Cross-border online trade in Europe has become increasingly important in recent years. Of the 268 million European online shoppers, 200 million have already ordered goods abroad at least once. Studies also show that the importance of cross-border e-commerce will continue to grow since the Internet also enables smaller merchants to expand and enter new markets. However, some important factors must be taken into account that determines whether it will be a success or not. These range from marketing and the legal situation to shipping. In this article, we focus on logistics, which is one of the most important success factors in online trading. The importance of e-commerce fulfillment is also highlighted in an analysis by eMarketer on the subject of cross-border commerce. In the course of the study, 27% of the retailers surveyed stated that the delivery of the goods to the end customer represented the greatest challenge.
When expanding into other countries, many online merchants encounter difficulties in shipping their products across borders. The biggest challenges are the longer delivery times to the end customer and the correspondingly increased shipping costs. These obvious disadvantages, which are due to the long distance from the warehouse to the recipient, are particularly problematic with regard to local competition, which can offer better shipping conditions. As a consequence, to remain competitive, e-commerce companies need a clever fulfillment strategy.
A popular solution is the decentralized storage of goods in various fulfillment centers. It is no coincidence that online merchants with a strong logistics network are among the most successful companies in e-commerce. Amazon, Zalando & Co have realized early on that shipping to the end customer can be a competitive advantage and therefore they invest millions each year in the expansion of their logistics networks.
Nowadays, online merchants have the possibility to store their goods across borders and optimize their fulfillment - without having to invest millions in logistics - more about that later. In this way, online orders can be sent from the fulfillment center in the respective destination country by maximizing the proximity to the end customer. This provides two decisive advantages: Reduction of shipping costs and delivery times. The following section explains why this is so important and what you have to pay attention to when internationalizing your logistics.
Today, shipping costs have almost become a no-go for web shoppers. A study by PayPal shows that 25% of Internet shoppers are deterred from ordering abroad by high shipping costs. In addition, the increased delivery time of the package also has a negative impact on the conversion rate of an online shop. This means that as an online retailer you are more or less forced to carry the shipping costs for the buyer and therefore have to include them in the product price.
However, at the same time, you don't want to discourage potential customers with high prices and have to look for ways to minimize shipping costs. By storing the goods in a fulfillment center in the destination country, you can achieve exactly that and reduce the delivery time as well.
By cooperating with a suitable fulfillment service provider in other countries, an online retailer can also benefit from the country-specific expertise of the partner. He possesses relevant knowledge of local customer preferences with regard to delivery options. When sending orders to customers, it is important to remember that they may vary from country to country. For example, especially Scandinavians and French people like to have their parcels delivered to a parcel shop. Here, you can find more information about the 7 most popular parcel shipping companies in UK and Netherlands' top parcel shipping providers, and the best delivery companies in Germany and France. Moreover, there are also country-specific expectations regarding shipment tracking options.
In addition, one should also know which local parcel service providers are known for good quality and are therefore preferred by consumers. According to a study by DHL Express in which online merchants were surveyed, the reliability of shipping partners is one of the biggest challenges in the field of international logistics.
It is now well known that simple return shipping plays an important role in online shopping. This is also confirmed in the study carried out by PayPal. It shows that 22% of online shoppers pay close attention to the return conditions when purchasing products on the Internet that are delivered from abroad. For this reason, online merchants should ensure that the return shipment can be handled easily and take into consideration that they can benefit from a good customer service when questions arise.
As you can imagine, there is no general answer, but certain criteria that can be taken into account when making a decision. Especially from a logistical perspective, the number of storage units, also called SKU (Stock Keeping Units), plays an important role in cross-border e-commerce here. With numerous SKUs (e.g. more than 5,000) and for example 1,000 shipments in the destination country, a local warehouse will not be worthwhile for online merchants.
With increasing shipping volumes and correspondingly greater savings potential in shipping costs, dispatching orders from a fulfillment center abroad is becoming more and more attractive. However, this also depends on the products and the current shipping prices.
One strategy for successfully entering another target market with your online shop is to reduce the number of SKUs. Only those products with particularly high demand are stored in the fulfillment center abroad, in order to expand the product range step by step.
When shipping products from different countries within the European Union, online merchants face various challenges. Questions often arise, particularly with regard to the tax aspects that need to be taken into account. In order to prevent this, we have summarized the most important points you need to consider.
From the first product that you ship to a foreign warehouse within the EU, you must register for tax in the respective destination country and complete an advanced VAT declaration. In many cases, other obligations are added to this, but these depend on the regulations in the respective country.
The shipment of the goods to your foreign warehouse in the European Union is referred to as an Intra-Community transfer and is reported in the country in which the delivery starts. This is relevant from a sales tax point of view, as the EU documents the flow of goods within the Union in order to curb tax evasion - Intra-Community transfers, however, are tax-free and do not require any payment. In addition, you must write a recapitulative statement.
A pro forma invoice must be created for each tax-free Intra-Community transfer. On the invoice, you are on the one side the sender, with your address and VAT identification number from the country of origin, and at the same time, with the address of the fulfillment center abroad and the VAT identification number in the respective country, the recipient. The pro forma invoice must also contain the following information.
If you as a merchant deliver the goods in the country of the fulfillment center, you must declare the reception of the goods as an Intra-Community purchase in the advance VAT return of the respective country. The purchase of the products is subject to the VAT, but the VAT can be refunded immediately through input tax deduction and therefore no payment has to be made.
Above a certain value, as an online shop, you have to submit additional Intrastat declarations that monitor the actual movement of goods between the EU member states.
Until the end of 2019, it was possible to submit a VAT identification number after having delivered the goods to another EU member state - as long as there was no risk of tax evasion. In the coming years, however, a major VAT reform will be carried out in the EU. In the first step, so-called quick fixes were implemented that started 01.01.2020. As an online merchant, you will be obliged to possess a VAT number at the time of delivery to another EU member state. More information about the changes can be found here.
If you have further questions about tax aspects that you have to consider as an online trader, then please have a look at our colleagues from Taxdoo. With their software, you can automate the process of VAT compliance.
As you can see, the expansion abroad with an online shop is associated with many challenges. Logistics, in particular, poses a major hurdle for many e-commerce companies when it comes to cross-border e-commerce. If the shipping volume increases and the number of SKUs are kept within limits, it is worthwhile to store the goods across borders in an additional fulfillment center in order to reduce shipping costs and delivery times. Within the European Union, too, tax aspects must be taken into account when storing products in other countries.