Pitney Bowes and Borderfree together will extend their global reach.
Pre-packed freight forwarding options that consolidate customer orders to take advantage of cheaper freight transportation rates over parcel, provide the total landed cost before purchase, take care of all customs requirements and ensure full end-to-end tracking are increasingly popular.
One of the pioneers in this area is a company called Borderfree.
Pitney Bowes, a mail services and document-management company that increasingly offers a range of digital services, announced May 5 that it plans to buy former business partner Borderfree, an outsourced provider of cross-border e-commerce services, for about $395 million.
Companies like Borderfree offer Internet retailers the ability to add an international sales division without the need to develop digital sales, distribution or compliance infrastructure of their own.
The move underscores the growing importance of online and mobile sales for retailers and a shift in strategy to tap customers in overseas markets. Global e-commerce growth is estimated to increase 16 percent in 2015 from $1.47 trillion to $1.7 trillion, according to a March study by comScore commissioned by UPS. And PayPal has estimated cross-border e-commerce will exceed $300 billion by 2018, with 130 million international online shoppers.
According to the comScore survey, global shoppers said almost one in four of their purchases were made with online retailers outside their own country. Half of those purchases were made with U.S.-based retailers.
New York-based Borderfree, now publicly traded, is a 15-year-old company that started out providing electronic currency hedging for e-commerce transactions between U.S. retailers and international customers. E4X, as it was originally called, guaranteed the exchange rate in the respective currencies of the shopper so that the retailer and buyer were not exposed to the risk of currency fluctuations, or bank conversion charges, during the transaction.
In 2008, the company launched a new application to address the complexity of international fulfillment, allowing retailers to better manage total landed costs, fraud, customs compliance, payment processing, reliable delivery and returns processing. It changed its name to FiftyOne to reflect the idea of 50 states operating in one world and its new business model. In 2012, FiftyOne acquired Borderfree, another international e-commerce company, from Canada Post, and adopted the name in 2013.
Borderfree in January also acquired a company called DutyCalculator, a U.K.-based provider of cloud-based trade and customs compliance data services. DutyCalculator’s customers are located mostly outside the United States and use its tools to accurately classify products, calculate tariffs and receive current trade and customs compliance information for countries around the world. Borderfree said the acquisition reduces its need to source similar data from third parties and lower its transactional costs.
Today, the company supports sales from 170 retailers to more than 100 countries and more than 60 currencies worldwide. Clients include Macy’s, Neiman Marcus, Under Armour, Williams-Sonoma, Lands’ End and J. Crew. It generated $125 million in revenue last year, up from $13 million in 2010.
Many electronic retailers before the recession were slow to embrace overseas sales and simply screened out international hits to their sites because they did not have the processes in place to manage international transactions. Some tried to get by with global trade management systems that were designed more for companies moving containers between regular origin and destination points and have a relatively stable product mix. Others muddled through the complex process, forcing surprised customers to pay duties and value-added taxes upon delivery because they couldn’t figure out those variables a head of time. Many customers refused shipments, resulting in extra costs for disposal or transportation back to a warehouse, or never returned as shoppers. Some large “e-tailers,” such as Amazon built their own software applications to automate the international buying process and make exports cost effective.
The challenge is heightened for micro-businesses that use the Internet as their sole point of sale, Althea Erickson, policy director for Etsy, said May 12 at the U.S. Chamber of Commerce’s Global Supply Chain Summit in Washington.
Etsy is an online marketplace where people can buy and sell handmade and vintage goods from designers, artists and collectors around the world. It has 1.4 million sellers on the platform who together sold $1.93 billion worth of goods last year.
“The biggest challenge they face is that they don’t even think of themselves as exporters,” but as sellers who have to figure out how to get a product to someone in another country who bought it online, she said.
Finding information about denied parties and other customs requirements, being able to provide tracking and tracing for customers, understanding why shipments get held at the border, and knowing when to pay value-added tax are some of the primary difficulties small businesses face when shipping overseas.
Making compliance and logistics easy “is our No. 1 goal,” she said.
Borderfree specializes in plugging software into a retailer’s online store to create the look and feel of a domestic shopping experience for the foreign customer. It automatically configures the display in the language and currency of the nation the shopper is from, runs a credit check of the buyer, processes the payment, and then uses a network of customs brokers and freight forwarders to pay the customs fees and manage deliveries. The buyer sees an itemized list of products selected, import duties, shipping-and-handling fees, taxes and any discounts that may apply before executing the transaction.
The retailer simply puts the order in its domestic shipping network and its work is done.
When international customers enter their shipping and billing information they are really working with Borderfree and its partners without knowing it.
Until about three years ago, Pitney Bowes carried out the logistics work for Borderfree/Fifty-One. Pitney Bowes, however, retained the landed-cost calculation through its global trade engine, until Borderfree’s acquisition of DutyCalculator.
Savvy retailers will hide the duties and taxes in the price of the product itself to reduce confusion for the buyer, Jamin Dick, senior vice president of global supply chain for Borderfree, said on a panel at the U.S. Chamber event.
Pre-paid duty and taxes is dangerous for retailers, because “you can get burned really easily if you under-quote because you don’t know if [the shipment] is going express, or standard or postal, which port it is going into, how you declare it, and if the right data is in the transmission,” Dick said. “So it’s not easy, but when you get it right it’s very powerful.”
Upon acceptance of the shopper’s payment, Borderfree places the order with the retailer and actually takes possession of the product. That allows it to buffer the merchant from the currency exchange risk during the period from checkout until fulfillment is completed at the warehouse with an outbound shipment and the buyer’s credit card is actually charged. The customer then automatically receives a branded e-mail with order confirmation and online tracking information. The merchant charges the order to a credit card provided by Borderfree for payment in U.S. dollars and ships the item as a loose parcel or in a master container to a consolidator’s warehouse via its preferred carrier. Companies using drop-ship networks to sell something from a supplier can also instruct their supplier to send orders directly to a Borderfree-affiliate warehouse.
The consolidator receives the inbound domestic shipments and prepares them for cross-border transportation. It handles the labeling, packaging, customs paperwork, international transportation arrangements, delivery to the destination country address, and reverse logistics for returned goods.
Borderfree essentially acts like a third party logistics provider that manages a network of carriers doing the underlying work.
It makes its money by charging a commission based on a percentage of the sale that is built into the price the customer sees.
eBay also offers a shipping program for small businesses to make it easier to ship across borders, with Pitney Bowes carrying out the freight delivery behind the scenes. It basically is a pre-packaged freight forwarding option that combines software and transportation capabilities.
Competition for turnkey international e-commerce services is growing. SEKO Logistics offers a similar solution, marrying its logistics capabilities with a digital web platform on the sales side. And integrated logistics companies FedEx and UPS have bolstered their e-commerce offerings.
In December, FedEx bought Bongo International for $42 million to simplify e-commerce exports for e-tailers. Bongo, with a base of 2,000 retail clients in the United States and Europe, offers a comprehensive service that covers duty and tax calculations, export compliance management, harmonized tariff code classification, currency conversion, and international payment options.
“We anticipate global e-commerce to continue on a double-digit growth trajectory,” T. Michael Glenn, FedEx’s executive vice president of market development and corporate communications, said in a statement about the motivation for the deal.
UPS customers can also take advantage of a one-stop shop for e-commerce content, classification, payment, international mapping and logistics for retailers. In October, the Atlanta-based express parcel carrier and logistics company acquired iParcel to complement its backend logistics capabilities.
iParcel’s tool on a retailer’s website will localize the welcome mat, content and shopping cart so that shoppers in more than 100 countries can shop online in the United States and United Kingdom as if they were shopping in their own country. It also carries out the duty and tax calculation, currency exchange calculation, fraud checks and payment. And iParcel provides low-cost deferred international transportation to facilitate higher shopper conversion for merchants with lower-value products.
This article was published in the June 2015 issue of American Shipper.