Learning from steel: What ecommerce can do to B2B trade
Online steel sales, although nowhere near as trendy as fashion, are changing how industrial supply chains operate.
Over the past 15 years, global stainless steel production more than doubled. At the same time, the pandemic made historically high prices a reality. Online sales through ecommerce are bringing an important solution to both the supply and the demand. To understand why, we'll walk through the factors that have created the perfect opportunity for online steels suppliers.
The state of steel
In 2021, a total of around 1.95 billion metric tons of crude steel were produced worldwide. If you compare that to the textile industry, in 2020, approximately 108 million metric tons were produced. Who are the individuals leading this demand? In 2020, the mechanical engineering sector accounted for 29%, followed by the electrical machinery industry, and then the transport industry which made up over 5% of the total stainless steel demand.
In this kind of market, you can imagine that how and at what price steel is purchased, can have a major impact on the industrial sector of the economy. At the onset of the pandemic, demand, like in almost all industries, took a massive hit. But in the summer of 2021, there was a rapid recovery — especially in the auto industry. It took time for steel mills to pick up production and as a result, prices shot up. In July of last year, steel prices shot up by 215%.
To put that into perspective, in the same time period, the price of clothing in the U.S. increased by 5.6%. Global supply chain issues equally affected these industries, but unlike fashion, the steel market is predominantly offline. In the context of the pandemic, sellers had few means to meet global demand at a time when buyers were scrambling for material.
We all know by now that digital channels were the saviors of the pandemic. Grocery and food delivery services came to our rescue.
But what would the supply of something like steel look like if buyers had the same channels and means of purchasing steel online as in B2C?
Why don’t we see the Revolve’s of the fashion world in steel? There are 3 main things in the way of the digital explosion of this sector:
1. The online experience
Unlike buying a pair of sneakers, where all you need is a shipping address and a credit card, buying steel online is on a whole other scale of complexity. And within reason – when you’re shipping heavy and large amounts of anything, there is way more to consider for every transaction.
For example, questions like: what are the shipping and receiving hours? What kind of truck capacity does the facility have?
The sheer amount of data that is required to transact steel is significantly more than in B2C.
With a much more complex buying cycle, the customer experience is that much more important.
If buyers have to spend hours scouring your site to try and find exactly what they’re looking for, only to then get hung up at the checkout because they don’t have the payment or shipping options they want – it’s going to be hard to get them to ultimately convert.
2. Potential risk
B2C ecommerce doesn’t have the same risk exposure as in B2B - where buyers are transacting on values worth thousands or millions of dollars. With this kind of money on the line, you need a way to authenticate and verify both buyers and sellers. And then, understand if there is any risk post-transaction.
When buyers claim they can afford the purchase, and then ultimately can’t, that’s a major loss to take on. If sellers claim to have a certain amount of steel, in a certain condition, buyers don’t expect anything short of that.
For your customers to want to transact on your marketplace, you need to give your buyers and sellers peace of mind.
For example, offering approved buyers payment terms for any vendor, is a great way to build loyalty and trust. You just need the right tools and technology to assess the financial and business health of both your supply and demand.
3. Pricing and payment
In the steel world, buyers are used to negotiating pricing. It’s part of the competitive nature of the industry. Steel prices, like other in-demand commodities, are much more volatile than consumer goods. The type of steel metal and the associated price of its raw materials are big negotiation factors.
So the ability to have price negotiation through the site, against several suppliers in real-time is important. Then, once buyers agree on a price and a supplier – settling payment isn’t any easier.
Integrating digital payments (check, ACH, credit card) and financing (with payment terms) can’t be short of seamless for a largely tech-phobic industry to go online. When buyers get the option to pay when they want, how they want – the marketplace offering becomes a lot stronger.
The marketplace moment
The digitization of the steel sector won’t happen overnight and it won’t come without its challenges. It will take nothing short of strong technology that can manage digital commerce for an extremely complex supply chain and everything that comes with it – from customer experience to logistics and financing.
But luckily, digital steel marketplaces are already bringing solutions to the market that never existed before.
With Balance, our marketplace customers offer one-click payment terms at checkout, flexible payment methods, and self-serve digital invoicing.
Plus - the compliance risk is on us. To learn more about how we help marketplaces grow, reach out to our team.