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Asia has become a hotbed for eCommerce expansion with its mobile-first population and rising middle class. A research by Statista has confirmed the significant growth in this lucrative region, with projected revenue reaching US$1,354.00 billion in 2023 and a forecasted annual growth rate of 9.94% from 2023 to 2028, resulting in a market volume of US$2,175.00 billion by 2028. China is a dominant player, contributing to a projected market volume of US$931.10 billion in 2023. The user base is expected to reach 2,033.0 million users by 2028, reflecting a user penetration of 38.2% in 2023 and a projected increase to 47.3% by 2028. The average revenue per user (ARPU) is anticipated to be US$1.00k.
In this article, we will briefly discuss Asia’s eCommerce opportunities and why you should consider international shipping, also known as cross-border shipping, to meet the region’s growing demand.
There are multiple trends4 driving Asia’s growth in the eCommerce market place, increasing internet penetration via smart phones and a rising middle class of young people aged under forty means there are now more people online who have more money to spend. In addition, there is a shortage of major retail establishments like shopping malls in many areas.
These trends lead them to look for a wider variety of higher quality of goods and services online. People also prefer overseas online stores such as Shopee, Lazada and Amazon for better service such as free shipping and product return services.
In 2030, it was anticipated that Indonesia's e-commerce market would see a substantial rise in online retail sales, reaching approximately 160 billion U.S. dollars—an increase from 58 billion U.S. dollars in 2022. Predictions indicated that Indonesia could constitute over 42 percent of the Southeast Asian e-commerce market by 2030, driven by a burgeoning middle class and heightened internet accessibility. Other noteworthy emerging markets in the region were expected to include Malaysia, the Philippines, Thailand, and Vietnam.
Considering the size of the opportunity, finding a way to fulfill demand from overseas markets is worth considering. In order to fulfill this demand, we will look into cross-border shipping and local distribution models.
Cross-border shipping occurs when goods are transported from one country to the next, with no inventory being stored in the destination country. The goods will go through customs and import duties may have to be paid depending on existing trade agreements and de minimis values. In the case of cross-border eCommerce, cross-border shipping only needs to occur when a sale has been made.
As an alternative to cross-border shipping, creating a traditional local distribution model involves setting up warehouses and managing fleets to manage deliveries in the destination country. Often, this is done to reduce shipping times when orders arrive as the inventory is kept closer to the country. It is vital to estimate demand carefully to prevent stock-outs or oversupply.
Holding on to inventory at any given moment involves certain risks. This risk is known as inventory exposure, which comes from inventory storage costs, spoilage costs, and obsolescence. Setting up logistics systems in other countries also involves initial investments in operations like warehousing.
While it is tempting to keep inventory closer to your customers, creating your own local distribution model requires a lot of initial investment. Setting up and maintaining offices, import licenses, and warehousing to handle your inventory is an expensive investment. In addition to this, each component mentioned could lead to higher operating expenditure compared to cross-border shipping. This could be risky if demand for your item turns out lower than anticipated.
In addition to the high initial investment, each component mentioned could lead to higher storage costs and operating expenditure in the target country compared to cross-border shipping. This results in inventory exposure in that market, which is risky if demand for your item turns out lower than anticipated.
With the cross-border shipping model, your inventory exposure will not be as high as a local distribution model if you run a centralised logistics model. This is because storage costs are incurred only in the origin or hub country with a centralised logistics model.
On top of that, shipping costs are only incurred when sales have been made when using a cross-border shipping model. Therefore, you’ll have guaranteed revenue on each parcel that you ship to the target country. This makes cross-border shipping a cheaper and more flexible logistics option when initially entering new markets.
Your inventory will run the risk of becoming obsolete with either model, so it is vital that you have strong data to estimate demand in your target country. It could be a good idea to test demand via cross-border shipping first before making any heavy investment commitments when you are expanding to new markets.
Using a local distribution model can involve high amounts of initial lead time. In some countries like Indonesia, it could take around 6 months before you obtain your import license that is compulsory for a local distribution model, and more time is needed to establish teams, warehouses, and fleets. This slower time-to-market could cost you potential sales.
Existing cross-border shipping partners have logistical infrastructure, licenses, and expertise already in place. This can reduce logistics set-up time to that of researching the right partners and registering with them, improving the time-to-market for your products which is key in a fast-paced environment.
Local distribution models are usually limited to the geographical area the hub is situated in, and setting up additional supply lines to rural areas will take time. This could slow down sales expansion plans.
By using cross-border shipping, your goods can reach even rural parts of various target countries depending on how extensive your cross-border fulfillment partner’s network is. By registering with the right partner, you will have access to multiple countries with relatively short set-up time.
With its lower initial investment, faster time-to-market, and potential geographical reach, cross-border shipping offers a flexible and effective way of serving the region. As a result, cross-border shipping is more suitable for testing demand in the market compared to using a traditional local distribution model.
Tapping into Asia’s eCommerce market through a cross-border model may be lucrative, but also challenging.
Customs paperwork tends to be long and complicated, especially in Asia where each country has different customs laws. Last mile delivery is challenging in places with underdeveloped infrastructure. Also, some regions prefer not to use online payment methods, which may scare away potential customers who are not comfortable with paying by credit card or online banking.
Many challenges can be overcome with a little bit of help and planning. Asia’s eCommerce potential has drawn newer logistics partners to the table who aim to solve these issues. When seeking out a logistics partner, look out for those who can help with the following
While ASEAN countries are part of the same trading bloc, each have their own customs regulations. When shipping to multiple ASEAN countries, staying up-to-date on all their changes to customs regulations could be difficult and time-consuming.
There are logistics companies which specialize in or offer help in navigating these regulations. Some of them also have automated processes to ensure that your paperwork is up-to-date and complete. This helps your shipments move smoothly through customs, ensuring on-time delivery and satisfaction
Some customers could be in rural or hard-to-reach areas, where larger forwarders could charge high premiums to ship to. Logistics companies with strong partners or have developed infrastructure for rural areas can help overcome last mile delivery challenges at more competitive rates.
Manually tracking the shipment through calls and emails and ensuring that each partner fulfills the delivery would distract from building your business and brand. Real-time tracking of the delivery progress of a parcel can help keep your customers less anxious about their delivery and reduce the chances of them contacting you to check on delivery statuses.
Finding a logistics partner with this capability can save you a lot of time and also provides customers with much needed assurance and transparency.
Managing multiple logistics partners at once to save on shipping costs could be a time-consuming and complicated exercise. Some logistics partners have software that allows you to manage your entire supply chain network on one platform, making it easy to manage your logistics partners. This is in addition to an online dashboard that simplifies delivery order submission in a hassle-free way, taking out much of the complexity in managing your logistics.
Not all customers in ASEAN countries have access to modern payment methods such as online banking or credit cards. iPrice’s report12 states that cash on delivery or bank transfers are popular payment methods offered by eCommerce players in Philippines and Vietnam. Having a logistics partner that can facilitate payment options that local consumers are comfortable with could lead to more sales.
In summary, cross-border shipping is a flexible and low initial investment way of fulfilling ASEAN’s upcoming demand for eCommerce goods. Rapid deployment and close to zero fixed costs makes this fulfillment model potentially more lucrative than the traditional local distribution model.
This distribution model can be helped by finding the right shipping partners who can save you a lot of time and effort. Having payment option flexibility and real-time tracking also helps give customers transparency and peace of mind. Reliable deliveries can build trust which is paramount in eCommerce. If you’d like more tips on finding the right cross-border shipping partners, check out our B2C shipping guide.
Today’s growing eCommerce landscape offers exciting opportunities to get involved in cross-border shipping. The rewards of entering cross-border eCommerce at this time is well worth the effort of growing your brand and looking for the right partners to grow with you.
Get in touch with Janio today to explore solutions to supercharge your eCommerce cross-border growth, come and have a conversation with us.
Interested in B2C Shipping to Asia? Read more below:
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