Written by: Luisa RodriguezArticle No. 17 [UNCTAD Transport and Trade Facilitation Newsletter N°77 - First Quarter 2018]
E-commerce can be a catalyst for private sector development, increased trading opportunities and development gains. However, poor logistics remain a barrier to e-commerce growth of cross-border e-commerce of physical goods in many developing countries. This article explores some of these challenges through the lens of UNCTAD’s Rapid e-Trade Readiness Assessments of Least-Developed Countries (LDCs)[i].
The “Buy-Ship-Pay” model developed by UN/CEFACT describes business processes and parties in the international supply chain. Processes encompass ordering, paying and shipping of goods. A transaction will be considered as e-commerce if the ordering takes place digitally, whereas the payment and the delivery of goods may be conducted on or off-line. E-commerce also includes the purchase, through electronic means, of digital products (software, apps, e-books, etc.) and services (airplane or train tickets, insurance, etc.).
Product/service is offered
Purchasing a digital movie to watch on a tablet
Ordering a book on Amazon and paying it online
Ordering a book from eBay and paying for it using cash on delivery
Source: ITC (2017)
E-commerce can expand markets and improve efficiency as it facilitates direct sales, thanks to digital platforms. Indeed, e-commerce enables closer customer relations among different actors:
Transactions take place between businesses. Accounts for the bulk of e-commerce.
Businesses sell their goods/services to consumers who are also the end-users of these goods/services. Channels to reach consumers include: social networks, crowd sourcing platforms, dedicated e-commerce websites and mobile applications.
Consumers sell their goods/services to other consumers. It is like a modern version of classified ads in a newspaper or like going to an auction
Consumer to business (G2B)
Consumers post their offers (for goods/services) online (through an intermediary, for instance a portal), allowing businesses to buy these goods/services.
Business to Government (B2G)
Businesses sell goods/services to government entities, such as in public e-procurement
Source: UNCTAD (2015) and ITC (2017)
E-commerce mainly involves domestic transactions, linking suppliers and consumers through electronic platforms. However, the cross-border segment of the market is growing much faster than domestic volumes. Forecasts (Ti, 2018) estimate cross-border e-commerce growth around 17% between 2017 and 2022, compared with 12% for overall e-commerce (cross-border and domestic). Cross-border purchases have been forecast at 20% of worldwide e-commerce by 2022, comprising some US$627bn. UNCTAD estimated that global e-commerce sales amounted to $25.3 trillion in 2015, encompassing $22.4 trillion for B2B plus $2.9 trillion for B2C.
The rise of e-commerce has led to an impressive increase in the parcel segment volumes, often referred as a “tsunami of parcels”. Annual domestic parcel volume growth in developed markets is often in the double digits (Ti 2018). As a result, many postal networks are having difficulties coping with increasing levels of parcel traffic (UNCTAD 2017b).
How does transport and logistics fit in the e-commerce equation?
Transport and logistics as a critical factor to succeed in e-commerce
While Internet can help firms to export more, smooth transport of goods is imperative for both domestic and cross-border e-commerce. Well-functioning road transport, ports, postal delivery services and customs help ensuring effective order fulfilment. Inefficiencies in the logistics system, (encompassing freight transportation, warehousing, border clearance, and domestic postal delivery), increase trade costs of firms engaging in e-commerce, and particularly SMEs.
Poor logistics remain a barrier to e-commerce growth of cross-border e-commerce of physical goods in many developing countries. Main challenges relate to three dimensions:
Examples of challenging issues for developing countries
Based on: UNCTAD 2015, UNCTAD 2017 (a), UNCTAD 2017 (b), World Bank (2016) and Ti (2018)
Logistics and trade facilitation is one of the seven policy areas which, according to UNCTAD, are essential to help create an environment that is more conducive to reaping the benefits of e-commerce. These are analysed in the context of UNCTAD “Rapid e-Trade Readiness assessments”, which identify barriers to e-commerce development in LDCs. Up to April 2018, these studies covered Bhutan, Cambodia, Lao, Liberia, Myanmar, Nepal and Samoa. It is interesting to note that in the four studies published in 2017, lack of effective trade logistics and cross-border facilitation measures was perceived as the second most important policy area in terms of bottlenecks impeding effective use of e-commerce. The table below provides further information on transport and logistics related findings and recommendations from two of these studies in each of the three dimensions identified above:
Examples of difficulties identified in Nepal e-Trade readiness assessment
Examples of difficulties identified in Samoa e-Trade readiness assessment
Recommendations and action matrix to overcome difficulties (selected issues)
Dimension 1: Logistical and transport infrastructure
Dimension 2: Access to quality services under competitive conditions
Encourage existing logistics providers to bundle their services offer to add value and reduce costs of e-commerce product deliveries (Nepal)
Dimension 3: Efficiency of customs and border clearance procedures (Trade Facilitation)
Elaboration, based on: UNCTAD Rapid E-Trade Readiness Assessment of Nepal and Samoa (2017)
Measuring the performance of the transport and logistics sector, as an input for e-commerce
These findings are based on primary and secondary data. The primary data was collected through questionnaires and interviews aimed at measuring perception of diverse stakeholders (including private sector and other actors involved in international trade) regarding questions such as:
What are the quality of logistics services for international delivery?
Are customs procedures slow or burdensome?
Do customers have access to postal services for last-mile delivery, and how reliable are they?
Quantitatively assessing the contribution and performance of the transport and logistics sector, as an input for e-commerce is difficult. This is because not all international parcel shipments are the result of e-commerce. Limitations exist to effectively isolate the component of deliveries that correspond to e-commerce. In addition, other data aspects complicate comparability. For example, private sector data sometimes combines letters and parcels; courier firms often use their proprietary names for traffic statistics that are occasionally vague about the nature of shipment; and data are often arbitrarily separated by factors such as whether parcels are insured, whether they are express, etc.
The UNCTAD B2C E- commerce Index[ii] is an important source of data for the E-trade readiness assessments. This index encompasses one indicator related to transport infrastructure and access to logistic services (as defined in dimensions 1 and 2 of the tables above). The UPU Postal reliability score measures factors such as quality of service performance, including predictability, across all categories of postal delivery services, with a focus on domestic and inbound postal delivery process and operations.
Improve transport systems and logistics to promote e-commerce in developing countries: what else could be interesting to consider?
E-commerce and the digital revolution has resulted in new business models affecting supply chain configuration. These models integrate further inter-company and intra-company functions (related to physical, financial and information flows) and make extensive use of technological solutions to improve the retail experience. In view of this, infrastructure development (from the perspective of improving distribution networks) and (adding value to) transport services could be important elements in the path to develop transport systems that are conducive to promote e-commerce in developing countries.
Postal service delivery and air transport are very relevant in the context of e-commerce analysis, and particularly vis a vis parcel transportation. In addition, maximizing the contribution of transport and logistics to e-commerce could also envisage introducing efficiencies along the chain, for example: improving urban freight logistics; improving the connection between urban and rural areas, and between warehouse/consolidation centres and consumption centres. Improving multi-modal links and transit regimes for enhanced corridor efficiency could also help reduce transport costs along the supply chain and speed up delivery.
E-commerce logistics platforms use web-based technology to support the material acquisition, warehousing/consolidation, and transportation. E-commerce logistics systems seek improved communication, transparency in the supply chain, improved customer satisfaction, distribution and logistics optimization, cost reduction, improvement in efficiency and on-time delivery. This development creates new opportunities such as more alternatives for sourcing freight capacity, more options for improved organization and tracking of shipments and more transparency in terms of freight rates. For example, the IBM-Maersk initiative to use of blockchain technology to move and track goods digitally across borders enable (i) submission and approval trade documentation for clearance and cargo movements and (ii) complete visibility of shipment events through a supply chain.
Harnessing the potential of ICT to facilitate the flow of transport-related information and communication exchange through tracking and online systems could be key to overcome some transport services bottlenecks and reduce costs. This aspect also poses challenges to the public sector, particularly customs and regulatory agencies at the port of entry, who face the imperative modernisation of their processes to better respond to challenges posed by e-commerce.
Some methodologies and approaches could be useful in analysing these elements, such as the UNCTAD-ESCAP Time/Cost-Distance Methodology, which measures time and costs involved in the transportation process and identifies, isolates and addresses physical and non-physical obstacles. Methodologies to assess the contribution and performance of specific services in value chains, to improve e-trade prospects of specific products/sectors could also be useful (see for example: ECLAC 2014 Manual to Analyse and Strengthen Value Chains).
Going in this direction would require strengthening data generation on trade logistics service provision and on measuring service quality/performance. The taxonomy proposed in the UNCTAD 2009 Manual for the Production of Statistics on the Information Economy related to “logistics and inventory control” could be pertinent in this respect. This category encompasses e-business processes related to: supply chain management (SCM); production and inventory control, distribution control, management of inventory, management of customers’ inventory, transportation and shipping, automated warehouse; arranging and managing transport, dispatch of goods and tracking. Collecting this information would require developing service industry surveys for companies engaged in e-commerce.
Issues mentioned in this article are to be discussed in a dedicated session of the 2018 e-commerce week. Additional information about the 2018 UNCTAD e-commerce week is available here
For additional information contact Luisa Rodriguez (email@example.com)
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[i] E-trade readiness assessments are a result of the “eTrade for all initiative”. This UNCTAD-led initiative aims at addressing existing knowledge gaps and maximizing synergies between beneficiary countries, partners and donors, to improve the ability of developing countries, and particularly LDCs, to use and benefit from e-commerce. It was launched in July 2016 at UNCTAD’s 14th ministerial conference in Nairobi.
[ii] This index aims at comparing the capacity of countries to support online shopping and other B2C e-commerce. It includes several indicators, drawing on data on Internet use, secure servers and use of financial accounts (including mobile money accounts). These indicators can give policymakers and others a view of the e-commerce environment in their countries and across regions. The index covers 144 economies.