“On any given day,” wrote Thomas L. Friedman in The World is Flat, “2% of the world’s GDP can be found in UPS delivery trucks or package cars.”
Back in 2005, when the book was first published, that would have been $1.16 trillion in goods. Today, that number lies around $2.32 trillion.
Commerce has gone international. And as right as Friedman was in 2005, he’s even more right today: the world is flat. That means one thing …
If you’re already dominating your domestic market, it’s time to start driving sales across borders.
Unfortunately, far too many businesses miss the crucial first step in international fulfillment. That step isn’t about the people delivering your sales; it’s about where your products live before they head out the door: international warehouses.
International Warehouses: Definition
In a global supply chain, international warehouses are your hubs. This means warehousing can be far more complex than setting up multiple storefronts or global marketing campaigns. Not only will you face different rules and regulations in each country, but you’ll also face language barriers and cultural differences.
And yet, the right warehouses — not just their locations, but the people who run them — enable you to cut both shipping costs and shipping times as well as deliver (pun intended) exceptional customer experiences.
When you’re integrated with a third party logistics (3PL), an international warehouse will optimize your global logistics ability while adding another dynamic layer to your supply chain. This new extension should make your international shipments smoother and you won’t have to deal with paying American duties on those products kept in your international warehouse.
For the most part, warehouses that are setup internationally will be located in global trade centers like Hong Kong, Los Angeles, and Houston. No matter where your headquarters and manufacturing are located, strategically placed warehouses let you easily cross borders throughout Asia, Europe, and North America.
The hard part in setup revolves around finding a good partner and picking the right location.
How to Choose Your International Warehouse Location(s)
Choosing the location of your international warehouse will center on where most of your international customers are based. For example, if they’re in Europe, you may want to look in the United Kingdom.
According to the Wall Street Journal, warehouse space rose to over 230 million square feet in the region last year. This is largely fueled by Amazon, as they accounted for nearly one-fourth of all leased warehouse space in the U.K. last year.
But customer location is only one factor. When choosing where to partner, you also need to consider import and shipping laws. If your product is already being imported into America, it shouldn’t have trouble elsewhere as America tends to have the most rigid import regulations.
With that said, it is also important to check the legality of importing a product in a certain region. The best way to check is through a designated government website like Gov.UK.
As an example, one of my clients at Sourcify got into trouble importing sunglasses. Most people consider sunglasses a rather simple product to produce.
What this customer didn’t realize was that sunglasses are a medical device according to the FDA and your manufacturer had to be FDA approved. This goes to show it is always important to check import regulations around a product before bringing it into your country.
Costs Associated with Warehouses and Fulfillment
The costs associated with warehouses will typically be broken down by your warehousing partner between actual warehouse and fulfillment costs.
Warehousing costs will cover the lease, employee salary, equipment cost, electrical bill, and more. They are typically put together into a total warehousing fee. Most warehousing partners will have minimum monthly fees that they charge their clients in the event that the client has a slow month of fulfillment.
On the fulfillment end, costs include transportation, receiving, pick and pack fee, and the shipping cost. Transportation refers to the shipment from your factory to your warehouse, whereas the shipping cost covers the price you pay to ship products to your end consumer.
Not to be forgotten are the price to receive your first batch of inventory and price to integrate fulfillment technology with your Shopify store.
Policies and Procedures to Consider
Locations and costs, however, are not the be-all-and-end-all of your decision making. When evaluating warehouses, we can’t have a straight price-reflects-quality outlook. The lowest price and best location can still spell disaster if your business isn’t well fitted for that warehouse.
Policies and procedures should be clearly spelled out and you need to check their track record of past clients to see how they’ve dealt with conflicts before.
The general conduct of the warehouse operation is dictated by specific policies and procedures. This will include:
- Management policy and procedures guideline
- Health and safety measurement
- Human resources management
- Security and pest control
- Maintenance and cleaning
- Quality control
- Record keeping and reporting
- Reverse logistics for returns
- Disposal of obsolete and damaged goods
When a warehouse creates procedures, they must take into consideration local laws. That is why it is almost always recommended to have a local international warehousing partner. Though these procedures should provide checks and balances, they must also have some level of flexibility to cater to unique situations.
To allow more flexibility, it is common practice to limit the level of details in the procedures document. Instead, a good warehouse will focus on the end goal of a procedure.
How to Select a Global Warehouse
Now that we’ve set the stage, onto the main event.
To determine if a warehouse 3PL is committed to operational excellence, Adam Rosenberg — Director of Operations at ShipHero, a Shopify Plus Technology Partner — suggests two tests:
“First, go visit their facility to see what kind of products they're shipping. While onsite, take note of the products that are similar to your and ask if you can speak to a few of the business owners — the specific companies and brands you’ve identified that that 3PL supports. Asking the 3PL to choose the reference provided is not reliable because they might have you speak to a client that is really small or a friend or relative that will only say good things.
“Second, find out what their procedures are for different items that are important to your business. One example is asking how they handle changes to an order (such as changing a customer's address). If their answer is ‘email us’ or ‘call us,’ that's a red flag!
“Software should allow either the customer or the 3PL to quickly identify orders that need special attention or to make simple changes such as address changes, add or subtract an item, or add packer notes easily all with a unique, secure login to the client's private 3PL account.
“Those changes need to be automatic, tracked, and instant. ShipHero provides free 3PL Client accounts so that the clients of the 3PL can access their account at will and at no additional cost.”
Along those same lines, Robin H. Smith, Co-Founder of VL OMNI — another Shopify Plus Technology Partner — also stresses the need to examine each warehouse’s tech:
“As an integral part of your 3PL partnership, the key thing to look at in an international warehouse — beyond, services, space, and pricing — are what technologies do they use.
“There are four levels of players:
(1) the big guys who are heavily invested in solid technology,
(2) those that use off-the-shelf software,
(3) those that have built it themselves, and
(4) those that have limited technological experience and often run their businesses on spreadsheets.
“The last category play on price. Make sure your partner is giving you a clear picture of what their technology is, who supports it and, how flexible it is. Only then begin negotiating on price.
“Steer clear of any 3PL that wants to take over and control all the channels in your business. You have to ask yourself: what is their core business? Is it being a 3PL warehouse or an agency?
“Too often we see customers locked into a 3PL with no ability to move away. The desire to move usually happens when a company starts to scale and they need multiple 3PLs in different countries, or when the existing 3PL provides poor service. The other red flag is a 3PL that refuses to share and expose their connectivity options including their API.”
Beyond those frontline issues, the key factors to consider when selecting this warehouse include:
- Characteristics of goods to be stored
- Equipment available to handle the goods
- Estimated duration of storage needed
- Need for third-party logistic activities
- Size of the warehouse
- Past clients the warehouse has worked with
- Security of the warehouse
- Storage requirements of your company
To understand your exact storage requirements, you’ll need to dive into the details of how your product is stored (is it on pallets?) and your expected sales volume in the area. As an example, if you know you’re going to sell a lot of product in China during the Chinese New Year in February, it would be smart to move more inventory to that region to prepare for the sales season.
Lastly, when selecting a warehouse focuses on a layout that facilitates growth: allocate more space than needed at that given time. You want your business to grow and you don’t want to outgrow a current warehouse within a year.
Let’s Head Abroad
Now that you’ve seen how an international warehouse can fit into your business, it’s time to take the first step towards exploring that option. To do it right, you’re going to need some feet on the ground.
You can either hire a consultant to help you scope out the options or head abroad yourself.
The worst-case scenario in setting up an international warehouse is to not use the space because your international sales haven’t spiked as you expected. Regardless, you’ll be able to create a better experience for your customers abroad while drastically improving your shipping times.
That magic moment in your international warehouse will come when it feels like a fluid part of your business, even if it’s thousands of miles away from your home base.
About the Author
He has brought dozens of products to life and continues to foster long-term relationships with overseas and domestic manufacturers after living in China.