Making B2B E-Commerce Happen
By 2020, B2B e-commerce is expected to outstrip B2C e-commerce by a factor of two, reaching nearly US$7 trillion in annual sales. By ZVI SCHREIBER.
It’s 2020. Getting into work, Frank, a procurement manager at an electronics wholesaler, pulls out his cellphone, logs onto his favourite distributor’s website and sees an incredible deal on a lot of two dozen 62” ultra-super-high-def flexible smart TVs in Singapore. Sipping his coffee, Frank clicks ‘buy’ and is taken to the shipping page, where he instantly compares international shipping prices and durations from his three favourite forwarders. Before booking, he also scrolls down to check the reliability of the carriers in the quote, and the carbon footprint. Everything’s in order, so he selects airfreight and clicks ‘book’. Three days later, the TVs show up at Frank’s warehouse, faster and cheaper than ever and at exactly the cost he anticipated.
Sound like science fiction? Well, it may happen a whole lot sooner than 2020.
In just under 20 years, e-commerce has changed the global economy. Online purchasing has become the norm. Take airline booking, for example. In 1995, less than 0.5 per cent of airline tickets were booked online. By 2007, that number crossed the 50 per cent mark.
The value, speed and real-time availability of click-to-buy guarantees improved market penetration. Online purchasing continues to grow significantly every year, with eMarketer anticipating 17 per cent annual growth in the US every year until 2017, reaching US$2.3 trillion. And it’s not just happening in the US. The same study found that e-commerce growth in the Asia- Pacific and Latin America is set to surpass North America growth this year. Alibaba’s US$9 billion in sales in one day to Chinese consumers are the best proof for that.
SHIPPING: THE GREAT ENABLER
There was one key enabler for the explosive growth in B2C: global courier shipping. As Transport Intelligence’s 2014 Courier Express and parcel (CEP) report points out, fulfillment has become the hottest field, with break-neck innovation extending from one-hour delivery, anticipatory shipping, and better time predictability, to a slew of other features. However, one salient feature that CEP companies offer is at the heart of e-commerce shipping: instant, integrated shipping pricing. As a result, websites can easily quote shipping costs to the customer’s door, and deliver what customers order, leading to CEP revenue expanding as global e-commerce increases.
Advanced CEP capabilities have also opened global doors for e-commerce. Ninety-five per cent of global customers are located outside the US. Cross-border e-commerce is growing by a staggering 20 per cent per annum as growing global demand pushes for the advantages of online sales.
So B2C e-commerce, especially cross border e-commerce, had enjoyed explosive growth. This growth has been coupled with the growth of the couriers like FedEx, UPS and DHL. What about business-to-business?
It stands to reason that a procurement manager who downloads shows with Netflix, books trips with Expedia and Uber, and shops on Amazon would not be content with traditional, less transparent procurement patterns at work. While business consumption habits have been slower to adapt than consumer habits, change is inevitable.
By 2020, online B2B e-commerce is expected to outstrip B2C e-commerce by a factor of two, reaching nearly US$7 trillion in annual sales. B2B sites targeting the business market since the mid-90s are now starting to see their efforts pay off. For example, Grainger, an industrial supply company, now sees over 50 per cent of its sales take place online.
B2B buyer habits are echoing this trend. According to The Acquity Group, 94 per cent of business buyers will research products online. It’s not just research either. A growing percentage of buyers with budgets of over US$100,000 complete purchases online; in 2014, 66 per cent of buyers made single online purchases that exceeded US$5,000, up from 58 per cent a year before. Like the B2C e-commerce space, a positive online experience can push up to 71 per cent B2B buyers to change suppliers.
THE GLASS CEILING
But while B2B e-commerce growth mimics B2C online sales growth, shipping remains a key difference. B2B shipping usually involves significantly larger shipments that exceed size and weight limitations of CEP shipping. But as the scope of global freight shipping grows, with the World Bank tracking US$18.7 trillion dollars of global trade in 2013, freight routing, pricing and booking online lag far behind their courier counterparts.
Without the instant pricing that exists in courier shipping, B2B e-commerce websites can sell online but struggle to scale up fulfillment. Many customers refuse to buy online if they cannot transparently see the total cost including transportation.
Using mystery shopping techniques, Freightos set out to discover the state of the industry when it came to international freight pricing. Three fake import/export companies were created and over 60 doorto- door less than container load (LCL) freight requests were conveyed to the world’s top 15 freight forwarders. The results could hardly be farther from immediate pricing. Nearly 60 per cent of the quote requests were responded to but never resulted in a full price quote.
It took an average 76 hours to get each of the 21 quotes that were received. This doesn’t necessarily belay poor service either.
The 2015 3PL Study found that over 40 per cent of a freight salesperson’s time is spent swimming in data, trying to generate pricing. Routing and pricing is also a huge resource drain, with Arc Advisory Group assessing that non-automated routing and pricing costing up to 6 per cent more for freight forwarders.
Instant freight pricing is blocked by complex freight tariffs (a mid-sized forwarder can be juggling up to 200 different contracts), difficult routing, price volatility, and manual processes. But like with the rise of B2C e-commerce and CEP shipping, technology trends are advancing for B2B ecommerce fulfillment.
ROAD TO ONLINE FREIGHT
In order to automate online freight pricing and routing, forwarders need to combine three core pieces of technology: Rate management system: Advanced rate management systems can ingest a variety of freight contracts from multi-modal freight providers, incorporating all surcharges and tariffs in one unified database that maintains freight pricing information across an entire company.
Quote automation: Sitting on top of the rate management system, an automated quoting tool enables seamless searches across all freight contracts, leveraging big-data capabilities to search for optimal routes, pricing and mode mixes for shipments Online integration: Simply having the automated quoting functionality within a freight provider’s organisation, does not bring instant online quotes to the customers.
The solution needs to be able to be integrated externally, whether one-commerce provider websites or on the freight provider’s website.
Together, these elements can be used to propel freight providers along a four-step process to online e-commerce:
1. Internal automation: After uploading all rates into a rate management system, together with specific markups and pricing levels, freight sales and pricing teams can generate instant, door-to-door freight quotes, saving hundreds of thousands annually in time, and reducing those costly pricing inaccuracies, which Bloomberg found to cost the industry US$684 million a year.
2. Agent integration: Once pricing is automated internally, freight providers can share rates with their overseas agents allowing both parties to quote door-to-door, increasing sales and further reducing the cost of sale.
3. Customer quoting: E-commerce for freight provider does not begin with public quoting; it begins with freight providers enabling existing customers to log into their own website to generate spot or rate quotes based on existing contracts.
4. Enabling third party online e-commerce: Once the technology backbone is incorporated, integration into B2B ecommerce websites (in the same way that UPS is integrated into Amazon) is only a click away. After being integrated, online sales platforms can be a valuable source of instant low cost-of-sale logistics sales.
Freight providers making themselves into online e-commerce represent the holy grail of online freight sales. Full incorporation can enable the entire B2B e-commerce sector to ship globally, regardless of load size or type, without any freight sales downtime.
This can be a hugely lucrative source of income for both e-commerce companies, as well as freight providers, enabling both to tap into the US$6 trillion dollar B2B online e-commerce market. More importantly, it can function as an additional sales channel for logistics providers, while providing a key method for logistics providers to differentiate from their competition.
Technology for online logistics e-commerce is already here; so are online B2B buyers, like Frank, who we started off with. The only thing Frank is missing is the online freight providers so he can see the landed cost. Selling online directly from a logistics provider’s website, or integration within e-commerce B2B websites, is the future of freight.
B2C companies like Zappos, Amazon, Grainger and eBay have managed to crack the B2C and domestic fulfillment code and experienced exponential growth, buoyed by a growing global customer base. The B2B sector is next. For forward-looking forwarders, online sales will quickly evolve from a differentiator to a necessity.
Zvi Schreiber is CEO of startup logistics technology Freightos. He is a serial entrepreneur and has founded and led multiple high-tech companies, including companies acquired by global leaders like General Electric and IBM. At these companies, he had significant exposure to the freight world from the perspective of a shipper.
The lack of online automation and inefficiencies encountered ultimately served as a catalyst for creating Freightos in January 2012.
He studied in the University of Cambridge and Imperial College, earning a PhD in Computer Science.