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The Future of E-Commerce: Logistics as a Key Engine of Growth


Jim Barber, President, UPS International, spoke to the American Chamber of Commerce in Singapore about the future of e-commerce.

It's a pleasure to be here in one of the world's greatest cities, a city that serves as one of the springboards for our operations in Asia.

UPS chose Singapore as the regional headquarters for our operation in Asia because Singapore has always been a beacon for talent and innovation, a nation that is admired and respected around the world.

I'd like to talk about what will be one of the biggest business opportunities of the coming decade across Asia, E-commerce.

This year, e-commerce revenue across the Asia Pacific region is expected to top $380 billion U.S. dollars and next year, should top $500 billion U.S. dollars.

That means that Asia will surpass North America in 2014 as the biggest e-commerce market in the world.

And there are no signs of that changing.

By 2017, it is expected that e-commerce sales in Asia will top $1 trillion or 20 percent more than North America.

So my question is how much of this opportunity will the companies gathered together today claim?

This is an issue that we spend a lot of time thinking about at UPS.

Today, I'd like to share a few of the insights we've developed.  I would also like to talk a little about the opportunities, and the challenges, that await Singapore and other members of ASEAN.

UPS handles more than 4 billion shipments each year. By declared value, that represents 2 percent of the world's GDP.

As a result, we are inextricably linked to almost every single segment in the business world. And like each of you, we at UPS have a big stake in the future of Asia and a big stake in e-commerce.

As a company, we keep a keen eye on developments in Asia, and the booming e-commerce potential in China and India has not gone unnoticed.  I'll touch upon that in a bit.  Here in South East Asia, we have our eye on the prospects of ASEAN economic integration and what that will mean for our business.   

ASEAN has mapped out an ambitious plan for creating the Economic Community by 2015 and integrating with the rest of the Asia Pacific region including China, Japan, Korea, India, Australia, and New Zealand. 

These efforts hold the potential to transform the region into a catalyst for global economic growth. 

But our internal analysis and expertise in the ASEAN markets tells us that there is still much to do before 2015.  With less than two years to go, ASEAN Member States will need to act quickly to implement and deliver on the commitments that they have made.

This includes:

And this is just the start. Because achieving the full potential of e-commerce means UPS can provide a whole new level of service. 

It's our job to supply that as UPS, but we need several things to happen to create that seamless system where supply and demand come together. 

First, I cannot stress enough, the need for customs reform.

E-commerce companies cannot afford the high costs of determining import requirements and completing excessive paperwork, risking their reputations with customs holds, late deliveries, or inefficient return procedures, all of which are common across Asia.

Those of you already in this business will understand this: from the time a customer places an order to when the goods get delivered, is a vitally important leg of an e-commerce transaction. 

And the last mile of delivery is where the customer develops a most lasting impression of your company. Having the ability of shipments to clear customs efficiently affects your lead times, your competitiveness, and your brand. 

Throughout the ASEAN region, UPS is working with local governments to establish entry-clearance programs for lower-value and lower-risk shipments, such as those purchased online for personal use.

We're using what we learn from this pilot to build broader support across Asia Pacific.  The Organization for Economic Co-operation and Development, or OECD, has estimated that customs barriers add a 10 to 15 percent premium onto the price of goods sold.

Eliminating those costs through customs modernization could be a tremendous boon to ASEAN economies.

Second, we need investment liberalization and regulatory reform. These reforms would enable the logistics sector to be more competitive and able to provide the efficient and secure trade that e-commerce customers demand.

Without the opening of this critical sector, and regulatory reform to ensure a level playing field for all firms, whether state-owned or private, shipping costs will always be a factor, and the service quality of logistics providers will always be low. 

Consider the average cost of exporting a 40-foot dry container out of Singapore at $178 ... versus:

These costs correlate directly to how open these economies are and their efforts to reform and promote efficient transportation and logistics capabilities. 

UPS believes we have a huge part to play in ASEAN's economic miracle.  With our global networks, and our experience navigating international trade, we are confident that we have much to contribute in making the ASEAN Economic Community a success and connecting ASEAN to the rest of the world.

Let's come back to the e-commerce story in Asia because I believe this is an extraordinary opportunity for the companies gathered here today, including UPS.

This year, e-commerce in Asia is growing at 23 percent, double the rate of North America. In 2014, the projected growth rate for Asia is 29 percent.

In China, the e-commerce company Alibaba will complete more transactions in 2013 than all the U.S. "e-tailers" combined. A similar story can be told of India where the number of digital users is expected to double by 2016 and grow by a hundred-fold by 2021. 

There are a number of reasons for this. Here are the four biggest:

Combined, these trends have enabled so many more businesses to sell directly to consumers,cutting out the middleman. 

Consider An Viet Long, or AVL, which designs the parts for remote-control helicopter that are then assembled in Vietnam.

The company grew from 10 employees in a 10-by-10 workshop making the parts for only one model helicopter in 2007 to more than 300 employees working in a 6,000-square-meter factory just outside Ho Chi Minh City. 

AVL now produces and sells its remote-control fiberglass helicopters through specialty hobby shops and dealers all over the world. The company also sells its customized model helicopters and replacement parts directly to consumers around the world, with UPS handling the logistics.

We help many other companies like AVL, including similar companies in Singapore engaged in fashion, fine arts, high-tech and audio-visual services.  These companies use the Internet to reach customers as well as companies like UPS to optimize their supply chain needs, and provide the reliability and timeliness that e-commerce companies thrive on.

We also pour tremendous resources into collecting and analyzing data on the buying behaviors of consumers.

In fact, I can tell you about some of the findings we made in a study that we just released.

Our inaugural global e-commerce study, which we produced with our partners at comScore, is one of the most detailed studies ever conducted to measure the preferences of online shoppers around the world.

This study captured key behavior traits of consumers in different markets. It looked for the elements that generate the most consumer loyalty. Not least, it analyzed the role that logistics can play as a key differentiator for "e-tailers."

Our research into Singapore told us that the "e-tailers" here still have a lot of work to do. Online shoppers in Singapore recorded lower satisfaction scores than their peers in other countries.

In Singapore, just 51 percent of consumers say they are "satisfied" with the online shopping experience, versus 83 percent in the U.S. and 78 percent in Europe.

If there is good news, it is that we have identified the problems and can begin working closely with retailers and their stakeholders to develop the necessary solutions.

The comScore study also found that consumers are more likely to shop at retailers who offer online shopping and who have brick-and-mortar stores.

For example, consumers like receiving news about promotions on their smartphones. But they also like the ability to purchase online and make returns at a local store.

In Singapore, 88 percent of the consumers surveyed say they like "location-based" advertising.  In other words, they like receiving smartphone alerts about deals and promotions when they happen to be near the stores.

We also found that Facebook marketing is effective in Singapore, which is not surprising when you realize that Singapore has one of the highest Facebook usage rates in the world.

Roughly 95 percent told us they pay attention to retailers' updates.  Consumers here are also quick to "like" a company's Facebook page if it offers special promotions and deals to fans.

Perhaps not surprisingly, the study also found that transparency and reliability in the delivery process is very important to consumers.

Consumers also said it's important to them to receive an estimate or guarantee of the delivery date.

In addition, consumers said they want details of the full purchase price provided very early in the shopping process. In fact, 54 percent said they would abandon their cart if the delivery charge raises the total purchase price much higher than what they expected.

Now, that shouldn't be surprising, right? None of us likes hidden fees.

We also found that 53 percent of people surveyed in Singapore said that knowing they could track their package was a big consideration in where they shopped.

I hope this helps you see why we have invested so heavily in behavioral studies like this, as well as the other research we conduct. We believe it is critical for us to provide our customers with information that will help them grow their business.

This kind of data enables UPS to provide retailers tailored solutions with multiple perspectives in a single tool. These solutions help retailers minimize the time they spend monitoring multiple shipments and letting them spend this time instead on plotting out to beat the competition.

For retailers seeking to win online consumers worldwide, the key is to differentiate themselves in the increasingly competitive marketplace with global supply-chain management strategies that are consumer-driven.

Using this, they can drive customer loyalty and bring their businesses global.

This is why we find the ASEAN integration plan so exciting for our business.

Already, we are seeing more Asian exporters build stronger business relationships with their neighbors and intensifying trade within Asia to capture this growth.

The benefits of e-commerce for many of us are tremendous. They provide a unique opportunity for brands to open up new markets.
So how do logistics play into this? The key to success in e-commerce lies in order fulfillment and distribution.

In particular, logistics can help function as a business driver in the below areas.

First, it helps to generate customer loyalty. The emphasis among Web retailers is already shifting from marketing to order fulfillment logistics.

Increasingly,  the ability of an online retailer to ship the right product in the right box with the right lead time helps build customer loyalty as well as repeat business.

Second, logistics can help create and evolve new e-business communities. This is important. Established Web retailers adopt real-time fulfillment solutions by linking and integrating internal supply chains with suppliers, logistics companies and customers. This provides more control over product movement as well as a better customer experience.

And third, UPS can support Asia-based online retailers who are relatively new to this field by providing expertise and advice.

While they are experiencing rapid growth in their business, they can reap the fulfillment and enjoy distribution best practices from UPS. E-tailers in Asia selling to U.S. and European markets can partner with UPS to create a greater customer experience and customer loyalty through distribution and fulfillment powered by UPS technology.

UPS technology tools such as WorldShip provide the most versatile and flexible logistics platform for integration with customer's internal supply chain as well as their e-commerce site.

And with Asian online retailers that ship to the U.S. and Europe, UPS's solutions such as My Choice in the U.S. and like Access Point in Europe, give customers the control in selecting where they want their packages to be directed, serve as tools to generate customer loyalty. 

Online retailers also have the ability to use UPS's Marketable Labels as a direct-mailing platform for their consumers, giving them the chance to generate additional revenue through repeat sales.

For a major global online retailer, we developed technology solutions to provide notification to their customers in Singapore two days in advance of their order delivery.  The early notification gives the recipients the flexibility to change the delivery location should the need arise.           

Leveraging UPS Worldease, we helped a global consumer product company consolidate multiple shipments for shipment across Asia to simplify shipment processing and minimize potential customs delay.  As a result, they are able to get their products to their end consumers faster and reduce multiple shipment costs.

Across the region, UPS has been enhancing our operations to support the exciting new e-commerce initiatives we see. Leveraging our strong order fulfillment and transportation capabilities, we are working with other companies to provide solutions for B2C e-commerce opportunities from Singapore to the rest of the region.

In closing, it's a new world, one that requires new rules of leadership.  It requires leadership and best practices grounded in honesty, reliability and transparency as well as a genuine desire to grow our partners' businesses.

This explicit purpose is the surest way of winning trust.

UPS is ideally positioned to drive the future of e-commerce tapping into our vast experience in the U.S., customer insights, extensive network and industry-leading products and services.

This will ensure that UPS and all of our partners not only meet the demands of immediacy but also achieve the long-term growth and development to which we all aspire.


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