International markets present an enormous opportunity for direct-to-consumer brands. It's never been easier to market and sell products abroad, but international order fulfillment is expensive, leaving many companies wondering how to lower international shipping costs and accelerate growth efficiently.
In this blog post, we'll explore ways to reduce fulfillment costs when expanding internationally to ensure you're running an efficient (and profitable) global business.
To summarize, we'll cover:
- How localized warehouses reduce shipping costs
- How localized warehouses allow you to pay less in duties, customs, and tariffs
- How cheaper shipping options at checkout reduce cart abandonment
- How to improve customer experience through shorter delivery times
- How you can provide better return options for customers
Localized warehouses: The cheapest way to ship a package internationally
There are several strategies that can be used to lower international shipping costs, but the best is to localize fulfillment by using a 3PL with international warehouses. When ecommerce companies position their products closer to their international customer base, they drastically reduce the distance orders need to travel to reach their destination, and avoid paying customs duties and tariffs on each order. Executed well, a localized warehouse strategy can lower international shipping costs by up to 85%, bringing the cost of sending a standard DTC package down from as much as $40 to as little as $5.
The potential savings are huge because when a brand ships from within the order's destination country, it effectively converts an international order into a domestic one. This means you can charge local shipping costs, which are invariably lower than international shipping rates.
In the end, this significantly reduces the shipping cost and time in transit on each order–a win-win for your company and your customer.
Pay less in duties, customs, and tariffs
One of the most intimidating aspects of international ecommerce shipping is navigating the intricate world of customs duties and tariffs. These fees can significantly inflate shipping costs, making your products less competitive in international markets. But using local warehouses can help you significantly reduce or even eliminate these extra fees.
When you bring your inventory into an international warehouse, you pay import fees once instead of paying these fees on every order, which can make a remarkable difference to your bottom line. This is especially useful in countries with regional agreements, like those in the EU. Favorable trade agreements between these nations will save your company on international shipping costs even if you're shipping outside of your fulfillment center's country, as long as your orders originate within the EU.
Improving the customer experience and minimizing cart abandonment for international shipping
When customers see the total cost of their order jump significantly at checkout due to shipping fees and other extra charges, they're more likely to abandon their cart. In fact, a study by the Baymard Institute found that 48% of consumers reported abandoning a purchase at checkout because of extra costs like shipping, taxes, and fees.
This not only equates to a loss in immediate revenue, but also inflates your customer acquisition cost (CAC) and marketing spend per dollar earned. Without reasonable shipping costs, promoting your product abroad is money wasted.
Localized, international fulfillment centers can reduce cart abandonment by offering three key benefits to your customers:
- Passing shipping cost savings along to your customers
- Accelerating order delivery times
- Providing better return options to international customers
Passing shipping cost savings along to your customers
Localized fulfillment reduces your shipping costs and allows you to pass these savings on to your customers, making your products more appealing in international markets. This strategy can significantly enhance your competitive edge and increase global customer retention.
When you're sending packages across international borders, you have two options: Delivered Duty Paid (DDP) and Delivered Duty Unpaid (DDU). The difference between the two is simply when duties are paid–upfront, before the package is shipped, or at the time it arrives. As an ecommerce brand, you can pass on the costs of international shipping to your customers either way, or you can choose to ship DDP and cover the costs for your customers.
With localized warehouses, your orders will have a shorter distance to travel–so if you are passing shipping expenses on to your customers, they'll see significant cost savings. Compare, for example, the cost of shipping the same package from the U.S. to Paris, or the UK to Paris. The cost of shipping in the first scenario may be more than the product being shipped; in the second scenario, it's likely to be a much more reasonable (and palatable) price, and the customer is more likely to follow through on their purchase.
Alternatively, you may choose to offer a free shipping option to your customers across the board or if they meet a certain spending threshold. When that package is traveling overseas, this is almost certainly cost-prohibitive–but when you're shipping from the same country or one nearby, it's more likely you'll be able to offer this perk to your customers.
Accelerating order delivery times
Delivery speed is one of the most essential factors in ecommerce fulfillment, as it can make or break your customer's experience. Using localized warehouses helps you get orders to customers faster. The packages have a shorter distance to travel and fewer handoffs to different couriers, greatly reducing the likelihood of late, lost, or damaged packages.
A faster, more reliable delivery service makes your customers happy and solidifies your brand reputation in international markets. And satisfied customers tend to be repeat purchasers, driving retention up and CAC down.
Providing better return options to international customers
One of the challenges DTC brands often face with international shipping is the inability to offer convenient return services because it's too expensive and logistically complex. Allowing international customers to return their purchase is much more feasible when order is going back to a local warehouse, as opposed to crossing the ocean.
This matters because shoppers are understandably wary when placing an order online, since they can't interact with the product in a tangible way before they buy. And when 60% of online shoppers read the return policy before making a purchase, you can bet that some portion of them will abandon their cart if they discover all sales are final.
Having a local warehouse in the customer's country makes returns faster, reducing operational costs and ensuring customers receive timely refunds. The more straightforward returns are, the more likely consumers are to take a chance on your product–and potentially become repeat customers.
