U.S. Customs and Border Protection will struggle to regulate an increased flow of e-commerce goods, but a plan is in the works, according to Acting CBP Commissioner Kevin McAleenan.
The rise of e-commerce has created a brave new world for consumers and the companies that seek to serve them. But it’s also created an uncertain environment for those tasked with regulating cross-border commerce. Given that the market looks as if it will continue to grow rapidly in the near term, U.S. Customs and Border Protection (CBP) Acting Commissioner Kevin McAleenan told the American Association of Exporters and Importers annual conference in June that his agency is developing an e-commerce strategy to manage the associated challenges.
Among the biggest issues: properly resourcing the agency to deal with a larger volume of individual shipments, addressing the issue of shipments coming in to smaller ports of entry with fewer customs officials, and managing the duty collection and security implications of the increased de minimis level.
Resource Restrictions. The problem of resources is one that extends from CBP to customs brokers and their customers— i.e. the shippers—according to interviews conducted by American Shipper.
“At the [World Customs Organization] meeting, e-commerce was a big topic,” said Celeste Catano, global product manager for customs management at the software provider BluJay Solutions. “It’s not just a U.S. phenomenon. Anybody with a computer can sell something, so the question is, ‘how do you know who these guys are?’ It creeps into compliance and risk analysis.”
Catano, who also serves on CBP’s Commercial Operations Advisory Council (COAC), gave a personal example of how international e-commerce is difficult for CBP to track.
“I recently bought a bottle of nail polish from an online retailer,” she said. “When it arrived, it was clear it had come from China, but there was no indication that it had gone through customs. They didn’t send it as a commercial shipment, they sent it as a gift. A lot of the smaller internet retailers are skirting the rules. That will make it more interesting for customs.”
Catano said COAC has created an e-commerce subcommittee, but the group is in a nascent stage.
Brokers are certainly seeing the impact of e-commerce on their businesses.
“We are seeing much more interest in e-commerce and fulfillment options from more traditional commercial cargo clients,” said Robert Burdette, vice president of strategic development at the Baltimore-based broker and third-party logistics provider Shapiro. “Most are simply late to the dance and are scrambling to design or assess the best entry point for e-commerce. “Interestingly, most of our clients opt for attempting e-commerce out of their own facilities with all the expected supply chain dislocations and mediocre transit times you might predict,” he said. “We do imagine seeing this trend change, but it is hard for traditional wholesalers and retailers to design solutions that require critical mass before that mass is present.” Burdette also noted that Shapiro is seeing an increased number of sellers, “especially the ones smaller in size, looking for alternative solutions to the ‘obvious,’ that appreciate the challenges they are facing entering into the market, and promote their efforts to grow.”
Shapiro is also working on its own e-commerce business.
“We see tremendous potential in this segment, though it is a commercially confusing environment when the forwarder is both a potential customer and hopeful service provider,” he said. “As an example, an e-commerce platform wants to offer origin consolidation, purchase order management, and customs clearance to their larger client. The e-commerce company may want to hire Shapiro to package and execute these services, and Shapiro may want to approach that company’s clients (with permission) for their cargo destined to other distribution channels, while Shapiro also wants to drive our existing clients to the e-commerce platform and their fulfillment network for our clients’ budding e-commerce aspirations. It really can be difficult to know who’s selling whom and on what.”
Broker Burden. Catano said all of this is creating an extra burden on brokers and forwarders (companies that BluJay supplies with software). These service providers find themselves having to educate established customers about the nuances of e-commerce from a compliance perspective, and new internet-based businesses customers about the basics of trade compliance.
“Part of the issue that customers have is that a lot of e-commerce businesses are not regular importers,” she said. “They’re having to do a lot more education, and that’s diluting their resources a little bit. A lot of our customers who are brokers, it’s additional shipments for them. Because of the education factor, it’s probably more work for them. Especially if it’s commodities that require other agencies.
“The U.S. is trying to figure out which agencies want data on these low-value shipments. In the meantime, the broker still has to do lots of research on the product. If you bring in one item, it’s the same work as bringing in 10,000 of them.”
out which agencies want
data on these low-value
shipments. In the
meantime, the broker still
has to do lots of research
on the product. If you
bring in one item, it’s the
same work as bringing
in 10,000 of them.”
Celeste Catano, global
product manager for customs
management, BluJay Solutions
There’s also the issue of compressed margins in e-commerce shipments. That extends to the broker.
“Per shipment, the people bringing in these small, low-value shipments will expect to not pay as much for their broker fees,” she said. “A container might have goods for 500 entities or one entity. A lot of consumers will ship with the expectation that they’re not going to pay anything beyond what the retailer charges.”
That revenue pressure on brokers is compounded by the extra work involved in serving a higher volume of customers, each of whom is moving fewer shipments than traditional importers do.
“With a repetitive importer, you have a profile of what they have imported, you know their line of business, you know this one requires [Drug Enforcement Agency] approval, etc.,” she said. “If it’s somebody importing something they bought off the internet, you don’t have any of that knowledge.”
From a software usage perspective, Catano said there’s not much difference in how a broker would use brokerage tools for traditional or e-commerce shipments.
“It’s pretty much status quo in terms of what we provide to file entries and customs,” she said. “In the U.S., Customs hasn’t figured out how to deal with this stuff yet. They haven’t issued guidance on what to do if it’s a low-value or e-commerce shipment.”
Diverging Customers. Fernando Rodriguez, vice president of sales for Miami-based A Customs Brokerage, said he sees three main categories of customers when it comes to e-commerce.
“There’s the traditional importer who buys overseas, contracts A Customs Brokerage to perform the freight forwarding and customs clearance and deliver to their own warehouse within the United States,” he said. “The trend is that these companies are looking for other solutions such as contracting a 3PL to perform all the warehouse inventory management and fulfillment services. Our clients would rather reduce overhead and focus on selling their goods online and finding new markets.”
The second categories is what he described as companies that have designed, developed or represent their products.
“They contract us to perform all the services from freight forwarding, customs clearance, delivery and warehouse inventory management and fulfillment, while maintaining compliance during the import process,” he said. “This company’s focus is to establish relationships with different online platforms focused on their industry, as well developing a strong e-commerce platform through their own company website.”
Finally, there’s established wholesalers.
“They are recognizing the importance of having an online retail presence,” Rodriguez said. “Therefore, they are looking for new solutions to perform online sales of their product, as they recognize the traditional B2B model is changing and they must change their business model to remain in business.”
Rodriguez said e-commerce is driving noticeable growth within his organization. “We continue to grow by adapting to the growing market of e-commerce, providing new e-commerce solutions and allowing our clients to focus on their business,” he said. According to Burdette, pure e-commerce accounts for around 8 percent of Shapiro’s revenue at present, but that percentage has quadrupled in four years.
“I would say that an increasing percentage of our traditional business are dabbling in e-commerce sales as well,” he said.
In terms of de minimis, he also added that Shapiro hasn’t been affected “because we generally do not pursue courier-sized shipments. If one imagines that some companies might break a 200-kg air shipment into four smaller ones to limit the value per shipment, Shapiro would stand to lose some traffic to courier services. But given the tremendous uptick in freight cost this implies, it feels quite unlikely to be a widespread trend in our business, and we have actually witnessed a significant increase in air cargo shipments and tonnage [year-to-date] in 2017.”
Specific Focus. CBP in November set up an E-Commerce and Small Business Branch within the agency’s Office of Trade in an effort to “address the various complexities resulting from this new global shift.”
McAleenan, in announcing a new e-commerce strategy for CBP in the coming weeks, also described the scope of the challenge facing his agency in the coming years.
He said CBP conducted a five-day joint operation at JFK Airport in spring, along with the U.S. Department of Agriculture, the Consumer Product Safety Commission, and the U.S. Fish and Wildlife Service. The operation found more than 1,300 non-compliant shipments, a 43 percent non-compliance rate.
According to McAleenan, the recent federal freeze on hiring did not affect CBP frontline resources, and the agency is ramping up its investment in technology.
“Technology is key for us in so many areas,” he said. “How will we manage that risk of e-commerce? One way is analytics—gathering and analyzing data around shipments. I’m convinced the industry can help us see what’s in that package without opening it. If we’re talking about a significant percentage of violative shipments, we need something that’s not going to slow down the flow of legitimate commerce.”
Burdette agreed that CBP is likely to face short-term challenges.
of e-commerce? One way is
analytics—gathering and
analyzing data around
shipments. I’m convinced the
industry can help us see
what’s in that package without
opening it. If we’re talking
about a significant percentage
of violative shipments, we need
something that’s not going
to slow down the flow
of legitimate commerce.”
Kevin McAleenan,
commissioner,
U.S. Customs and
Border Protection (CBP)
“We feel very sure that CBP, with its strong amplified emphasis on trade enforcement, anti-dumping, security, and intellectual property rights, is struggling to monitor U.S. commerce and regulatory compliance with the quadrupling of the de minimis to $800 per shipment,” Burdette said. “There have been reports of companies shipping in bulk to Canadian bonded warehouses and simply drawing their merchandise out $800 at a time, which in essence circumvents U.S. Customs regulation. One imagines that a tremendous investment in personnel and technology would be required to solve it.”