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Supply Chains of Cross-Border
e-Commerce
Arkadiusz Kawa
Abstract A feature of e-commerce is worldwide coverage. Almost any person or
company can be a customer of an online shop. However, this common availability
is in practice quite apparent. Despite the dynamic development of e-commerce,
communication in other languages, the form of payment, currency, legal and tax
conditions, as well as the delivery of products remain barriers to the free
cross-border flow. The article focuses on the last factor mentioned above. The lack
of delivery of goods to a distant place or a relatively long time and high cost of
providing the purchased product hinders further development of e-commerce. This
problem can be solved by introducing an intermediary that consolidates shipments
from many retailers and delivers them to many clients scattered in different corners
of the world. The main contribution of this article is to develop a model facilitating
cooperation between online shops dealing with cross-border trade. The purpose of
the idea is to reduce costs and accelerate the delivery of goods ordered abroad via
the Internet.
Keywords e-Commerce ⋅Cross-border ⋅Supply chain ⋅CEP (courier express
and postal) industry
1 Introduction
The rapid development of the Internet, and thus also e-commerce, has created new
distribution channels for many trading, service and manufacturing companies.
According to the European Commission, e-commerce is one of the main factors
leading to better prosperity and competitiveness of Europe. It has significant
potential that may contribute to economic growth and employment [2]. It is
expected that its further development will have far-reaching effects, perhaps even
A. Kawa (✉)
Poznan University of Economics and Business, al. Niepodleglości 10,
61-875 Poznan, Poland
e-mail: arkadiusz.kawa@ue.poznan.pl
© Springer International Publishing AG 2017
D. Król et al. (eds.), Advanced Topics in Intelligent Information
and Database Systems, Studies in Computational Intelligence 710,
DOI 10.1007/978-3-319-56660-3_16
173
exceeding the changes that concerned trade over the past several decades. Physical
presence while shopping is becoming less and less important. Customers buy
products, placing orders electronically, and the purchased goods are delivered to
their workplaces, homes, click and collect points and parcel lockers. Placing
ordering in this way replaces the trip to a store, and the delivery of the consignment
eliminates the way back with the purchased goods.
In contrast with traditional trade, online shopping is inseparably associated with
the delivery to the final customer (so-called last mile), i.e. the most complicated and
costly process in the whole supply chain. Internet retail businesses carry out a very
large number of small orders. Unfortunately, there are delays in deliveries about
which buyers are not informed at all. Customers often do not have too much
influence on the choice of the company that will deliver the goods, either. The
delivery of the goods is most frequently performed by CEP (courier, express and
postal) companies.
Additionally, more and more attention has recently been paid to expanding
business activities beyond the borders of a single country. Sellers look for new
buyers abroad, while customers want to have a greater choice of suppliers. A trend
in e-commerce arises, then, which is defined as cross-border trade. It is particularly
evident in the countries of the European Union. It is based on selling products to
customers who are located in another country. However, it is related to several
problems, such as a high cost and long delivery time, language barriers, different
legal regulations and taxes, etc. [8]. The high cost and long delivery time are, in
turn, associated with the aforementioned problem of the last mile, but also with the
problem of the relatively small flow of goods between countries which is realized
by a single CEP operator. So the economies of scale do not take place yet.
Therefore, there is a real need to offer e-commerce to retailers and to, indirectly,
recommend comprehensive services to their customers, which would include, on
the one hand, logistics services in Europe, and, on the other hand, full information
on the quality of the service.
The aim of this article is to develop a model of an intermediary facilitating
cooperation between online shops dealing with cross-border trade. This model is
expected to contribute to cost reduction and acceleration of the delivery of goods
ordered abroad via the Internet.
The structure of the article is as follows. Section 2describes the electronic
cross-border trade in Europe. Section 3presents logistical problems in e-commerce.
Section 4proposes the above-mentioned model. Section 5summarizes the article
and points to future directions of the research.
2 Cross-Border e-Commerce in Europe
Currently, e-commerce can be divided into several trends in the field of logistics,
which will determine further development of the CEP industry. These are: reverse
logistics, same-day delivery, development of new models of cooperation in logistics
174 A. Kawa
(dropshipping, fulfillment, one-stop e-commerce), broker services and cross-border
transport [7]. This article focuses on the latter trend.
Cross-border e-commerce still has a relatively small share in the whole market of
e-commerce. In 2014, approx. 15% of the EU inhabitants made a purchase from
sellers from a different country. This represents an increase in the share of this type
of trade by 25% compared to the previous year. Not everywhere, however, is
cross-border e-commerce equally developed. For example, in 2014 only 4% of
Poles made a purchase on the Internet from a seller located in another country,
which placed Poland on the penultimate place in the European Union. Most foreign
shopping is done by Luxembourgers (65%) and Austrians (40%), and the least by
Romanians (1%). The EU average is 15% [1].
The total value of the commodity circulation in e-commerce within individual
countries and among the EU Member States is estimated at about €241 bn. Of this
amount, €197 bn (80%) are traded on domestic markets. Only about €44 bn (18%)
cross the borders between the EU Member States, and another €6 bn (2%) come
from import from countries outside the EU [9].
It can be seen from these data that the potential of electronic cross-border trade
within the EU still remains unexploited. Only 8% of companies are involved in
cross-border selling. Managers of these enterprises argue that it is too complicated
and too expensive. As part of the efforts to unleash the potential of e-commerce, the
European Commission has adopted a package of proposals to stop the unjustified
geo-blocking, increase the transparency of package delivery prices, and improve the
enforcement of consumer rights [4].
3 Logistics Problems of Cross-Border e-Commerce
The logistics of products offered by online stores is one of the basic factors
influencing the consumer’s decision about making purchases in them. Deliveries and
product returns are one of the most important issues for both online shoppers and
online stores in the EU. The European Commission indicates that the problem lies in
particular in cross-border deliveries of packages realized for the needs of small and
medium enterprises and those sent to the less developed and less accessible regions.
Therefore, it puts a lot of effort into increasing the availability of e-commerce for all
EU citizens and businesses, regardless of their size and location [2].
Another problem is the relatively little access to information about the CEP
market, in particular about the available services, operators and prices. Many
customers know only certain operators whose services they could use. In the case of
cross-border transport, they can choose between an international courier service or a
common service provider, so the postal operator. This makes it difficult for new
entrants to gain market share and reduces the competitive pressure on the existing
operators, which in turn limits the incentives to improve the service quality and
leads to higher prices [6].
Supply Chains of Cross-Border e-Commerce 175
Currently, online stores selling their products abroad incur a very high cost of
shipping—depending on the country it is up to 5 times higher than the cost of a
consignment realized within the country. The lower price of the product sold does
not often compensate for the cost of delivery, which discourages buyers from
abroad. It is one of the greatest barriers to the development of cross-border trade
conducted via the Internet [5]. Consumers and small enterprises claim that the
problems with the delivery, in particular the high prices, prevent them from
increasing the sales or purchases in other Member States. Foreign exchange in
e-commerce could be completely different if these costs were significantly reduced.
Apart from the cost of delivery, another barrier to the development of cross-border
e-commerce is the delivery time. It results mainly from the distance between the
vendor and the customer. In most cases (mainly outside the border regions) it will be
much greater than in the case of domestic shipments. In international trade, shipments
often have to undergo additional operations, go through a greater number of hubs and
branches, which further prolongs the time of delivery [8].
Operating activities of CEP companies are based on the hub and spoke concept.
It is a system used for the distribution of small size or weight loads. In contrast to
direct deliveries, hubs are used that connect the individual places where shipments
are posted and received. The hub and spoke (H&S) concept minimizes storage costs
and reduces the individual costs of transportation. Although a single consignment is
transported over a long distance, the total distance for all shipments counted sep-
arately is shorter than in the case of direct deliveries. This solution works very well
for a large number of items that are posted and received in multiple locations. An
example is distribution within a country where most large cities are connected with
one another by means of one or more hubs. Figure 1illustrates the delivery dis-
tribution system within a country X using the H&S system. In this case, customer A
places an order for selected products at store S. In the next step, S performs pick
and pack operations, and orders a courier service from company C. The courier
collects the shipment and delivers it to the local cargo terminal C1X. Then, the
consignment, together with items from nearby cities, is transported to hub C.
Shipments from all branches across the country are delivered to hub C. They are
then sorted and transported by linehaul (usually at night) to local branches. In this
case, the merchandise goes to local cargo terminal C2X. In the morning the ship-
ment is picked up by a courier from the local branch and delivered to customer A.
As is shown in Fig. 1, the distance travelled by a shipment is much longer than
in a direct connection from point S to point A. This extends the delivery time, but
significantly reduces the unit cost thanks to the consolidation with other consign-
ments. Customers must wait for the ordered goods until the next working day, but,
in return, the cost of delivery is a dozen to several hundred times lower than in the
case of direct delivery.
A problem with the H&S system occurs in the case of routes along which few
consignments are transported. Underutilization of the vehicle cargo space causes
176 A. Kawa
the unit cost of transportation to increase significantly. Moreover, in the case of
small packages (which prevail in e-commerce) the total cost of delivery rises
considerably when the consignment passes through many local terminals and hubs.
It is associated with additional costs of sorting and handling. Such a complex and
costly system occurs in the case of cross-border transportation.
Figure 2presents the route of delivery of the goods ordered by customer A in
store S. In relation to Fig. 1, here hub CY has been added. Although points A and S
are close to each other, the product passes through the individual points in the H&S
system, which increases the total cost of the delivery. Due to the fact that there is a
very little flow of goods between the CX hub and the CY hub, the cargo space in
the means of transport is not fully utilized. In addition, the freight rates in inter-
national transport are higher than in domestic transport. Furthermore, relatively
little competition (there are only a few enterprises) in express cross-border deliv-
eries causes the CEP operators to use their bargaining power. It all makes the cost
of cross-border delivery several times higher than that of distribution within a single
country. This discourages customers from ordering goods from foreign online
stores, which deepens the problem of under-used cargo space. Therefore, a solution
is needed to overcome this problem, reduce the number of the sorting and handling
operations, and thus reduce the costs of cross-border deliveries.
A
S
HUB
CX
C1
X
Customer
Online shop
C2
X
Fig. 1 Hub and spoke
system in distribution within a
single country
Supply Chains of Cross-Border e-Commerce 177
4 Exemplification of the Model Facilitating Cooperation
Between Online Shops Dealing with Cross-Border
Trade
Figure 3shows a simplification of the cross border e-commerce market. There are
two online stores located in country X (S1 and S2) and two customers in country Y
(A1 and A2). A1 orders a product in shops S1 and S2, and A2 orders in S2. The
stores are separately served by two independent CEP operators (C1 and C2). C1
delivers the shipments to A1 through its H&S system, while C2—to customer A2.
C2 benefits from the economies of scale [10] and delivers the goods together to A1
and A2 from point S2 to hub C2Y. Then the shipments are separated and delivered
to points C2Y1 and C2Y2.
In the case of a small flow of shipments between hubs C1X and C1Y, C2X and
C2Y such a system of distribution of goods in cross-border e-commerce is inef-
fective. Relatively high costs of delivery of products to customers appear due to the
underutilization of the cargo space and a large number of the sorting and handling
operations.
A
S
HUB
CX
HUB
CY C1
X
C1
Y
Customer
Country XCountry Y
Online shop
Fig. 2 Hub and spoke system in distribution between two countries
178 A. Kawa
This problem can be solved by introduction of an additional entity to the
cross-border e-commerce in the form of a consolidator. In the literature, such an
entity is defined as the fourth party logistics (4PL). It manages the flow of infor-
mation between the supplier, customer and logistics service provider. The con-
solidator proposed in this study acts like the CEP brokers, already present on a
number of national markets for several years. The difference between them is that
the broker only wins transport orders and passes them on to the CEP operator which
decides how to transport the consignments; the consolidator, in turn, additionally
selects the carriers for the service. The consolidator does not possess any means of
transport. It can be said that it configures a temporary supply chain for the needs of
a single transaction.
The consolidator has a website which enables to find offers, compare them,
monitor shipments and make payments. However, the consolidator automates their
business with continuously cooperating customers by providing the API (applica-
tion programming interface) and integrating with sales platforms. Such platforms
group and systematize up-to-date information about CEP services and prices, which
helps make the decision about the company that delivers shipments. On the basis of
specific criteria such as the place of origin and delivery, dimensions and weight of
HUB
C2Y
HUB
C2X
S2
A1
S1
HUB
C1X
HUB
C1Y C1
X
C1
Y
C2
X
C2
Y1
A2
C2
Y2
Customer
Customer
Online shop
Country XCountry Y
Online shop
Fig. 3 Hub and spoke system in distribution between two countries with two customers and two
online shops
Supply Chains of Cross-Border e-Commerce 179
the parcel, the user is given appropriate cross-border transport offers by the system.
The consolidator’s system automatically recommends the shipping options that are
adjusted to the ordered products to the customer of the online store. For example,
for a larger package courier or mail services are suggested rather than delivery to a
parcel locker. Depending on the planned date of delivery, the system may offer
different prices. Express deliveries by air freight will be more expensive than the
economical road transport.
Moreover, the system automatically generates the shipping documents (picking
list to the warehouse, labels to be stuck on packages), monitors the realization
process and informs the e-seller and the customer about the current status of the
delivery.
For customers, besides time, certainty of delivery of the product is important.
Ordering in foreign stores, customers express concerns not only about when, but
also whether at all and in what condition they will receive the shipment. They must
therefore have constant access to the information about where the consignment is
located and what the expected date of delivery is. This will be possible thanks to the
track and trace system.
The consolidator does not need to invest in infrastructure, because it uses the
resources of other organizations. Its key task is the right choice of carriers assigned
to the individual routes and time synchronization of the operation of individual
vehicles in the region and between regions and of the work in the terminals and
hubs. The consolidator, collecting orders from a number of senders, becomes a
“big”customer of courier and postal companies. This increases the bargaining
power and allows to get much better cooperation conditions than individual cus-
tomers are offered, sending small numbers of shipments.
Managing the consolidator‘s activities organized in this way requires application
of complex IT systems. Such a system should integrate all the terminals and hubs of
many different logistics service providers. This requires interoperability between
the systems, and so mutual access to necessary data. In addition, standardization of
the processes and the used infrastructure is needed. For example, shipments are
transported in certain loading units, and the barcode labels describing the shipment
(details of the sender and recipient, terms of delivery, etc.) must be processed by the
various entities dealing with the shipments.
All the data concerning the shipments and carriers are placed in a data cloud by
the consolidator. This ensures access to the system for all stakeholders anywhere in
the world. Moreover, each driver is equipped with an electronic device which is
used to scan the code from the shipment, receive information about the shipment
and send the data.
Customers of consolidators may mainly be micro, small and, partially,
medium-sized companies that run their business on the Internet, i.e. online shops
and sellers at online auctions.
Figure 4shows the pattern of a consolidator’s operation in cross-border
e-commerce. In every country it has access to the hubs (IX and IY) which are
180 A. Kawa
connected to the local terminals. In practice, this may be more than one hub, and
they may belong to more than one CEP operator. Hubs between individual coun-
tries are connected by linehauls. The process in Fig. 4differs from the one shown in
Fig. 3in that stores S1 and S2 are operated by one consolidator I which selects
appropriate carriers to collect shipments from shops S1 and S2 and deliver them to
hub IX through the terminals of these carriers—I1X and I2X. Then, the consoli-
dated shipments are transported from the IX hub to the IY hub. Loads from shops
S1 and S2 are transported to customers A1 and A2 by a single means of transport.
Organization of the transport between the hubs is done by the consolidator, but it
can also be done by the CEP operator itself if it is a better solution. In the next step,
unloading, sorting and shipment of goods from the IY hub by local courier com-
panies (IY1 and IY2) to customers A1 and A2 takes place. As a result of this
process, hubs C1X and C1Y and the carrier terminal C1Y have been eliminated
(compare Figs. 3and 4). This makes it possible to achieve the benefits in the form
of fewer handling and sorting operations. Thanks to the selection of offers com-
petitive to those of the CEP operators by the consolidator the costs of transportation
between the terminals and hubs can, in turn, be reduced.
HUB
IY
HUB
IX
S2
A1
S1
I1
X
I2
X
I1Y
A2
I2Y
Customer
Customer
Online shop
Country XCountry Y
Online shop
Fig. 4 Cross-border e-commerce with a consolidator
Supply Chains of Cross-Border e-Commerce 181
5 Conclusion
The model proposed in the study significantly reduces the number of the sorting and
handling operations. It solves the problems of the organization of international
logistics, and in particular the one with the high cost of deliveries, by consolidating
shipments from various senders depending on the country of delivery. This will
help to achieve the economies of scale—the CEP operator can offer better price
conditions for a larger number of shipments. Additionally, thanks to the support of
the supply chain by a single system it will be possible to track the shipments. Apart
from the possibility to lower the costs, the limited number of operations reduces the
risk of the goods being damaged during loading, unloading and so on.
Moreover, the proposed solution is consistent with the assumptions of the Green
Paper of the European Commission [3], according to which the attractiveness of
purchases made over the Internet is determined by three main factors: the price of
the product together with the cost of delivery, ensured quality of the delivery of the
product, and access to information on the order status. In addition, the European
Commission places great emphasis on integration of the systems of companies
throughout the whole e-commerce supply chain, particularly among smaller CEP
operators in the field of cross-border transport. Increased interoperability can
accelerate the exchange of information, facilitate the consolidation of the needs for
transportation, parcel delivery and invoicing, develop multimodal transport and
reduce administrative costs [3].
The study hereby proposed a general concept of cross-border e-commerce using
an integrator. The further direction of the research will be the development and
verification of the model in practice. For example, a larger number of countries can
be included in the model, the reverse logistics process may be added, or the
crowdsourcing solutions can be used for local courier services etc.
Acknowledgements This paper has been written with financial support of the National Center of
Science [Narodowe Centrum Nauki]—grant number DEC-2015/19/B/HS4/02287.
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