In today’s rapidly evolving e-commerce market, global trade practitioners can prepare for persistent uncertainty by focusing on technology and automation to ensure regulatory compliance, according to Joely Callaway, VP of product management at Descartes.
It’s hard to think of a year in which global trade was more under the microscope than it was in 2017, especially in North America.
Under the new presidential administration, trade compliance professionals have continued to experience a lack of clarity around where the United States is headed in terms of multilateral trade deals, duties, the country’s stance on the World Trade Organization (WTO) and the North American Free Trade Agreement (NAFTA), sanctions, or even just basic trade policy. And that uncertainty looms as 2018 unfolds.
During a recent webinar with American Shipper, KPMG and Descartes, we explored the evolving global trade compliance environment, took a deep look at how the exponentially expanding e-commerce industry is affecting trade compliance, and shared some insight on what’s to come.
Online sales are reaching staggering levels and the amount of smaller sized packages is on the rise, requiring logistics practitioners to keep up. As Business Insider estimates, there will be $2.3 trillion worth of e-commerce trade in 2018. Even if these estimates prove to be overly optimistic, this will still require a massive undertaking for shippers and logistics service providers, and the ways in which businesses handle servicing the demand will continually be dictated by policies developed by customs agencies in the U.S. and around the world.
Indeed, the World Customs Organization (WCO) very recently formally called attention to the need for delegates to work collaboratively to develop international standards on cross-border e-commerce, as mandated by the WCO Policy Commission at its December 2017 session. To meet the challenges facing the international supply chain, the WCO indicated that a new harmonized approach may be required to meet the demands of fast cross-border parcel deliveries and revenue collection, while also continuing to ensure regulatory compliance with safety and security.
Given these challenges, there are a few things that should remain top of mind for any organization trying to keep pace with the ever-changing compliance landscape and, at the same time, create new efficiencies within logistics processes.
Prepare For Persistent Uncertainty. Under the new U.S. administration, we’ve seen more protectionism, evidenced by global safeguard cases under Section 201, sanctions, tariffs on imports from Canada, and rhetoric to impose taxes on goods from other countries.
Trade policy has also truly been in flux. On his first day in office, President Trump removed the U.S. from the Trans-Pacific Partnership (TPP), increasing uncertainty among U.S. allies about the country’s reliability. This past August, the U.S., Canada and Mexico also began renegotiating NAFTA, which Trump has since threatened to pull the U.S. out of altogether. This potential shift could postpone the deal until 2019 and ultimately have outsized implications for U.S. manufacturing and the economy.
While trade policy still has many unknowns, we’re hopeful that the ongoing deployment of the U.S. Customs and Border Protection’s (CBP) Automated Commercial Environment (ACE) will continue to help streamline and automate manual importing and exporting processes, as well as enable the trade community to comply with U.S. laws and regulations more easily and efficiently. Additionally, gaining visibility on the “last mile” of an e-commerce transaction and enabling a streamlined cross-border clearance and security filing process through ACE can make the difference between a satisfied or disgruntled customer, and ultimately the success of a brand’s business.
Technology And Automation. In the face of uncertainty, compliance leaders can benefit from a broader use of automation and technology, especially as it relates to data.
As e-commerce grows exponentially, more online sales require more logistics, which means greater data sharing is needed. There is a large volume of data on duties, rulings, regulations, sanctions and cross-border shipment trends. While evolving practices in logistics is nothing new to compliance and trade professionals, the volume and variety of product lines, coupled with the required speed for making decisions and processing transactions, is a growing challenge.
With this in mind, companies must update their duty management strategy. For example, companies need to determine whether or not to pre-classify products of catalogs, or use statistical duty and tax information in order to feed consumers the information that they need before making a purchase. Once goods are classified, it’s important for companies to apply this knowledge and data intelligence against future transactions to help drive efficiencies.
When looking at global trade, firms also cannot continue to treat sourcing as a separate activity. Companies need a holistic strategy that includes market research, sanctions, duties, taxes and tariffs when thinking about sourcing from other organizations. With the proper technology and automation in use to systematize, digitize, and standardize, this is much more feasible to accomplish on the front end and can give companies a significant competitive advantage.
Keep An Eye On CBP. The growth of e-commerce is rapidly outpacing that of brick-and-mortar retailers, creating many challenges for shippers, including the sheer volume of small parcel packages. While CBP has started to leverage technology to get its arms around how best to handle and manage these issues, e-commerce is clearly putting a strain on Customs processes and supply chains alike.
For instance, when a customer places an order that is being shipped outside of the U.S., the consumer may be subject to import taxes, customs duties, and fees levied by the destination country, as well as additional charges for customs clearance. This is not exactly the best-case scenario for the mercurial shoppers of today, considering a lack of customs information and unnecessary steps can leave consumers dissatisfied and more likely to abandon shopping carts.
In addition, duties, tariffs, taxes and fees can easily double or triple the original price of a product listed on a U.S. e-commerce site. We’ve seen these incredible amounts particularly in countries like Brazil, where duty rates are sometimes not provided or are calculated incorrectly. In e-commerce, the customer experience is paramount and companies must get these processes right prior to checkout in order to provide a more seamless experience for the customer, and ultimately strengthen customer loyalty.
If that weren’t enough, the changing geopolitical landscape, combined with the addition and stricter enforcement of global trade sanctions, is putting more pressure on companies with e-commerce operations to comply. Restrictions are getting more granular, and include not only sanctioned countries themselves but also specific individuals and politically exposed persons. Additionally, denied party lists change regularly – and rapidly – or are not always clearly defined, which further underscores the need for the right technology to automate denied party screening processes and to mitigate the risk of non-compliance.
As international e-commerce continues to boom and drive innovation and convergence in commerce, shipping and customs systems – and as many global trade regulations evolve – successful companies will be those that keep apprised of new developments, arm themselves with the right technology to effectively manage compliance and have easy access to data to ensure streamlined and efficient compliance practices. With these strategies, industry practitioners will be better positioned to remain operationally effective and competitive in this increasingly challenging global e-commerce environment.
Joely Callaway is vice president of product management at logistics and supply chain management software provider Descartes Systems Group.