give a strong and reliable means of securing the total e-commerce logistics chain and consequently reduce risks. A possibility for standardization could be the EPC (Electronic Product Code) Information Services (EPCIS), which is an EPC global standard designed to enable EPC-related data sharing within and across companies. EPCIS can serve as a layer for sharing and/or storing information in a supply chain. By utilizing EPCIS standards, a world of different data capture solutions open up, ready to provide information more or less out of the box. In this way information can easily be shared among different systems, having EPCIS as the one and only real truth about the different objects floating around in the world. RFID (Radio Frequency Identification) and RTLS (Real Time Location Systems), be it on transportation unit level (e.g. truck, van) and/or parcel level, could also give standardized technological solutions for an improved and European based track and trace system. Taxation B2C online sales are subject to European VAT (Value Added Tax) requirements. Web merchants are held liable by the respective national tax authorities for the calculation, reporting and payment of V.A.T. in each country. For sales across the EU local, national V.A.T. rates are applied until the turnover threshold for the destination country is reached. Each EU member state has defined its own threshold. When the annual threshold is reached, webhops become liable for V.A.T. legislation in the respective destination country. The lack of a common European VAT system is one of the biggest problems for online cross-border sales. The complexity of cross-border e-commerce influences cross-border competition. Ecommerce Europe therefore supports the conclusions of the European Parliament report on the simplification and modernisation of the EU VAT system. Business start-ups and SMEs in all Member States need a One Stop Shop, a central contact point for questions on European VAT, tax and legislative issues available in every state. The One Stop Shop could help SMEs and start-ups in cross border sales and VAT issues. For further VAT recommendations see Ecommerce Europe s proposal for sustainable growth, position paper on e-regulation. Recommendation 5: Simplify and modernize the EU VAT system. Create One Stop Shops for VAT issues. And as a result: becoming more sustainable A more appropriate design and integration of the total supply chain for cross border e-commerce, starting with the packaging of the products at the e-fullfilment centre and through all subsequent transportation and delivery flows would have a very positive effect on transportation costs and sustainability (e.g. more efficient networks will lead to better load factors, transport avoidance because of unnecessary second delivery attempts or returns, etc.). Promoting development and implementation of optimized and sustainable delivery logistics will lead to more energy savings, waste reduction and a global reduction of negative externalities.

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10 This paper has been published in co-operation with Dinalog (Dutch Institute for Advanced Logistics) Ecommerce Europe Rue d Accolay 15 box 6 B-1000 Brussels - Belgium Tel: +32 (0) Website: Contact us at

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