Whenever supply chain professionals bandy about words to describe their jobs and their industry, complexity is very near the top of the list. Nothing, it seems, is easy.
That’s certainly true when it comes to shipping to and from international ports. The difficulties range from duties, fees and taxes, to language barriers, security and more. It’s quite the Gordian Knot that needs to be untied, but unlike the legend of Alexander the Great, it can’t be loosened by the slash of a sword.
“First, with international trade, you have to look at companies by size and where they are doing cross-border trade,” said Anthony Hardenburgh, Vice President of Global Trade Content at Amber Road. “Cross-border trade is much more complex than domestic, more parties are involved. International logistics components include ports, authorities and regulatory agencies. If I make a blanket statement on impacts to all companies, it’s just the complexity of all the parties you need to deal with."
“When you get specific, when you look at security—if you are coming out of the U.S., you have multiple agencies you need to deal with depending on the goods shipped, determining if they even can be shipped,” he added. “There are constant regulatory changes. It’s always a challenge. A lot has to do with national security. And what may be a U.S. concern is not necessarily a concern of other countries, of those in the Middle East or Africa. You’ve got to adhere to those regulations as well.”
Eric Souza, Director of Ocean Freight Products for UPS, said one of the great challenges for companies shipping from international ports is the complexity of entering and managing new markets.
“In a slow or no-growth economy, executives are challenged to continue to drive revenue and profit growth,” he said. “Many companies target emerging markets as growth opportunities and ways to lower sourcing costs, pointing to rapid growth in Vietnam, for example, as a lower cost alternative to China.
“When expanding supply chains to these new regions, supply chain executives face challenges related to increased complexity, greater resource demand and higher risks,” Souza added. “For example, they must deal with new compliance regulations, such as the FCPA [The Foreign Corrupt Practices Act], and navigate the complexity of calculating the landed cost equation, which requires accurate classification and knowledge of duty rates, along with constantly changing trade agreements.”
There’s a lot to be aware of, points out Anand Raghavendran, President and Chief Operating Officer of Netwin Solutions. “Any company moving cargo from a port has to comply with all the laws pertaining to that geography and nation. Companies should be aware of permits and clearance needs for that region/port, [including] specific documentation that has to be created to comply with all the export needs for that port.”
They also must keep in mind that they have to meet the requirements of both the source and destination countries, in addition to any transship countries. Customs declarations, duties, taxes and other fee payments vary based on the countries and can be very challenging to manage.
Cutting the knot
There are a number of positive trends that towards relieving these challenges, said Raghavendran, including Harmonized Customs regulations; global security programs with mutual recognition; specialty service providers; and technology.
The Harmonized Commodity Description and Coding System of tariff nomenclature is an internationally standardized system of names and numbers for classifying traded products developed and maintained by the World Customs Organization (WCO) (formerly the Customs Co-operation Council), an independent, Brussels-based intergovernmental organization with over 170 member countries.
“Harmonized Customs is a system for tariff classification and world customs framework that has helped countries move toward a common approach to global trade management,” Raghavendran explained “but this does not completely alleviate the complexities and flavors specific to each country.”
When it comes to global security programs, one of the most important is C-TPAT (Customs-Trade Partnership Against Terrorism). Through this initiative, U.S. Customs and Border Protection is asking businesses to ensure the integrity of their security practices and communicate and verify the security guidelines of their business partners within the supply chain. Programs like this help companies proactively manage and control risks associated with its partners and supply chains.
“Most companies want to trade goods responsibly,” said Amber Road’s Hardenburgh. “It’s a big negative from a humanitarian and a goods standpoint if something happens to their cargo that causes a terrorism or security incident. Many larger companies take trade compliance seriously. It’s not only the right thing to do from a humanitarian standpoint, but a business standpoint. [With] C-TPAT and others, the companies ultimately partnering with the government and going through procedures can demonstrate that they have great trade compliance practices in place. It involves people, process and technology. You can’t do it without all three.”
Where would we be without technology? The amount of data that needs to be accumulated and digested is enormous. “Most companies, if they aren’t doing it today, aren’t aware of the technology available or are trying to figure out which one to use,” Hardenburgh said, noting restricted-party lists that must be adhered to. “It’s next to impossible to screen those lists. Not just the names of the entities, but the AKAs, so matching on a spreadsheet is next to impossible. It’s not only the sheer level of the effort, but also the level of skill set of the person that needs to do that and how likely they are to stay in that position for an extended period of time.”
When it comes to duties and fees, the complexity rises yet again. “It’s not just giving the rate,” Hardenburgh said. “You’ve got to calculate it [in INCO (International Commercial Terms, which are intended to clearly communicate the tasks, costs and risks associated with transportation of goods. Inco terms are widely accepted by governments throughout the world.)] Most calculations are complex and cumulative. You need to be able to do that math. Most folks don’t have access to that. Automation helps.”
There are teeth in the import/export regulations. And intent does matter, said Hardenburgh. “On outbound, if your large company violated an export regulation, if it was intentional, the penalties are much more severe. If unintentional, you are hit with a minimum of a fine, but if intentional, it’s a fine and maybe loss of export privileges. If it’s a very gross violation, like military material or munitions, you’re looking at jail time. And senior folks are held accountable.”
On the inbound side, he adds, it’s often something not properly documented or duties weren’t paid, so there’s a fine. “If it’s not intentional,” Hardenburgh added, “the government may set aside a portion of the fine and say, ‘go get an export system.’ It’s not always technology, but it oftentimes can be. It could be personnel, documentation or instructions on how to process goods.
“It hits the C-level within that company and then they make the investment not only with technology, but trade experts. The worst if for a multinational corporation or midsize company if they are getting 20 percent or more of their revenue from overseas, they can’t afford to get their export privileges revoked.”
And that’s reason enough to be very, very careful.