What Are International Logistics? Challenges and Examples

As global trade expands, retail brands face the challenge of moving materials and products across borders efficiently and on time. Done well, they can tap into a growing market, earn new customers, and drive revenue. Estimates project that 33% of ecommerce spend will be cross-border by 2028. 

However, international logistics is fraught with complexities. Geopolitical instability, regulatory changes, and supply chain disruptions can easily upend a system, and you need to plan for them in advance. 

As global supply chains continue to evolve, companies must remain agile, adapting their strategies to navigate uncertainties while maintaining operational efficiency. This guide shares how to do it, with tips on building an international logistics strategy that sets your business up for the future. 

What is international logistics?

International logistics is the art of moving goods and information across borders smoothly. It covers everything from shipping and storing products to dealing with customs and managing global supply chains. 

Businesses use international logistics to find better materials, sell to new customers, and save money to get things where they need to go. When managing international logistics, you must juggle different regulations, cultures, and distances to ensure goods arrive on time. 

Key components of international logistics 

• Transportation
• Warehousing and storage
• Inventory management
• Customs and regulations
• Information technology

Transportation

Transportation is the main component of international logistics. It’s the link that moves goods across land borders and oceans. 

The transportation umbrella covers the methods and infrastructure used to physically transfer products from their point of origin to their final destination. This includes air, sea, rail, and road transport, each with advantages and challenges. 

Transportation often accounts for the lion's share of logistics expenses, with studies showing it can account for 50-60% of total logistics costs. Even small improvements in transportation efficiency can lead to significant savings and boost your company's bottom line.

International transportation is full of potential pitfalls. Delays, damage, or loss of goods can disrupt operations and disappoint customers. A robust transportation strategy helps mitigate these risks, ensuring business continuity and customer satisfaction.

With environmental concerns taking center stage, transportation choices are under scrutiny. According to MIT, freight transport is about 8% of global CO2 emissions. Companies that optimize their transportation for sustainability can improve their brand image and meet increasingly stringent environmental regulations.

Warehousing and storage

Warehouse logistics involves strategic placement and inventory management across multiple countries. It allows companies to reduce lead times and respond quickly to local demands. 

Say you’re a US-based manufacturer with warehouses in Rotterdam, Singapore, and Mexico City. Instead of shipping each order from the US, products can ship across the EU. You can slash delivery times to European customers from weeks to days through the Rotterdam hub. 

In Singapore, you’ve established a bonded warehouse, which lets you store goods without paying immediate duties. Countries with streamlined customs processes can see clearance times reduced from days to hours. For instance, Singapore, which consistently ranks high in the Logistics Performance Index (LPI), clears most shipments within 24 hours.

Your Mexico City facility capitalizes on USMCA benefits, streamlining customs processes for North American shipments. By classifying and pre-clearing goods here, you cut through red tape that often bogs down cross-border trade.

The benefits of a distributed warehousing and storage system ripple throughout the entire retail operation. CFOs appreciate the improved cash flow from deferred duty payments in bonded warehouses. Supply chain leaders use these global nodes to minimize risk from natural disasters and geopolitical tensions. A distributed network also lets companies take advantage of regional free trade agreements, lowering their costs even more.

Inventory management

Inventory management refers to overseeing and controlling goods as they move across global supply chains. It’s become a balancing act, as McKinsey’s Supply Chain Pulse Survey revealed. 

A staggering 78% of respondents have increased inventory buffers and pursue dual-sourcing strategies for critical raw materials to bolster resilience, reflecting the new reality of global supply chains. Yet, the future remains uncertain, with opinions evenly split on whether inventories will rise, stay elevated, or return to pre-crisis levels.

This uncertainty presents both challenges and opportunities:

• Cost control: With 70% of respondents aiming to improve sourcing costs, optimizing inventory across global locations is a priority.
• Risk mitigation: Increased buffers serve as a shield against supply chain disruptions.
• Industry variation: While electronics firms lean towards larger buffers, construction companies are looking to reduce inventories, as per McKinsey.

Customs and regulations

Customs and regulations are the complex web of rules, procedures, and legal requirements that govern the movement of goods across international borders. They include import/export laws, tariffs, duties, quotas, and national and international standards compliance. 

Customs duties and tariffs directly affect a company’s bottom line. Miscalculations or non-compliance can lead to unexpected costs, fines, or legal issues. 

These regulations have become more complex in recent years. Estimates from McKinsey project that the cross-border ecommerce market will grow from $300 billion in 2020 to $1 trillion by 2030. A bolder scenario shows that the overall market could total $2 trillion by the end of this decade. 

Customs agencies are already strained, and it’s leading to issues like:

• Low-quality declaration information
• Limited data sharing with logistics providers
• Overstretched customs inspection capacities

The result? A €7 billion in annual (Value Added Tax) VAT losses for the EU alone. 

If you use Shopify as an ecommerce platform, you can get access to Managed Markets. It simplifies customs procedures by automatically handling local laws, product restrictions, and tax filing. It ensures guaranteed duties and taxes at checkout, making cross-border selling smoother for your store. 

Information technology

IT systems provide end-to-end supply chain visibility, allowing businesses to track shipments, inventory levels, and financial transactions across multiple countries and time zones. 

According to the McKinsey Supply Chain Pulse Survey, the share of companies implementing dashboards for end-to-end visibility jumped significantly to 79% in 2023, up from about two-thirds in the previous year. This transparency helps identify bottlenecks, reduce delays, and improve operational efficiency.

Advanced IT solutions can significantly cut costs by optimizing routes, reducing inventory holding costs, and minimizing documentation and customs clearance errors. For example, a dairy products company implemented an enterprise-wide platform transformation (EPT) that identified over 150 initiatives across six main areas, resulting in potential savings equivalent to increasing EBITDA by about 25%.

With the vast amount of data generated in international logistics, IT systems equipped with artificial intelligence and machine learning capabilities can provide valuable insights. These insights enable executives to make more informed decisions about inventory management, supplier selection, and market expansion strategies. 

Investing in and leveraging IT can improve efficiency, cost-effectiveness, and competitive positioning in the global marketplace. However, implementing these systems requires careful logistics planning and execution. 

Challenges in international logistics

• Geopolitical factors
• Regulatory challenges
• Supply chain disruptions
• Technology and infrastructure issues

Geopolitical factors

Geopolitical factors pose major challenges in international logistics and affect costs and efficiency. 

Businesses must navigate trade tensions, political instability, and evolving regulations that can upend global supply chains. For example, in 2018, the US-China trade war led to tariff hikes of up to 25% on imported goods, forcing companies to reassess strategies. The Ukraine-Russia conflict has severely disrupted world grain supplies, as Ukraine provides roughly 6% of global wheat exports. 

Companies can diversify suppliers, strategically manage inventory, and craft solid backup plans to weather such storms. Staying on top of global political trends is key to smoothly steering international logistics operations.

Regulatory challenges

Companies also face significant regulatory hurdles during the international logistics process. From changing trade agreements to environmental regulations and data protection laws, it’s a never-ending maze to navigate. One misstep can mean costly delays, hefty fines, or worse, damaged customer relationships. 

For instance, the newly negotiated US-Mexico-Canada Agreement (USMCA) forced vehicle manufacturers and suppliers to revamp their supply chains. GDPR fines can be up to 20 million Euros or up to 4% of total global turnover, whichever is higher. Managing regulatory challenges mitigates risk and can help you build more flexible and adaptable supply chains. 

Supply chain disruptions

Global organizations are constantly realizing unplanned supply chain risks. In 2023, 71% of companies highlighted raw material costs as their number one international supply chain threat. 

More organizations are experiencing limited access to manufacturing inputs and spare parts for maintenance items. The prices and availability of key commodities, like fuel, timber, and plastic, continue to fluctuate, which affects overall operational costs and production schedules.

Technology and infrastructure issues

One of the primary concerns organizations have is the disparity in technological advancements and infrastructure quality between countries. Some nations boast state-of-the-art ports, advanced tracking systems, and robust digital networks, while others lag, creating supply chain bottlenecks. 

Organizations are looking to change this. A recent KPMG report shows that through 2024, half of all supply chain organizations will invest in applications that support artificial intelligence and advanced analytics capabilities. However, not all partners or countries can keep pace with technological advancements, which can lead to compatibility issues and data gaps. 

Inadequate transportation networks, outdated port facilities, or insufficient warehousing capacity in certain regions can also hamper the smooth flow of goods. Emerging markets are especially at risk since they're often manufacturing hubs or growing consumer markets but lack the necessary logistics infrastructure.

Strategies for effective international logistics management 

1. Build a resilient supply chain
2. Partner with a 3PL
3. Create a risk management plan
4. Use Shopify Managed Markets

1. Build a resilient supply chain

According to two-thirds of global business leaders, visibility into supply chains is essential for operational stability going forward. So, prioritize supply chain resilience by having true inventory visibility across all modes of transport, nodes, and links in your supply chain.

To strengthen your supply chain resilience:

• Focus on strategic inventory management
• Develop diverse supplier relationships
• Implement advanced technologies for real-time insights and transparency
• Develop concrete contingency plans
• Leverage data analytics for accurate forecasting

2. Partner with a 3PL

A third-party logistics company, or 3PL, manages other companies' logistics and supply chain functions. These providers offer warehousing, transportation, inventory management, and order fulfillment services, allowing businesses to streamline operations, reduce shipping costs, and focus on their core competencies.

Rather than managing your warehouses and doing distribution in-house, you can store your stock at a 3PL vendor's warehouse and have it shipped directly from your manufacturers. The 3PL warehouse ships items automatically when customers place an order online.

Shopify Fulfillment Network offers full logistics services that get orders to your customers quickly and easily. We make sure you've got the right product at the right location so orders ship faster and cheaper by having a vast network of strategically located fulfillment centers worldwide.

3. Create a risk management plan

A risk management plan is essential for safeguarding your international logistics operations. Unexpected events like natural disasters and political instability have highlighted the vulnerabilities in many companies' supply chains.

A recent KPMG report on SCRM emphasizes that federal agencies (and, by extension, large international companies) often struggle with low visibility into their supply chains, especially regarding tier 2-4 suppliers who can potentially impact mission-critical assets and programs.

To develop your risk management plan:

1. Conduct an internal assessment to determine your organization's current SCRM maturity level
2. Establish a governance structure that aligns with your organization's objectives and industry benchmarks
3. Develop a customized program plan to address your needs and risk environment
4. Implement both preventive and active risk management strategies
5. Utilize advanced technologies like digital twins, modeling, and real-time data ingestion for active monitoring
6. Set up a system for continuous improvement based on reliable, accurate data

Supply chains are becoming more complex and fast, making disruptions more likely. A good supply chain risk management (SCRM) program can protect your company's reputation, keep your procurements honest, and prevent costly disruptions.

4. Use Shopify Managed Markets 

Managing the international logistical process requires a lot of time and resources. Shopify’s Managed Markets gives you everything you need to sell in multiple countries, right from your Shopify admin. There are no more expansion stores, multiple apps, or surfaces. 

With Shopify Markets, you’ll get:

• Simplified compliance with a merchant of record service: Shopify’s partner, Global-e, takes on the legal responsibility for selling your products in foreign markets. You don’t need to register for taxes in each country you sell. Global-e handles tax remittance, ensures compliance with local regulations, and manages product restrictions. 
• Improved cash flow: With Managed Markets, you can offer local payment methods in multiple locations and increase sales. The service also provides fraud and chargeback protection to reduce your financial risk with international transactions.
• Optimized international shipping: The platform offers discounted shipping rates with major carriers like DHL and UPS, which are directly integrated into your Shopify admin. 
• Duty management: Managed Markets calculates and collects duties and taxes at checkout, offering delivered duty paid (DDP) shipping.

If you want to expand globally without the traditional overhead and risks associated with international sales, partner with Shopify.

Make international logistics a breeze with Shopify 

Shopify's international sales tools simplify international expansion for businesses of all sizes. Centralizing cross-border, B2B, and retail operations simplifies global growth for businesses of all sizes. 

With Markets in Shopify, merchants can create customizable catalogs, themes, and buyer experiences for each market, allowing them to "show up like a local" wherever they sell. This feature extends to brick-and-mortar stores, enabling retailers to set specific catalogs, manage pricing, and control product publishing for individual retail locations, all from a single platform.

For in-store experiences, Markets allows retailers using Shopify POS to regionalize checkout flows, translate product catalogs, and customize the Smart Grid to tailor the shopping experience for each store across different markets. This level of customization empowers merchants to easily navigate the complexities of international logistics and create localized shopping experiences worldwide, both online and in physical retail spaces.