As we all know by now, COVID-19 has accelerated the shift of consumers from brick and mortar shopping to e-commerce retail. This shift has led to even more new small e-commerce businesses, which in turn has led to even more small and midsize businesses (SMBs) trying their hand at global trade. Even Wall Street has noticed.
But even before the pandemic, the rise of e-commerce has made the SMB a major player in global trade and an important segment for cross-border logistics.
E-commerce titans Alibaba and Amazon have brought down the barriers of entry for small businesses - import from half of the world, ship directly to over half of US households. But far beyond just the sourcing and sales reach now available to SMBs, an ecosystem of tech solutions is sprouting up to serve to enable this growing segment.
Even on the heels of massive e-commerce fulfillment funding rounds in 2020 (see below), the cross-border logistics link still lags many parts of the supply chain in catering to small shippers. And while first-movers and digital startups have made significant progress in creating the low-touch, scalable sales and other solutions that will win SMB importers, most of the industry has not, even as it becomes easier and easier to develop online sales.
As the size of the SMB logistics market grows so does the opportunity to harness SMB importers as a driver of growth for logistics providers.
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E-COMMERCE, SMBs AND LOGISTICS
Even before 2020, e-commerce growth has been driven in no small part by small businesses and has made SMBs surprisingly big players in global trade. According to research by Y Combinator, US Census Bureau (USCB) data shows that independent businesses accounted for 23% of total retail revenue in the US in 2017. And many of these small businesses are importers: by 2016, USCB data showed the vast majority (96%) of US importers were SMBs. SMBs shipped more than $550B worth of goods in 2019 and spent an estimated $44B on cross-border logistics.
COVID-19 AS SMB ACCELERANT
E-commerce’s share of retail in the US exploded in 2020. E-commerce penetration in Q2 2020 was nearly 50% higher than the online share of retail in Q2 2019. Through the first three quarters of 2020, e-commerce accounted for 18.8% of all US retail sales. This share was 25% higher than the same period in 2019 and shattered (by 2.5 times) the previous record for e-commerce gains over a nine-month period.
As e-commerce grew, so did the number of new small business entrants. Q3 of 2020 saw an 83% annual increase in the number of new small businesses registered in the US, with many now-homebound people likely trying their hand at selling online.
This jump had a profound impact: during Amazon’s Prime Day event in October, for example, sales by third-party sellers on the Amazon marketplace, including millions of small businesses, hit $3.5B, an annual increase of nearly 60%, and a sharper increase than Amazon’s own sales during the event. One of the most important aspects of the year has also been the diversification beyond Amazon - and it’s one supply chain infrastructure: SMBs helped Shopify’s stock triple as businesses flocked to set up their own online stores using their services in 2020.
LOGISTICS TECH ENABLING THE RISE
Entrepreneurs and tech investors have taken note of this shift and SMB growth.
Investment in logistics technology in general – from freight forwarding to warehousing to last-mile – has exploded since 2014, hitting 17x growth in the number of funding rounds in 2019 compared to 2014, with startups raising more than $6B, compared to $375m in 2014. And 2020 continued this trend, with an expected 12% increase in deal activity. Many of the high-profile logistics tech investments in 2020 targeted SMBs like e-commerce fulfillment provider Shipmonk that raised $290M, on-demand warehousing developer Flexe that closed a $70M round, and Stord that raised $31M.
CROSS-BORDER STILL LAGGING
While so many barriers have fallen and new solutions are arising to cater to the SMB market, cross-border logistics may still be the most painful point for small, low-volume shippers.
All these new SMBs need international freight solutions, and in such a low volume per shipper and fragmented segment, they can only be acquired at scale and profitably by low-touch, digital solutions. While some large tech companies like Amazon have made some attempts to own this space, it’s still lackluster at best, as they divert the bulk of their logistics focus to warehousing and staying ahead of shorter and shorter fulfillment time windows.
A crop of digital-first startups (as well as the major ocean carriers) are already rushing to fill that low-touch freight gap. And recent advancements have made it easier than ever before for forwarders to launch their own digital sales portals. Digital sales capabilities can level the playing field for access to SMBs and let forwarders compete on customer service.
The shift to e-commerce, accelerated by the pandemic, is increasing the number of SMB importers and their importance to the cross-border logistics market. Digital solutions to acquire this rising segment will let logistics providers access this opportunity.
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