WHO CAN HELP WITH YOUR INTERNATIONAL PARCEL SHIPPING? SEE PAGE 18
INTERNATIONAL 2020 PARCELindustry.com
AS GLOBAL DEMAND RECOVERS, ALL MODES ARE NOT CREATED EQUAL PAGE 8
GLOBAL SUPPLY CHAINS ADAPT TO E-COMMERCE P. 10
COMPLIANCE MATTERS: WHAT EXECUTIVES SHOULD KNOW ABOUT CROSS-BORDER SHIPMENTS P. 24
2021 INTERNATIONAL POSTAL CHANGES LEAD TO UNCERTAINTY P. 12
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CONTENTS /// Volume 27 | Issue 6
08 10 12 24 26 06 EDITOR’S NOTE An Unprecedented Growth By Amanda Armendariz
08 GLOBAL DEMAND SHOULD CONTINUE ON V-SHAPED RECOVERY PATH, BUT ALL MODES ARE NOT CREATED EQUAL By Ravi Shanker
10 GLOBAL SUPPLY CHAINS ADAPT TO E-COMMERCE By John Haber
12 2021 INTERNATIONAL MAIL CHANGES LEAD TO UNCERTAINTY By Merry Law
14 SURVEY: OUR READERS AND THEIR INTERNATIONAL SHIPPING HABITS By Amanda Armendariz
16 Q: WHEN IS A PARCEL NOT A PARCEL? A: WHEN IT MOVES CROSSBORDER AS A CONSOLIDATED SHIPMENT. By Bob Malley
20 DON’T UNDERESTIMATE THE IMPORTANCE OF YOUR INTERNATIONAL PARCEL CONTRACTS By Brian Byrd
24 COMPLIANCE MATTERS: WHAT EXECUTIVES SHOULD KNOW ABOUT INTERNATIONAL SHIPMENTS By Doreen Edelman, Abbey Baker, and Christian Contardo
26 THE UPCOMING ELEPHANT IN THE ROOM: CHANGES TO THE VALUE-ADDED TAX (VAT) IN THE UK AND EU By Krish Iyer
27 DRIVING THE MAXIMUM COST SAVINGS OUT OF SECTION 321 TYPE 86 SHIPMENTS TO THE US By Geoff Tice
28 OH, CANADA! THE GROWTH OF THE SMALL PARCEL MARKET IN OUR NEIGHBOR TO THE NORTH By Deyman Doolittle
30 RECENT USMCA CHANGES: A RUNDOWN By Gordon Glazer
SPONSORED CONTENT 07 CURING THE GLOBAL LAST-MILE DELIVERY BLUES 18 WHO CAN HELP WITH YOUR INTERNATIONAL PARCEL SHIPPING? THESE COMPANIES CAN! 23 LEVERAGE AUTOMATION TO SIMPLIFY GLOBAL SHIPPING
4 PARCELindustry.com INTERNATIONAL 2020
PRESIDENT CHAD GRIEPENTROG PUBLISHER KEN WADDELL EDITOR AMANDA ARMENDARIZ [ amanda.c@rbpub.com ]
AUDIENCE DEVELOPMENT MANAGER RACHEL CHAPMAN [ rachel@rbpub.com ]
CREATIVE DIRECTOR KELLI COOKE ADVERTISING KEN WADDELL (m) 608.235.2212 [ ken.w@rbpub.com ]
PARCEL (ISSN 1081-4035) is published 7 times a year by MadMen3. All material in this magazine is copyrighted 2020 © by MadMen3. All rights reserved. Nothing may be reproduced in whole or in part without written permission from the publisher. Any correspondence sent to PARCEL, MadMen3 or its staff becomes the property of MadMen3. The articles in this magazine represent the views of the authors and not those of MadMen3 or PARCEL. MadMen3 and/or PARCEL expressly disclaim any liability for the products or services sold or otherwise endorsed by advertisers or authors included in this magazine. SUBSCRIPTIONS: Free to qualified recipients: $12 per year to all others in the United States. Subscription rate for Canada or Mexico is $35 for one year and for elsewhere outside of the United States is $55. Back-issue rate is $5. Send subscriptions or change of address to: PARCEL, P.O. Box 259098 Madison WI 53725-9098 Allow six weeks for new subscriptions or address changes. REPRINTS: For high-quality reprints, please contact our exclusive reprint provider, ReprintPros, 949.702.5390, www.ReprintPros.com. P.O. Box 259098 Madison WI 53725-9098 p: 608.241.8777 f: 608.241.8666 PARCELindustry.com
INTERNATIONAL 2020 PARCELindustry.com 5
EDITOR’SNOTE
AN UNPRECEDENTED GROWTH By Amanda Armendariz
F
or years, we’ve heard how the numbers relating to international shipping just keep growing, and that continues to be the case even in this topsy-turvy 2020. Global e-commerce is exploding, and customers often do not care from where their products originate, as long as they arrive on their doorsteps in a timely, cost-effective manner. And therein lies one of the major challenges for shippers. It can be difficult enough to attract the attention of a consumer, considering how many messages and advertisements bombard them on a daily basis, and any blips in the delivery process (whether it’s shipping costs that are more than the consumer anticipated,
6 PARCELindustry.com INTERNATIONAL 2020
delivery delays, or an incorrect order) can be enough to lose a customer for good. So while the growth potential for shippers expanding into the international arena is huge, so can be the learning curve. That’s why, in 2017, we started producing this special international-focused issue so that we could more closely dive into the opportunities and challenges facing international shippers. The information contained within these pages provides our readers with the latest news concerning global and cross-border shipments, whether it is an analysis of the changes to the value-added tax in the UK or the UPU changes that are going into effect, or a look at why closely examining the details of your international parcel contracts is of the utmost importance. We hope that whether you are a seasoned cross-border shipper or just dipping your toe into the international shipping waters, you’ll find our fourth annual international issue helpful. As always, I’d love to hear what you think of the challenges facing international shippers and where you are in the cross-border process (novice or expert or anywhere in between), so feel free to drop me a note at any time. As always, thanks for reading PARCEL.
EDITOR’S PICK
Here are some of the most-read articles on our site in recent weeks. If you haven’t already checked them out, you might want to — there is some great information in there!
Are Long-Term Carrier Agreements A Good Idea? By Michael J. Kelley
Breaking Down the Full Impact of COVID-19 for Small Parcel Shippers By Jamie Vogel
2020 Peak Surcharges Explained By Keith Myers
APPLICATION ARTICLE
Curing the Global Last-Mile Delivery Blues According to experts, online buyers are more inclined than ever to buy from merchants located in other countries. The rapid growth of global B2C e-commerce has opened up a new world of opportunities for retailers, e-tailers, and direct-to-consumer (D2C) brands. But it has also opened up a whole new world of regulatory and operational challenges, including productspecific cross-border regulations, landed cost calculations, and end-to-end shipment tracking. And as the volume of international parcel shipping strains carrier capacity and customs clearance processes, it becomes even more difficult for e-commerce players, and those supporting them, to effectively manage fulfillment efficiency, shipping costs, and customer expectations for fast and on-time delivery. Shipping international parcels one at a time as if they were going across town is simply not an economical option for most shippers. That’s why many B2C e-commerce merchants are calling on global integrators like UPS, FedEx, and DHL to help coordinate consolidated cross-border parcel drop shipments to cut down on customs delays, shipping costs, damage, and headaches. To do this, shippers need to load individual parcels into a single container that can clear customs as a single entry and then deconsolidate upon arrival in the destination country. From there, small packages can be injected into the local parcel carrier network for last-mile delivery. Preparing consolidated drop shipments is operationally complex. But the right multi-carrier management solution can automate parcel rating and labeling as if from the international origin, while also tracking each parcel during its global journey within the consolidated container. The right system will enable drill-down from the container, to the pallet, to the parcel and line item detail. Win the Global Returns Race Of course, shipping the item is only half the battle. For eCommerce success — whether it is within a border or across borders — returns are almost as significant as the initial shipping of the product.
And customers are returning e-commerce orders wherever they are buying the products. According to the Pitney Bowes Online Shopping Study 2019, there is a 25% average return rate of e-commerce orders. When it comes to cross-border returns, international reverse logistics can be even more of a headache than domestic returns or cross-border shipping. One of the challenges is that duties are paid when the product goes to the customer, so they should not need to be paid on the way back. However, having the right documentation on hand to prove that payment has been made is essential, or retailers can risk charges or fines. To ensure this is taken care of, shipping technology needs to generate the necessary customs documentation. The right return label guarantees a seamless returns experience for the customer and gives the retailer reassurance that it’s compliant. Whether shipping goods or processing returns worldwide, today’s retail and e-commerce world is the entire world. Implementing the right strategy and technology to manage international shipping can make it a small world, after all. Learn how Transtream multi-carrier parcel management system can help you ship internationally with cross-border consolidation by visiting us at pierbridge.com/Transtream.
www.pierbridge.com sales@pierbridge.com 508.630.1220
GLOBAL DEMAND SHOULD CONTINUE ON V-SHAPED RECOVERY PATH, BUT ALL MODES ARE NOT CREATED EQUAL By Ravi Shanker
G
lobal economies should continue to recover after one of the sharpest economic contractions in recent history, but risks remain. Our Morgan Stanley economics team believes the Q2 downturn catalyzed by COVID-19 should mark the beginning of a new global economic cycle. Indeed, by almost any measure, the Q2 contraction was one of the sharpest and most severe in memory: US GDP fell at a 32.9% annualized rate in Q2 (a record), Global PMIs fell to 39.7 in April (near Great Financial Crisis levels), US nonfarm payrolls fell by over 20mm in April (another record), and South Korea exports fell nearly 26% in April (the lowest level since 2009). However, the recovery has been almost as swift. This has been helped by quick global policy action that has seen global policy rates decline by ~80bp to a 8 PARCELindustry.com INTERNATIONAL 2020
new low of 1.44%, balance sheet expansion that has been more aggressive than we saw in 2008 for both the ECB and the Fed, and fiscal deficits at the G4/China that are on track to reach new highs. Policy support and the boost from re-openings have driven a V-shaped recovery in many of those key indicators. Already we have seen Global PMIs return to expansion territory, coming in at 50.3 in July; nonfarm payrolls rise by 1.763mm in the same month; US retail sales return to y/y growth in June; and Morgan Stanley’s proprietary CAPMI index (which typically leads ISM by one to three months) recover to expansion territory in July. While the speed of recovery likely moderates from here, Morgan Stanley’s economics team continues to forecast a V-shaped recovery, with Q2 marking the bottom and global output returning to pre COVID-19 levels by Q4 of this year. However, despite
the already-made progress and encouraging signs of continued growth, there are a number of risks that shouldn’t be entirely discounted. Most notably, those risks include a “second wave” and an associated shutdown like we saw earlier this year, as well as geopolitical risk (including social unrest in various parts of the globe) and the upcoming US election. US Shipper Macro Outlook US shipper macro outlook has improved off the low watermark last quarter, but we expect the recovery to look different across the various transportation modes. In our latest shipper survey, shippers’ overall macro outlook recovered from the near-financial crisis levels we saw in our previous iteration. Interestingly, our survey also saw shippers' inventory levels experience the sharpest decline in at least a decade while the need to increase
continuing to increase despite seasonal trends indicating the index would begin declining after the Fourth of July. Demand should continue to recover, but supply is unlikely to meet that demand given headwinds from increasing insurance rates (small carriers seeing up to 75-100% premium increases), the Drug & Alcohol Clearinghouse (which has seen over 25k violations in the first six months), and subdued OEM production. Despite spot rates now at the highest level since July 2018 (which was one of the strongest trucking markets on
and some opportunities. COVID-19 has driven a sharp increase in e-commerce that we believe will be sustainable as previous hold-outs, both customers (older populations) and end markets (grocery), experience the benefits of e-commerce. We see the impact of e-commerce growth across nearly all components of the supply chain with Parcel carriers and Trucking players as the key impacted players. Volumes at Parcel incumbents have already seen a significant increase, but we’ve yet to see evidence this will be supported by pricing power. In a recent COVID-19 survey, only 17% of respondents said that they were willing to pay more for shipping now than before (and this survey was conducted at the end of March, at the peak of the lockdowns). Mix is likely to be a significant issue as the incremental e-commerce demand is coming from consumer staples and grocery rather than discretionary categories and from large shippers rather than SMBs (so far). At the same time, the stress on the network from a peak-like surge in volumes will likely drive additional capital investments (especially if the need for “clean” delivery becomes a structural requirement as we suspect). On the other hand, we believe multiple post COVID-19 trends will be drivers of TL share gains as supply chains are refilled and ship-from-store picks up momentum.
COVID-19 has driven a sharp increase in e-commerce that we believe will be sustainable as previous hold-outs experience the benefits of e-commerce.
inventory is at the highest level in that same period and net ordering levels also fell sharply to lows seen in past mini-recessions (2011, 2015, 2019). As such, it appears to us that shippers need to restock but are unable/unwilling to do so — which could signal a potential restocking boom to come. However, we do not expect all transportation modes to participate equally in the recovery. As we look forward to the back half of the year and even into 2021, Trucking is likely to stay very robust and gain steam through year-end while Rail and IM will continue to be more sluggish in their recovery. The trucking market recovery is already well under way, with Morgan Stanley’s Truckload Freight Index (TLFI), which has been a benchmark of truck market conditions for the last 20 years, consistently outperforming seasonality in recent weeks and, more importantly,
record), supply constraints plus pent-up demand should support further tightening in trucking and could even result in an unprecedented degree of tightness. At the other end of the spectrum, we see Rails as the most challenged given their high industrials/bulk commodity end-market exposure, which came under the most pressure during the shutdowns and which has been slow to recover. Indeed, commodity carloads are still down high-teens % y/y, only small recovery from down ~25% in Q2. Meanwhile, Intermodal could lose out to more competitive trucks given the need for expedited freight to replace extremely low inventories. In addition to shippers’ need for speed, service, and shorter LoH, the JOC’s Intermodal Savings Index shows that the IM and TL price gap continued to close in Q2, only increasing the attractiveness of switching. The New Normal As we move into a “new normal” in 2021, there will be some headwinds
Ravi Shanker is an Executive Director at Morgan Stanley and covers the North American transportation industry. Ravi joined the firm’s global automotive industry research team in 2004 as a research associate before picking up lead coverage of North American Autos in 2009 through 2015. Ravi holds a Bachelor of Commerce and Master of Management (Finance) degrees from the University of Mumbai, India. Ravi has been ranked by Institutional Investor magazine and recognized by The Financial Times as a top-10 stock picker across Wall Street. INTERNATIONAL 2020 PARCELindustry.com 9
a
GLOBAL SUPPLY CHAINS ADAPT TO E-COMMERCE
C
By John Haber
OVID-19 has dramatically changed the retail landscape. Consumers continue to be hesitant to return to stores, while e-commerce as a share of total retail grows. In the US, e-commerce as a percentage of total US retail sales jumped to 16.1%, or over $200B, in the second quarter as compared to 11.8% during the first quarter, according to US Census Bureau data. This reflects a projected increase of 37% over the first quarter
10 PARCELindustry.com  INTERNATIONAL 2020
and a 44% increase over the same time period last year. Market research firm eMarketer expects US e-commerce sales to increase by 18% for 2020, while brick-and-mortar retail spending is likely to decrease by 14%. E-commerce is driving not only domestic sales but international sales as well. According to Accenture, cross-border e-commerce represents 20% of global e-commerce and was growing at twice the rate of domestic e-commerce, based on 2019 data. China leads the world in
cross-border e-commerce and is expected to represent 41% of total cross-border e-commerce market share by 2021. According to China’s General Administration of Customs, the value of imports and exports transacted online by cross-border e-commerce enterprises reached 604.4 billion yuan ($88.4 billion) in the first half of 2020, up by 6.7% YoY. Recent changes to the international pricing structures by the USPS have gone into effect in the third quarter, and these price increases could slow the growth of cross-border e-commerce. In addition, hefty surcharges being applied to US import shipments could also impact the overall growth. With the rise in e-commerce, along with the necessity of COVID-19 related personal protection equipment (PPE), transportation capacity has become strained because of the unprecedented volumes. Internationally, the result has been a shift in transportation modes. For example, air capacity has remained depressed due to the grounding of most passenger airlines, and as such, there has been a shift to ocean freight on trans-Pacific and trans-Atlantic lanes. The use of rail between China and Europe has increased, as well. China State Railway Group, the state-owned operator of the rail network, reported that 5,122 China-Europe freight trains were operated in the first half, a 36% increase YoY. According to freight forwarders, demand for rail services has been from customers seeking alternatives due to capacity shortages in air and, to a lesser extent, ocean. Domestically in the US, there have also been shifts in transportation modes as cross-border e-commerce goods enter the country and enter what is typically known as the middle-mile. Shifts to rail versus truck and shifts to full-truckload versus less-than-truckload have occurred as goods are moved to distribution facilities or direct to stores that are being used for fulfillment solutions. Like international movements, the shifts are due to constraints in capacity and shortages in equipment that aid in transportation. The capacity constraints in the middle-mile have further trickled down
to the last mile as last-mile providers implement surcharges and other measures to manage capacity. E-commerce is a great equalizer for retail offerings regardless of the size of the company or its location (domestic or elsewhere). Consumers tend to look for bargains, not the location of an e-retailer. With that being said, however, immediacy to own a product will, of course, favor a domestic provider that has last-mile delivery options such as pick up in-store, curbside pickup, or an alternative location. To handle dramatic shifts in e-commerce goods, investments in supply chain technology such as SaaS solutions or cloud computing are necessary. Software as a service (SaaS) provides access to software by functioning remotely as a web-based service. One of its greatest strengths is that it allows organizations to access business functionality at a cost less than paying for licensed
applications. Not only are costs lower, but users can update information and perform analysis in real-time. Also, visibility solutions have become a requirement to help companies have access to real-time information across their supply chains, including all suppliers, not just the tier-one suppliers. Visibility solutions will allow companies to stay abreast of any inventory delays and the ability to adjust volumes, suppliers, or any other part of the supply chain in real-time. Supply chain disruptions have become the norm as companies are faced with trade wars such as between China and the US; Brexit concerns; weather and natural disasters; manufacturing, transportation, and warehousing labor situations; and more. Integrating supply chain risk management software into existing supply chain technology will allow companies to pinpoint and analyze potential risks and make necessary changes quickly
ARE YOUR COLLEAGUES MISSING OUT?
without disrupting the supply chain (or will at least keep such disruptions to a minimum). Such adjustments may be additional inventory, utilizing a different supplier, or implementing an alternative mode of transportation. Global trade will not go away because of COVID-19 or other concerns. Instead, it will evolve just like it always has. E-commerce is part of this evolution as it becomes a more significant part of retail and other industries. Supply chains will adjust to meet these changes by investing in technologies to meet the changing needs of customers. At the same time, the last mile will also adapt and include a variety of options for customers to decide upon based on their availability.
John Haber is the Founder and CEO of Spend Management Experts and can be reached at solutions@spendmgmt.com.
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Editor’s Note: New information came to light after we went to print with this issue, so we have updated this digital version with the changes.
2021 INTERNATIONAL MAIL CHANGES LEAD TO UNCERTAINTY
W
By Merry Law
ith higher international postage prices in January 2021, particularly for small packages; potential new requirements for Advanced Electronic Data (AED) and to the USPS Shipping Services File (SSF); and changes to customs duties and to foreign taxes on sales, international mailers are facing many changes in a short timeframe. These issues, plus the effects of the COVID-19 pandemic, have created uncertainty and concerns among international mailers. Terminal dues, the rates countries pay each other for international mail, will again increase across all types of letter mail in January. Under UPU definitions, letter mail includes all items weighing less than two kilograms (4.4 pounds). Within letter mail,
12 PARCELindustry.com INTERNATIONAL 2020
the UPU defines three formats — P, G, and E — by size and weight. Format P for petit (small) is basically postcards and regular sized letters. Format G for grand (large) covers larger sized letters and flats. Small packages and all items containing goods are format E for encombrant (cumbersome). Terminal dues are expressed as X SDR per kilogram plus Y SDR per item. SDRs (Special Drawing Rights) are used by UN agencies to calculate charges or credits between countries. Effective July 2020, 31 countries self-declared rates, and an additional 13 did so for January 2021. Of those on both lists, eight reduced their July rates, 19 increased their rates, and one remained about the same. The remaining three countries made changes between the per kilogram and per item rates. The US rate for inbound packages as of July 1 was 2.088 SDR per item plus 2.878 SDR per kilogram ($2.948/ item + $1.843/pound). In January, the US inbound rate will be 2.332 SDR per item plus 3.038 SDR per kilogram
($3.292/item + $1.946/pound). The US also negotiates bilateral agreements—agreements between two countries—one rates and other postal matters, like tracking. These agreements are normally not put in place until the UPU publicly announces the rates filed with them. Many of the countries with higher inbound and outbound mail volumes to the US have reached agreements, which are not publicly available. The recently announced January 2021 postal rates are based on terminal dues or bilateral agreements. The USPS continues to pursue bilateral agreements with additional countries. We are seeing greater increases in both inbound and outbound postage for packages than for other items. The increase in US inbound rates for small packages in July 2020 resulted in very substantial (up to 100%) increases in postage from some countries. (The effect of these prices aren’t known because they can’t be separated from the effect of the pandemic.) In July, the USPS did not
increase its outbound published postage rates for packages. USPS did substantially increase the postage for packages paid by international mail consolidators under their contracts with USPS. This, in effect, reduced the consolidators’ workshare discounts. During the negotiations in September 2019, the US agreed to pay the UPU CHF 8 million ($8.767 million) a year for five years in exchange for the ability to impose self-declared rates in July 2020. These payments were to be more than covered by the increased income from international packages. No one could have anticipated the COVID-19 pandemic. Many countries limited or stopped the exchange of international mail. International air transport was greatly effected by border closures and by shut-downs. The former led to depressed revenues and the latter led to much higher costs for shipping mail to other countries. China, a major importer into the US by mail, has seen higher costs for their mail to the US. This was an intentional effect of the self-declared rates. (China did not self-declare small package rates.) There is now competition among US inbound mail processing firms to transport goods from Chinese companies bound to US destinations and process them for mailing here at pre-sort domestic rates. The same process may be used by companies in other countries fulfilling US-destination orders. The anticipated customs and tax changes will be difficult for exporters, particularly for small and medium enterprises (SMEs) and occasional international mailers of goods. All the countries in the European Union (EU) are instituting a new protocol for AED beginning on March 15, 2021. Some items on customs forms and in the Shipping Services File (SSF) transmitted to USPS by mailers of goods now listed as conditional — not required by USPS, but possibly required by the destination county — may be required early in 2021 by USPS. These items include phone numbers for the sender and recipient, license and tax ID numbers, and the HS tariff number. The most problematic of these for many mailers and mail processors is the HS tariff number or code. This is the
Harmonized Tariff Schedule code number describing items in a shipment, already mandatory for commercial shipping but not postal items. The codes can be looked up in the online US Harmonized Tariff Schedule https://hts.usitc.gov/current at no cost. For example, my company, WorldVu LLC, mails books to fulfill orders. The HS code for most books is 4901.99. Mail service providers and mailers need to be aware that this will be required in the near future, probably in early 2021. The EU and individual countries in the EU and elsewhere have announced changes to customs duties and to other taxes on goods coming into the country. Many customs changes reduce the minimum value of goods that are allowed into the country without payment of duty, called the de minimus. Goods can be imported as delivered duty paid (DDP) or delivered duty unpaid (DDU). In almost all cases, postal items are DDU and the recipient is required to pay the customs duty. Value Added Tax (VAT) and Good and Services Tax (GST), types of taxes on sales, are being levied more frequently on imported items. These vary from country to country and territory to territory. With more than 200 countries and territories, it is extremely difficult for mailers, particularly SMEs, to track tax requirements unless the country or territory makes it known internationally. The extension period for a trade agreement on Brexit, the British withdrawal from the EU, will end at the end of 2020. Without an agreement between the EU and the UK, delays and confusion are expected in supply chains, logistics, and customs processing at all entry points to the EU and the UK. As this is being written, an agreement seems unlikely. All of these changes are planned between January 1 and March 15 of 2021, creating uncertainty for international mailers.
Merry Law is President of WorldVu LLC and the editor of Guide to Worldwide Postal-Code and Address Formats. She is a member of the UPU’s Addressing Work Group and of the US International Postal and Delivery Services Federal Advisory Committee. INTERNATIONAL 2020 PARCELindustry.com 13
SURVEY: OUR READERS AND THEIR INTERNATIONAL SHIPPING HABITS By Amanda Armendariz
This year, for our international-focused issue, we decided to do a brief survey of our readers to get a glimpse of what challenges they face with respect to international shipping. The pandemic certainly adds a whole other level of complexity to an already sometimes-complicated process, so we hope that the information provided within this special issue helps shed some light on some of the more pressing issues in the global and cross-border sphere.
Do you ship internationally?
What percentage of your shipments are international?
92.59%
45.45%
27.27%
7.41%
9.09%
9.09%
Almost 93% of our survey respondents reported sending at least some shipments internationally. Of course, people who don’t ship internationally at all are not as likely to complete this survey in the first place, so I’m sure the actual percentage of our readers who ship globally or cross-border is not quite that high. Still, we’ve heard over and over throughout the years that international shipping just keeps growing, so it’s no surprise that many of our readers report doing so. For those who reported not shipping internationally, the primary reason was because they did not think it would be profitable84.91% for their 92.59% business to expand cross-border/overseas. 14 PARCELindustry.com INTERNATIONAL 2020
4.55%
4.55%
0
10
20
30
40
50
60
70
80
1-10%
26-50%
76%-100%
10-25%
51-75%
Unsure
90
100
What is your biggest challenge when shipping internationally?
If you are a US-based company, is the final destination for the majority of your international shipments (more than 50%) within North America (Canada and/or Mexico)? 4.55%
22.73%
36.36%
50%
Yes No
0%
We are not a US based-company 59.09%
13.64%
Almost 60% our US-based respondents report that the destination for the majority of their international shipments is within North America (either Canada or Mexico), which means they’ve likely been impacted by the recent changes to the USMCA agreement. However, I admit I was surprised that this number wasn’t higher, and that over a third of respondents report that the final destination for the majority of their shipments was in another region.
Is there a specific region to which the majority of your international shipments are sent (regardless of whether it is in North America or not)?
54.55%
45.45%
13.64%
0
10
20
30
40
50
60
70
80
90
100
Understanding local laws/regulations regarding duties and taxes Keeping costs down when sending shipments cross-border Understanding cultural nuances/local customs with respect to packaging/marketing/etc. Choosing the right carrier Other Not surprisingly, keeping costs down is the primary concern for fully 50% of our respondents. Keeping costs reasonable can be difficult for any shipper, but when you add in international shipments, it can be even harder.
For those who shared what region the majority of their shipments went to, Canada was the most common answer, followed by the EU, Asia, and Latin America.
Have you found it beneficial to establish a distribution center in a different country, in order to reduce the distance your orders have to travel to consumers?
4.55%
Do you work with an international 3PL?
27.27%
18.18%
No
Yes
No, but we are considering it
No Not right now, but we have in the past Not right now, but we plan to in the future
27.27%
Yes
77.27%
45.45% 0% INTERNATIONAL 2020 PARCELindustry.com 15
BY BOB MALLEY
Q: WHEN IS A PARCEL NOT A PARCEL? A: WHEN IT MOVES CROSS-BORDER AS A CONSOLIDATED SHIPMENT.
Y
An Accenture study found that cross-border e-commerce represents 20% of global e-commerce and is growing at twice the rate of domestic e-commerce. The surge is straining customs operations and creating challenges for authorities around the globe.
First, the pre-COVID stats: A 2018 Pitney Bowes survey indicated that 49% of US consumers shop cross-border (62% of them on marketplaces and 38% on retailer sites) and the frequency of their making cross-border purchases is up five percent over the previous year. A 2019 eMarketer Global eCommerce report estimated that by 2021, global e-commerce will approach $5 trillion.
Now the COVID stats: According to Global-e research, cross-border online sales worldwide have increased by 21% from January 1 to June 14 (2020) compared with the same period a year ago. In the United States, April’s global cross-border online sales grew by seven percent; in May, they surged by 42%, with June showing the same positive growth trend, bringing total US cross-border e-commerce growth to 10.2% from January to mid-June. Air Cargo News reported that air freight volume plunged by almost 28% YOY in April, according to IATA.
ou would not be reading this magazine as an industry observer if you weren’t already hyper-aware of the explosive growth of B2C e-commerce in 2020 and the impact that has had on supply chains and domestic parcel volumes. The global picture is even more complex. Online shoppers are ordering globally sourced goods and don’t even know it. And they don’t want to have to care.
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WorldACD reported that the capacity crunch has led the average air freight rate for transporting 1km of cargo to increase by 48% worldwide. All this means is that despite the heightened demand for goods sourced out of country, the lack of air capacity to move goods internationally has driven prices sky high, making it not only too costly to ship one parcel at a time across borders, but also operationally complex. Challenges in Managing Cross-Border Last-Mile Delivery It’s easy to sell goods internationally. But there are many challenges that await those who are blissfully unaware of everything it takes to move goods across borders. To name a few: Customs Compliance: It starts with the arcana of classifying your goods with six-digit harmonized codes (HC) for exports. But then there is the matter of determining how those standard codes
will be translated into codes used by the importing country, which can be 12 digits long. These codes determine how you will comply with customs documentation, duties, and taxes. Getting them wrong can result in delays, sanctions, or, worse, customers having to pay the difference or reject receipt of the goods, which could result in an expensive returns process. Border Security: Since 9/11, regulatory mandates hold shippers responsible for ensuring international shipments are not bound for consignees on countries named on dozens of different US government watch lists. Not all shippers have implemented restricted/denied party and embargoed country screening programs as required by US regulatory agencies. Failure to meet these requirements could also mean delays or loss of export licenses. Addressing the De Minimis Dilemma: US Customs and Border Protection (CBP) recently raised the de minimis value threshold (the value below which goods are exempt from duties and more extensive customs documentation) from $200 to $800. This was intended to pave the way for more package volumes to flow through customs with minimum screening. But it has created more work for shippers to monitor the value of goods crossing borders. Dynamic Requirements Cause Strain Even if you knew everything you needed to know about international compliance, there is still the operational challenge of making it all seamless and transparent to consumers who don’t want to see the cross-border sausage being made. A few of the issues logistics operations need to consider: Landed Cost Calculations: It’s one thing to understand the financial requirements for cross-border movements into each country; it’s another thing to apply those costs to product pricing in a way that enables you to maintain margin but still shield consumers from having to worry about paying duties and taxes. Presenting landed costs in a shopping cart almost certainly would result in abandonment. Data Normalization: Cross-border logistics involves multiple touches by supply chain partners, across a series of data silos. From inventory to a first-mile carrier, to a freight forwarder,
through customs clearance, to a drayage operator to a last-mile delivery provider, it’s hard to maintain data continuity and one source of order “truth.” And yet tracking data is critical for billing and customer service, not to mention returns processing, dispositioning and credit. Regional Delivery Networks: In the US, the parcel carrier industry is much less fragmented and regionalized than in other parts of the world. This makes managing last-mile delivery carrier compliance very difficult. It is also tempting to think that last-mile customer delivery expectations in North America are the same all over the world. They aren’t. Lockers, kiosks, and hold-at-location pickup points are more commonly used, for example, in Europe and Asia than in the US. Given all of the challenges, what is an e-commerce B2C provider to do? The logistics industry has seen many innovations because if necessity is the mother of invention, desperation is the father. That’s why global logistics organizations like UPS, FedEx, and DHL have stepped up to offer end-to-end international delivery services designed to optimize consumer international delivery experiences at a reasonable cost. They do this by consolidating individual parcels into a single container, clear the container through customs as a single entry, deconsolidate the container at the destination port, and then inject the parcels into a last-mile delivery network. Other global organizations like SEKO, Pitney Bowes, and multi-national 3PLs (“intermediaries”) are now offering similar services. But those new technologies still require shippers to implement processes that enable intermediaries to do their job. To implement cross-border consolidation/deconsolidation, multi-carrier parcel management solutions (MCPMS) need to support processes that include the following steps: 1. Open a container: To maintain tracking capabilities, shippers need to be able to open a container (or gaylord) that will be used to consolidate parcel shipments destined for another country’s deconsolidation point. 2. Process drop ship labels: MCPMS solutions need a multi-regional capability to print parcel labels with
return address and tracking information that will enable deconsolidation and injection into a carrier network from the deconsolidation point. 3. Load the container: The MCPMS captures and correlates the parcel tracking number with the container tracking number as “child” parcels are loaded into the master container(s). This will enable fulfillment operations to maintain end-to-end tracking continuity. Loading the container could take place over several days. 4. Close the container: The MCPMS prints the container label and all international compliance documentation necessary to execute a single customs clearance for all parcels. 5. Upload the manifest: The MCPMS uploads all the shipping data necessary for the global intermediary to complete the cross-border last-mile deliveries and accurately invoice the shipper for all landed costs. There are many benefits this process offers e-commerce shippers. It automates the digital (shopping cart) and physical logistic fulfillment processes in the warehouse. It reduces shipping costs by consolidating parcels during the international leg. It reduces the risk of delays in customs by leaving regulatory compliance to the experts. It satisfies consumer demands for a seamless delivery experience. And it maintains global, end-to-end tracking visibility. The Future Is Bright We live in a digitized world and that is helping to streamline international e-commerce logistics. But shippers need to partner with the right global logistic intermediary and the right technology providers to stay competitive and profitable.
As managing director of Pierbridge, Inc., Bob Malley has built an international organization that has successfully established Transtream as an industry-leading multi-carrier management platform that powers some of the largest shipping operations in the world. For more information on cross-border automation, visit https://pierbridge.com/on-demand-take-themystery-out-of-global-delivery-webinar.html. INTERNATIONAL 2020 PARCELindustry.com 17
WHO CAN HELP WITH YOUR INTERNATIONAL PARCEL SHIPPING? THESE COMPANIES CAN! SPONSORED CONTENT
3 easy ways to reduce the cost per parcel Are you still transporting goods on pallets? Moving from pallets to loose cargo is a significant step in reducing the cost per parcel. When pallets are removed, there is room for up to 8,000 more parcels in each trailer, depending on size. More parcels, fewer vehicles. Not just good for your economy, loose cargo is good for the planet, too. Have you automated the whole shipping process? With Caljan automatic document handling delivery notes, invoices and even pre-printed sales material can be placed inside the consignment as part of the automatic dispatch process. Caljan Print & Apply securely applies carrier-specific labels at exact X, Y, Z and even U coordinates. Not just flexible, accurate and reliable — ROI is typically less than 18 months.
Are trucks and trailers loaded automatically? Load parcels and packages at consistent high speeds throughout the day with Caljan AutoLoader. The savings in manpower alone ensure a short ROI. If you are not ready to automate, provide your logistics team with an ergonomic working environment and upgrade at a later date. Caljan Performer Telescopic Conveyors can be reconfigured to suit the needs of your business as they develop — and they are covered by a unique 5-year structural warranty.
International shipping rates sinking your business? We can help. Firstmile has the versatility to handle both your domestic and international shipments. Our unique technology provides one simple interface, one simple invoice, and one consolidated pick up by our Firstmile trucks. We have regional facilities around the country which means you will see scan events more quickly with Firstmile than other international shippers. Firstmile has you covered for your international shipping needs. We have international mail services and small parcel shipping solutions to 220 countries. We provide both DDP and DDU delivery options, and we even have services that can help estimate duties and taxes for you. Whether you are looking for a low cost mail solution with less
visibility or a parcel service with door to door in country tracking we can help. Xparcel is our unique shipping platform that connects regional and national carriers into one consolidated API location. Xparcel will shop across all of these carriers for the best combination of price and service on every single rate call. Oh, and of course our international services, like our domestic services, seamlessly integrate with popular shipping software applications like ShipStation, ShipRush, OrderCup, and many more.
800 338 1751 info.us@caljan.com
www.firstmile.com sales@firstmile.com 888.993.8594
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Company
At GlobalPost, we are dedicated to helping small and medium-sized businesses ship domestic and international parcels as quickly as possible at very economical rates. Combined with our world-class customer service, easy-to-use technology, and seamless integrations with the world’s top shipping platforms, our GlobalPost international shipping services simplify parcel shipping so you can focus on growing your business. The GlobalPost delivery network leverages partnerships with international postal operators as well as commercial carriers to offer worldwide delivery. GlobalPost services reach over 200 countries and territories and include features not found in traditional international postal services, including global address verification, electronic customs forms, the ability to ship merchandise in flats, instant refunds, free parcel coverage up to $200, and more. GlobalPost currently offers three variations of the service: GlobalPost Standard International (includes delivery confirmation), GlobalPost Economy International (includes tracking into the destination country), and GlobalPost Plus (includes Delivered Duty Paid service). Whether you ship one or thousands of packages per day, contact GlobalPost today for a free shipping consultation. Visit www.GoGlobalPost.com or call 1-888-899-1255 for more information. www.GoGlobalPost.com info@goglobalpost.com 888.899.1255
WHO CAN HELP WITH YOUR INTERNATIONAL PARCEL SHIPPING? THESE COMPANIES CAN!
New Brexit Rules for E-commerce Sales to UK Starting Jan. 1, 2021 Attention all e-commerce merchants! The UK government is moving forward with major changes that impact how you sell and ship to the UK, coinciding with the end of the Brexit transition period. Here’s what’s changing: New VAT Registration & Compliance Requirements Starting on January 1, 2021, you will be required to register for a UK VAT number in order to continue accepting orders and shipping to the UK. Under this new VAT model, merchants will now become the responsible party for collecting and remitting VAT. Details: www.passportshipping.com/uk-vat-info Who pays VAT and How Is It Collected? Orders under £135: E-commerce merchants will become responsible for collecting and remitting VAT to the UK government. Your international shipping carrier or 3PL will no longer be respon-
sible for paying VAT at the border. Over £135: Business as usual (VAT will still be due at the point of importation instead of point of sales) De Minimis The current de minimis of £15 will be removed. VAT is required on every order entering the country. Steps to Be Compliant Every e-commerce merchant must register for a UK VAT number first. The government sponsored registration flow is cumbersome, error-prone, and takes hours to complete, so Passport built an easy to register tool for our customers and is offering it free to PARCEL subscribers. Register here: www.passportshipping.com/parcel
Transtream Delivers Cross-Border Drop Shipping Success Increasingly, online shoppers are buying goods from merchants beyond their borders. Shipping globally one parcel at a time is expensive and complex. Pierbridge’s Transtream multi-carrier parcel management solution enables e-commerce businesses to automate parcel consolidation processes and reduce shipping costs, while meeting international customers’ visibility and delivery expectations. Consolidated cross-border drop shipping is a method of combining multiple international parcel drop shipments into one cross-border container and then deconsolidating those parcels for local delivery from that international entry point. Transtream’s consolidated cross-border drop shipment process is simple: First, open a container destined for the country drop ship location. Then, Trans-
tream weighs, rates, and labels parcels as though shipped from the destination country drop ship point. The parcels are then loaded into the container (master pack, pallet, gaylord, etc.). When the container is finally closed, Transtream creates a label and customs documentation for single customs clearance. At the point of destination, packages are injected into the local parcel delivery system for delivery to their last-mile destinations. Transtream maintains endto-end tracking, with drill-down from container to parcel to line item detail. Visit Transtream today to learn how consolidated cross-border drop shipping reduces costs, complexity, delays, and returns that can take a bite out of your international e-commerce profits.
www.passportshipping.com/parcel alex@passportshipping.com 415.734.0465
www.pierbridge.com sales@pierbridge.com 508.630.1220
E-commerce has reshaped almost every industry, compressing the distance between sellers and customers. Companies are no longer fighting for market share with local rivals, but with global digital competitors that can target and win previously loyal customers. Global shipping has significantly more challenges than domestic deliveries. QAD Precision’s integrated global trade and transportation solution simplifies this process, by automating export management, global documentation production, customs reporting, and multi-carrier shipping. Goods glide through customs — the right information is presented to the right people, in the right format and language, at the right time. Shippers can screen their trading partners, determine end use, validate the country of destination, and ensure all export licenses and permits are included. With QAD Precision, shippers leverage a multi-carrier network of over 5,500 carrier services covering every corner of the world. Our global multi-carrier shipping solution also allows for consolidations, reducing transportation costs and regulatory headaches. Plus, we offer a centralized portal for tracking all deliveries, with any carrier, anywhere in the world with expectation alerts if something goes wrong. It is no wonder that QAD Precision is deployed in more than 4,000 sites across 100 countries. Our solution is multilingual, multi-currency and supports multi-date formats. And, of course, we offer global, 24/7 follow the sun support. www.qadprecision.com info@precisionsoftware.com Americas: + 1 (312) 239 1630 EMEA/Asia Pacific: + 353 (1) 406 0700
By Brian Byrd
DON’T UNDERESTIMATE THE IMPORTANCE OF YOUR
INTERNATIONAL PARCEL CONTRACTS
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ompanies’ supply chains have become more global than ever. Why, then, do so many shippers treat their international parcel contracts as an afterthought? This is an important topic because there’s a good chance that international small parcel shipping makes up a larger percentage of total logistics costs than most companies realize — a full 18% to 20% of volume based on data from our customer base. This lack of focus may be due to the professionals with responsibility for parcel agreements tending to have less experience with international shipping. The problem is often that FedEx and UPS agreements are managed by domestic-focused logistics managers, but this structure could be holding many companies back from big savings opportunities within their international shipping operation. Smart, proactive small parcel
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shippers are finding there are significant savings to be found within their service agreements by gaining a better understanding of their international shipping needs and taking a smarter approach. There are always details that can be negotiated and opportunities found that can provide real, impactful savings. First, a Quick Primer on the Available Services Although international shipping clearly has many complexities (from paperwork to customs requirements to transit times) that are different than domestic shipping, in general, many of the same delivery service options are available — from time-definite and overnight express deliveries to slower select and economy-type services. See Figures 1 and 2. Agreement Structure When it comes to rates and service
agreements, it’s important for shippers to not just know the services and zones each carrier serves, but to understand them. Perhaps another reason international shipping costs are overlooked is that UPS and FedEx automatically include international rates in their standard small package agreements. Many shippers likely feel confident that since their domestic Ground and other Express rates are well-negotiated, their international rates will be as well, even if they were not as closely reviewed. The structure of the rates is something domestic shippers will be familiar with, as they are based on zones and service levels at the country level (as opposed to a ZIP Code range). But there are some notable differences in how the two carriers present international rates in their agreements. For example, FedEx Express International is included in the Express
Figure 1
section, with International Ground in the Ground section. UPS customers should know that UPS International discounts and minimums are often split and detailed in different sections of the agreement. Also of note is that both FedEx and UPS discount by lane, which makes it important for large shippers to know their own shipping patterns in detail when approaching a negotiation with either carrier. Rate Advantages In terms of list rates, FedEx and UPS both offer shippers advantages depending on the lane and whether the shipments are import or export. For example, UPS offers lower list rates for SE Asia for both imports and exports, while FedEx has lower rates in the majority of other export lanes from the US. Shippers should also note that UPS and FedEx have limitations on the size and weight of packages, just as with domestic services. This means shippers should consider the use of international freight carriers for larger shipments, depending on the details of their own agreements. Fuel Surcharges An area of divergence for the carriers
Figure 2 Figure 3
INTERNATIONAL 2020  PARCELindustry.com 21
Figure 4
that has become more pronounced in 2020 is fuel surcharges. As the charts in Figures 3 and 4 illustrate, volatility in the price of fuel has led to the carriers charging (in some cases) vastly different surcharges from week to week. An interesting note is that if the carriers had not changed their fuel surcharge tables mid-year, the surcharge would now be 0%. Peak Season Surcharges Another new consideration for international shippers in 2020 has been the application of many COVID-related Peak Season Surcharges (PSS). Both carriers were quick to implement these types of additional fees at the outset of the pandemic and, in many cases, they have increased over the course of the year. The main surcharges are focused on Asia (mostly SE) and include China, Hong Kong, Taiwan, Vietnam, Malaysia, Thailand, Indonesia, Singapore, Philippines, Australia, New Zealand, Japan, and Korea. Other fees are applicable to the rest of the APAC region. At this point, both carriers have set no end date for the surcharges, leaving them in effect “until further notice.” Thus, all shippers need to understand what their main shipping lanes are and plan based on the assumption the 22 PARCELindustry.com INTERNATIONAL 2020
fees will continue through 2020, at minimum. Other Considerations There are many other details that go into international shipping that companies need to consider when it comes to managing their logistics costs and transit times. For example, aspects like Single Point of Clearance (SPOC) and its impact on customs entry and delivery timing into the EU present opportunities. Shippers with a large European footprint should consider SPOC services, which offer the ability to clear a group of shipments as one and then have them delivered individually once within the EU. Also, while most shippers understand that duties and taxes aren’t negotiable, costs such as the Advancement Fee or certain Forwarding Surcharges often can be. Similar to domestic agreements, standard surcharges such as Residential Delivery, Additional Handling, DAS, and large package can be as well. Both carriers offer extensive guides to help shippers prepare international shipments, including customs clearances, and it’s highly recommended to take advantage of these resources. Lastly, as NAFTA became the USMCA earlier this year, it changed much of
how importers need to manage the process of moving goods between the US and Canada/Mexico. Again, the impact is company-specific, so the onus is on the individual company to understand what USMCA means to the shipping costs and service times. Despite the added complexity of international shipping, it is not that different from domestic when it comes to understanding costs and services. This means that shippers need to put the same energy and strategy into their rate negotiations for international as for domestic. Even though the process of shipping internationally seems more complicated and cumbersome, shippers have plenty of opportunities to find savings in their agreements and improve their execution.
Brian Byrd is VP of Operations at Transportation Impact. He joined Transportation Impact in 2012, starting as a Business Analyst in the Operations Department and subsequently advancing through leadership roles, in Parcel Audit and Parcel Negotiation services. After five years as Director of Operations, in 2019, Byrd became Vice President of Operations. He excels in the areas of supply-chain optimization and strategy to deliver cost reduction.
APPLICATION ARTICLE
Leverage Automation to Simplify Global Shipping The disruptive influence of e-commerce extends far beyond retail. The ability to sell direct-to-consumer (DTC) has upended manufacturing, life sciences, and the logistics industry, to name a few. E-commerce offers unprecedented opportunities for enterprises to engage customers all over the world. For some manufacturers, both export sales and DTC are untapped revenue streams. Traditional distribution channels may account for the bulk of sales, but DTC cuts out the middleman. This can result in higher gross margins.
possible cost to meet the delivery deadline. There is no need for staff to toggle between carrier systems looking for the best rate and routes — the software does that automatically. Multi-carrier shipping software also supports consolidations. Highvolume parcel shippers can consolidate packages into a larger crossborder shipment. They can also use one carrier for cross-border shipping, and use a different, local carrier for the final mile. This can result in significant savings, particularly on the international leg, as well as fewer regulatory headaches. A consolidated shipment only needs a single customs declaration form.
E-commerce enables companies to directly connect with and build brand loyalty with customers — no matter where they are. However, shippers must meet customer expectations for fast, efficient delivery. Therefore, it may be necessary to reconfigure logistics operations. No wonder that across many industries parcels are replacing pallets.
As well as customs declaration forms, global shipping requires a lot of paperwork. This process can be automated as well. Manual processes are not only time-consuming, they are prone to human error. Incomplete or incorrect documentation or licencing errors will mean customs delays, and frustrated customers.
As companies scale to take advantage of global opportunities, one issue becomes clear: manual processes are no longer enough. In order to thrive in this always on, 24/7 digital marketplace, automation is increasingly necessary. Three areas that can be easily automated are multi-carrier shipping, global documentation, and export compliance.
Last, but of equal importance, global shippers should consider automating export controls, compliance checks, and restricted party screening. Automated solutions take the guesswork out of export compliance. Manually reviewing each export shipment and pouring over government restricted party lists is an almost impossible task for high-volume shippers.
Many shippers rely on one or two carriers; often one for domestic shipping and a second for international deliveries. While this may seem easy to manage, it leaves a company vulnerable to higher shipping rates and capacity outages.
With an automated solution, shippers can ensure that they have met all necessary export controls. Shippers should also consider integrating compliance with their shipping solution. This gives an extra level of oversight, as well as shortens processing time.
Shippers who leverage multi-carrier shipping solutions along with automating routing gain two advantages. Firstly, you reduce costs as carriers must compete for your business on every shipment. Secondly, automated routing, along with your business rules, means every shipment is sent at the lowest
www.qadprecision.com info@precisionsoftware.com Americas: + 1 (312) 239 1630 EMEA/Asia Pacific: + 353 (1) 406 0700
COMPLIANCE MATTERS: WHAT EXECUTIVES SHOULD KNOW ABOUT INTERNATIONAL SHIPMENTS
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BY DOREEN EDELMAN, ABBEY BAKER, AND CHRISTIAN CONTARDO
s trade compliance gains more traction, US regulators have made it clear that having compliance policies in place is critical, regardless of the company size or the industry. The implementation of such compliance programs can save companies thousands of dollars in fines and penalties. Trade compliance should be the goal of every importer and exporter as a risk-mitigation measure as well as a positive value proposition for most companies. A compliance program serves as a security blanket, whether it’s for a large financial institution accustomed to dealing with
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regulations, a small startup with a cloudbased platform, or an acquiring company conducting due diligence. A trade compliance program lays the groundwork for how to behave. With changing industry regulations, it is critical to keep up to date and have a compliance program that is effective. Failure to have a strong compliance program could result in increased legal exposure, potentially leading to fines and penalties. Trade compliance saves you money in the long run. For example, cargo firms could have protected themselves from the record $1.3 billion in penalties that the US government imposed on the shipping industry this year.
In addition to the cost of penalties, compliance violations or lack of a compliance program damages companies’ reputations and hinders or prevents business opportunities. Due to increased investigations and enforcement of violations, investors are conducting more extensive due diligence of companies’ trade controls to ensure their investment does not carry compliance liability. This due diligence can include extensive screenings of employees and customers as well as audits of company records for evidence of compliance controls and policies. The Destination Risk When exporting to sanctioned countries, some under a full embargo, it is important to understand the restrictions that are in place. Earlier this year,
the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) released guidance encouraging organizations subject to US jurisdiction to “employ a risk-based approach to sanctions compliance.” It is critical to tailor compliance procedures based on who is part of your international supply chain. Exporters doing business in regions such as Iran, North Korea, and Cuba must be aware of what shipments are allowed and what is prohibited, or else all the US entities involved run the risk of fines and penalties. Additionally, a restricted-party screening process should be a part of your regular compliance procedures. OFAC regularly updates its list of “restricted” entities and persons who pose threats to United States national security. Effective compliance programs are predicated on five essential components of compliance: management commitment, risk assessment, internal controls, testing and auditing, and training. Maintaining an effective compliance program helps ensure that you do not risk violating US sanctions and can mitigate penalties in case something goes wrong. The Product Risk Product classification is an important part of the shipping business. Engaging in the global supply chain is crucial for maintaining a competitive business. However, without a deep understanding of the rules for export controls, your business could be at risk. Licenses are required to export certain items. Whether a license is needed is determined using a product’s Export Control Classification Number (ECCN). The Department of Commerce classifies items under ECCNs based on the nature of the product and its technical parameters. You can search for a product ECCN online at the Bureau of Industry and Security (BIS) website (https://www.bis. doc.gov/index.php/regulations/ export-administration-regulations-ear). A key to
determining whether an export license is needed from the Department of Commerce is knowing whether the item you intend to export appears on the Commerce Control List (https://www.bis.doc. gov/index.php/regulations/commercecontrol-list-ccl). Products that do not have an ECCN and do not appear on the US Munitions List are designated EAR99. EAR99 items are often commercial goods, like paper clips. Harmless, right? Not necessarily. Even EAR99 products are prohibited from going to sanctioned destinations. You also should consider deemed exports. A deemed export is any release in the United States of technology or source code to a foreign person. Such release is deemed an export to the foreign person’s most recent country of citizenship or permanent residency. This poses an issue because if you release technology to someone from a sanctioned or restricted country, you could be liable. The Customer Risk Do you know every entity in your supply chain, from the customers placing orders to the end users receiving your shipments? Knowing such information is critical. If you fail to review everyone in your supply chain, the risks are high. For example, American Export Lines was fined $518,063 for violations of Iranian Transactions and Sanctions Regulations when it shipped automobile parts from the United States via Iran to Afghanistan. In January 2020, Eagle Shipping agreed to pay $1.125 million to settle its civil liability for violating the Burmese Sanctions Regulations by shipping sea sand on behalf of an entity identified on the OFAC Specially Designated Nationals and Blocked Persons list. Recommended Steps for Ensuring Compliance and Mitigating Risk The benefits of having a compliance program in place when a mistake happens are significant. If your company has not invested in a compliance program,
it should — the sooner, the better. And when creating your tailored trade compliance policies and procedures, remember the following: Compliance programs should include a comprehensive, independent, and objective testing or audit function to ensure that entities are aware of how their programs are performing. Programs should be updated regularly in light of constantly changing regulatory and business environments. Ensure that your compliance program has comprehensive coverage to review all parties involved in import and export transactions. Even products that seem harmless can be used in ways that companies do not intend. As an organization, you are responsible for knowing how your products will be used and avoiding government-prohibited end uses. Now more than ever, government offices and agencies are providing the industry with guidance on how best to comply with trade regulations. For example, in May 2020, OFAC issued guidance for the maritime shipping industry warning about deceptive shipping tactics used by embargoed countries and recommending compliance measures companies involved in all aspects of maritime shipping could implement to mitigate the risk of a violation. The US Department of Justice also released updated guidance in June 2020 on evaluations of corporate compliance programs. With all this information available, companies no longer can claim ignorance and must take preventive measures to ensure compliance, mitigate risk, and provide some cover for potential violations.
Doreen Edelman is Partner & Chair, Global Trade & Policy Practice, Lowenstein Sandler LLP. Abbey Baker is Counsel, Global Trade and Policy at Lowenstein Sandler LLP. Christian C. Contardo is Associate, Global Trade & Policy at Lowenstein Sandler LLP.
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THE UPCOMING ELEPHANT IN THE ROOM: CHANGES TO THE VALUE-ADDED TAX (VAT) IN THE UK AND EU By Krish Iyer
O
ver the past few months, there have been many changes to international shipping. Whether it is the implementation of a new terminal dues structure on inbound packet shipments or the new USMCA, international shipping changes abound. Yet, the discussion rarely focuses on what is coming in 2021, but these changes are significant and deserve attention. Change #1: New VAT Rules in 2021 for the UK Starting January 1, 2021, the VAT (Value-Added Tax) will be collected on all goods coming into the UK, not just ones that only exceed the current £15 threshold where the VAT is then assessed.
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These changes are meant to address UK business competitiveness but can have a real effect on US and Canadian exporters, in particular. The new VAT rules are meant to tighten how VAT is collected on imported goods and address the fact that overseas exporters, especially ones in the EU, US, China, and Australia, tend to skirt VAT payments by listing goods under a value threshold or as gift shipments, thus placing local vendors at a disadvantage. With Brexit meaning fundamental changes to British trade law, addressing the problem of VAT on imports became important. It is important to note that these VAT changes will primarily affect e-commerce merchants and shippers in the US, Canada, and Australia most of all, as the UK tends to import products from sellers in these markets. Online seller marketplaces, in particular, will be impacted as those facilitating the sale of an item are then collecting and accounting for the VAT to the UK Customs authority, the HMRC (Her Majesty’s Revenue & Customs). If a product is then sold and exported in an e-commerce environment outside of a marketplace sale, the overseas seller might be required to register directly with the HMRC. If an overseas seller already has products in the UK (i.e. with a fulfillment provider in market), then the seller will be responsible for accounting for the VAT on goods already in market and will have to account for it with the HMRC as well. Merchants exporting their goods for entry into the UK will need to apply for a British EORI number. An EORI (Economic Operator Registration and Identification) number will be required to move goods between the UK and the EU. At the time of this writing, the British government is advising a week or longer as the wait time for obtaining an EORI number, but in light of COVID-19, a much longer wait time can be reasonably expected. The non-UK entity must then register and pay taxes in the UK. Many of these changes have still not been clearly communicated to non-UK entities; it is important for a shipper to discuss these changes directly with both their shipping carrier, and the tax/ treasury group internally within their
organization and the marketplaces by which they sell their products. Additionally, tax software and compliance companies can be beneficial to consult.
For more information, please consult the following resources: Apply for an EORI number: www.gov.uk/eori Register & pay taxes in the UK: www.gov.uk/guidance/ appoint-someone-to-deal-withcustoms-on-your-behalf UK import and export process: www.gov.uk/prepare-to-import-togreat-britain-from-january-2021
Change #2: EU VAT Law Change A previously agreed-upon plan to implement changes to the VAT in the EU has now been delayed from January 1 to July 1, 2021. Similar to the UK changes, the new rules stipulate that all B2C sales of goods to EU consumers will be taxed in the destination member state. In simpler terms, this means the country where the consumer is will be the one that implements and collects the tax itself. The origin of a product, whether it was in the EU or not in the EU, will no longer be relevant to the tax collection. Currently for products entering the EU from outside the EU, the current exemption for low value goods is EUR 22; as of July, 1, 2021, this will no longer exist. As is the case with the UK VAT, much is still unknown. It is important for shippers to contact their carriers as well as tax software providers and internal accounting/tax departments within their own companies to then determine the right strategy for tax payments on products they sell on marketplaces and/or export.
Krish Iyer is Head of Industry Relations and Strategic Partnerships at ShipStation. He is an industry leader in cross-border trade and logistics software with almost two decades of Fortune 100/500 global product marketing/product development, sales, supply chain technology, and integrated marketing experience. He can be contacted at krishna.iyer@shipstation.com.
DRIVING THE MAXIMUM COST SAVINGS OUT OF SECTION 321 TYPE 86 SHIPMENTS TO THE US By Geoff Tice
T
he spike in online shopping and e-commerce shipments only seems to be growing in popularity as everyone continues to acclimate to a post-COVID-19 world. In order for retailers to keep up with this swift rise in online sales, they’ll have to find ways to optimize their delivery operations and, in the case of sellers importing goods, streamline product entry. Cost management and speed-to-market will continue to be two keys to success for retailers in this environment. One process that has taken off for those with online businesses is the expedited release of Section 321 Type 86 Customs Entries. This new process is an extremely effective way to save on duties as well as
reduce many of the operational costs that go into normal B2C deliveries. What Is a Section 321 Type 86 Entry? On September 28, 2019, the US Customs and Border Protection (CBP) launched a filing process for Section 321 Type 86 Entries to help improve the flow of imports into the US. According to the CBP, only merchandise shipments imported by one person that fall under a total daily value of $800 will qualify for this type of entry. Orders that meet these requirements will then be released through the revamped Automated Commerce Environment (ACE) importing platform and officially exempted from any taxes or duties, which is the main attraction to online sellers for obvious reasons. More than 1.8 million packages that sufficiently address the CBP’s criteria for a Type 86 Entry enter the US every day. The US organization’s previous electronic filing system, or the Automated Brokerage Interface (ABI), didn’t provide any support for self-filers or brokers that needed clearance for their smaller, less valuable e-commerce packages. Now, with a more efficient and cost-effective program in place that accelerates the flow of these kinds of imports, retailers can better manage rising costs, volumes, and pandemic threats to ensure their customers’ orders keep moving. The Benefits Go Beyond Saving on Duties When handled properly, Section 321 Type 86 Entries present many additional opportunities to both save money and improve delivery speed. From a speed-to-market standpoint, Type 86 Entries avoid many of the time-consuming steps in a typical retail supply chain process. With orders arriving in the US literally packaged for delivery, they can be immediately entered into the final-mile delivery carrier’s network (be it UPS, FedEx, USPS, etc.) and avoid additional handling and transportation. Many warehousing and fulfillment costs can be avoided altogether because services like inventory storage and carrying costs go away. Some packaging and
fulfillment costs are still incurred, but they’re essentially pushed upstream to an overseas facility that’s preparing the orders for delivery in a lower-cost environment. Take These Steps to Get the Most Leverage Shippers should look for forwarders and customs brokers who offer end-to-end visibility from order placement to order fulfillment if they want to get the best use out of Section 321 Type 86 Entries. Today’s consumer expects to be kept in the know when it comes to the status of their product’s customs clearance and in-transit movements. Without logistics services providers who can contribute this level of insight, it’s difficult for online retailers to really reap all the rewards. The CBP takes Section 321 Type 86 Entry eligibility pretty seriously, meaning they’re a lot more likely to carefully check that any shipment attempting to file under a Type 86 Entry accurately complies with their regulations. There are also many different exceptions for Section 321 shipments that you need to keep track of during this process. For example, certain alcohol and tobacco goods or products subject to inspections and specific quotas won’t make the cut to qualify, so it’s important to verify that your shipments are actually eligible before officially filing. Cutting costs and increasing revenue have both been huge priorities for most in the retail industry following the devastating disruptions that COVID-19 has produced over the past few months. Luckily, the CBP’s introduction of Section 321 Type 86 Entries could not have come at a better time for importers struggling to cope with ever-expanding e-commerce demands.
Geoff Tice is President of Kesco Logistics (www.kescologistics.com), a full-service freight forwarder and customs broker headquartered in New York, with locations around the world. Kesco specializes in serving the retail industry with end-to-end supply chain solutions that include foreign fulfillment, customs clearance, ocean- and air-freight, and truckload solutions. INTERNATIONAL 2020 PARCELindustry.com 27
By Deyman Doolittle
OH, CANADA!
M
uch like the US, the rise in Canadian small parcels is being attributed to e-commerce growth, which has almost doubled this year. According to Statistics Canada, retail e-commerce sales were $3.2 billion in June, accounting for 5.5% of total retail trade. However, e-commerce sales in June made up a smaller share of retail sales than in April and May, as more non-essential retailers opened their brick-and-mortar stores. But the proportion of e-commerce in regard to total retail sales still remains above the pre-pandemic share observed in February. On a year-over-year basis, retail e-commerce has increased 70.6%, while total unadjusted retail sales have increased three percent. Indeed, e-commerce orders have resulted in higher than normal small parcel volumes. In May, for example, Canada Post issued an advisory stating, “Canadians should anticipate parcel delays for the foreseeable future, even as Canada Post delivers at record levels.” On May 19, Canada Post hit an all-time,
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The Growth of the Small Parcel Market in Our Neighbor to the North
one-day record with 2.1 million parcels delivered to Canadians. That is about three times the norm for this time of year, according to the postal operator. In June, Canada Post delivered 75% more parcels than it would in a typical June. The number of larger household items, such as refrigerators, patio furniture, and barbecues, ordered online have also increased. As noted by Canada Post, these bulky items often require a two-person lift, which creates additional safety challenges and delays. So it’s no surprise that a number of US-based trucking firms have expanded over the border to address the last-mile delivery of bulky items. Most recently, Werner announced its plans to provide delivery and white glove services to residential and business addresses in every Canadian province and territory. According to Werner, it specializes in final-mile logistics of furniture, appliances, medical and fitness equipment, store fixtures, and other heavy goods. Overcoming the Last-Mile Inefficiencies Regardless of small or large parcel, 78%
of transportation and logistics companies in Canada believe that last-mile delivery is the most inefficient process of the entire supply chain. This is in comparison to 59% of similar companies in the US, according to a study commissioned by SOTI, a provider of mobile and IoT management solutions. As part of the need to improve last-mile efficiency, Canada Post has increased the number of lockers in residential buildings across the country to more than 11,000 from 9,300 at the end of 2019. In addition, FedEx and UPS offer alternative pickup locations at their FedEx Ship Centers and UPS Stores locations across Canada. To meet same-day expectations, a growing number of store-front retailers offer curbside pickup and Buy Online Pick Up in Stores (BOPIS). According to OrderDynamic’s Omni-2000 Research Canada, 31% of Canadian retailers offer BOPIS. This lags behind the global average of 37.6%. As noted by Statistics Canada, small businesses are increasingly turning to
addition, five new delivery stations will be built in the Toronto area. Amazon has also invested in air cargo capabilities in Canada to help speed up the last mile. In 2019, it invested in Cargojet. Amazon utilizes Cargojet’s overnight air Regardless of small or large network and charter aircraft services to move packages parcel, 78% of transportation and from Amazon facilities to other Amazon or last-mile logistics companies in Canada carrier locations before final believe that last-mile delivery is delivery to customers. Cargojet plans to the most inefficient process of strengthen its domestic network to support the the entire supply chain. This is growth in e-commerce and in comparison to 59% of similar in a drive towards faster deliveries as well as seven companies in the US. days-a-week deliveries. Over time, Cargojet also wants to add more non-stop flights, Meanwhile, Amazon has about 10 allowing later departures and earlier fulfillment facilities in Canada and is arrivals to the 15 major cities that expanding further. In September, the Cargojet already serves and to add new e-commerce provider announced plans cities on its overnight network. to build two new fulfillment centers in Lastly, cross-border e-commerce has Hamilton, Ontario and Ajax, Ontario. In e-commerce platforms versus establishing a storefront presence. Shopify, headquartered in Ottawa, noted that in Q2, there was a 71% increase in new stores created on the Shopify platform.
always been strong between the US and Canada. While 90% of the population lives within 100 miles of the US, customs clearance has typically been costly and time-consuming. However, the July 1 implementation of the United States-Mexico-Canada Agreement (USMCA) is expected to accelerate cross-border e-commerce and ease requirements. The deal raises the duty-free allowance for shopping to C$150 from C$20. The Canadian small parcel market is similar to that of the US market. Its growth has benefitted from e-commerce, but will it continue? Regardless of the degree to which Canadians choose e-commerce purchasing options or return to traditional purchasing methods, the retail trade industry in Canada is rapidly evolving and will require unique last-mile delivery options.
Deyman Doolittle is Co-founder and COO of ShipSights.
A closer look at 40 companies with the equipment, software, services, and/or supplies to help you ship more packages, more frequently, and more efficiently.
PARCELindustry.com/HotCompanies INTERNATIONAL 2020  PARCELindustry.com 29
between $40 CAD and $150 CAD After $150 CAD, both D&T will apply
RECENT USMCA CHANGES: A RUNDOWN By Gordon Glazer
Postal shipments No change Postal shipments will continue to have a customs duty and tax remission at the same previous threshold value, up to $20 CAD DDU shipments to CA that are liable for tax and/or duty will be assessed to the consignee for payment, often to include additional fees for collection Shipments from US to Mexico Commercial shipments (hybrid/express providers) The de minimis threshold of $50 USD for goods shipped to Mexico remains the same Tax will be collected for goods valued between $50 USD and $117 USD After $117 USD, both D&T will apply Postal shipments Will continue to have a customs D&T remission threshold value up to $300 USD
A
s of July 1, NAFTA (North America Free Trade Agreement) will now domestically be referred to as USMCA (US - Mexico - Canada Agreement). The news is mostly positive for all three countries (see https://www.trade.gov/ usmca for more information), but let’s take a deeper look at what these changes mean. Shipments from US to Canada Commercial shipments Increases the de minimis threshold to $40 CAD for goods shipped to Canada Tax will be collected for goods valued
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Alternatives for Offshore Shippers to Mitigate Costs Break bulk / freight forwarder solution providers can package orders at the country of origin, labeling for the domestic delivery of each individual shipment. Shippers then consolidate into a freight movement and import under an informal customs entry using section 321 clearance type 86, where individual orders under $800 are T&D free. Once the shipments are domiciled in the US, they are often injected into the USPS network for final-mile delivery. International high-volume shippers of lightweight products into the US may also consider placing those fast moving, high-volume SKUs in a regionalized US-based fulfillment center. This would ensure greater success in getting the product in the consumer’s hands faster and more effectively. Summary 95% of the world’s e-commerce
buying power exists outside the US. For merchants and shippers that wish to grow their business internationally, creating the right customer expectation is critical. Using shipping providers that provide different levels of service will allow the seller and shipper to meet expectations, thus resulting in a good customer buying experience, where the international consumer is more likely to be a returning customer. Shippers utilizing the USPS for international e-commerce should look for alternatives and compare pricing and services for the countries they ship to. The changes to NAFTA offer alternatives to leverage commercial shipments to reduce both freight costs and the accompanying D&T. There is a lot to absorb. I encourage you to reach out to your international rep or your third-party consultant and discuss and strategize on how you can best leverage these changes. Wishing you great shipping success.
Gordon Glazer, CMDSM, CMDSS, MDP, MDC is a Senior Consultant, USPS Specialist at Shipware LLC, an innovative parcel audit and consulting firm that helps volume parcel shippers reduce shipping costs 10%-30%. Gordon is a postal industry veteran with 34 years’ experience and is a sought-after speaker and industry thought leader. He welcomes your questions and comments and can be reached at 858-724-0457 or gordon@shipware.com.
Editor’s Note: We originally ran this piece in an e-newsletter this summer before the changes went into effect, but we thought this excerpt also worked as a refresher for our international issue, since we know a lot of our shippers will be impacted by these changes. You can read the full piece (including a look at UPU changes) online at PARCELindustry.com/CriticalChanges.