Decoding Logistical Commerce - Powering the Backbone of the Multi-billion Dollar Cross Border E-Commerce Industry

In today's day and age, you may have bought things online and thought about starting your own small e-commerce business from home. However, the industry big boys don't think of e-commerce the way you do and they probably wouldn't want you to know as well.

Logistical Commerce 101

Logistical Commerce, or E-Commerce, simply means "doing commerce online." In the most basic sense, it's still business, it's commerce. However, when you think that by bringing in items and through sheer luck, you might be able to make some money out of it, you've got it all wrong.

Logistics commerce employs the conventional mode of value-adding to physical products. In the past, this portion of value adding was all about the physical passage of information from one party to another in the form of human interaction. Today, with the internet, what's really left to value-add?

The Importance of Cross Border Transportation

This is where the 20th century logistics portion of commerce applies. By value-adding through cross border transportation, companies are able to leverage on this demand for greater convenience and ease of purchase from this skinning global economy. Imagine if you are able to get that desired Volta cable from the US back in Singapore at just the SAME RSP PRICE? Or imagine if you can get that furniture from Taobao without even going through Cainiao?

How the Big Boys Play

The big boys bring in product quantities in 20/40ft containers. Each container's cost will be the total cost of goods (after deducting margins from the brand owner) + Shipping cost (~USD400-600 per container). By doing so, they have a marginal cost to cover by finishing the sale of the whole container.

Here is a Detailed Breakdown of an Example: 

• Retail cost of Item = USD60
• Margin = 16%
• Product cost(/item) = USD50
• Product dimensions (carton size) = 0.075CBM
• Cost per container = USD600
• Per container(40ft) = 76cbm / 0.075 = 1013 cartons.
• Total cost of shipment = 600 + (USD50 x 1013 cartons) = USD51250

vs Sales:

• Full Sell out at RSP = USD60780
• Cost of Product import = USD51250
• Gross Profit = USD9530.

Naturally, there will be certain variances for sell out. Maybe you've given some discounts, or you've given out some samples to distributors. All these will need to be included in your costs. Say eg: -10%.

• Gross Profit = 0.90 * USD9530 = USD8577.

If you've got people running the local distribution for you, you will need to include also your distribution cost. This amount is normally at 25% - 30% margin. Don't forget that you will require the clearing of a 40ft container load. This aint easy doing it alone. 

• Full Sell out at Distribution = 0.70 x USD60780 = USD42546
• Cost of Product Import = USD51250
• Gross Profit = -8704(Deficit)

In conclusion, to be successful in e-commerce, it's important to understand the logistics behind it and how the big players operate. By value-adding through cross border transportation and managing your logistical costs, you can increase your chances of success in the e-commerce industry. And the start of your business don't start from the sales. It starts right from the ordering process or otherwise called procurement.