Holy ecommerce on steroids! Is the supply chain ready?
A staggering amount of goods are being sold and shipped across borders lately. Consumers unable or unwilling to visit brick-and-mortar stores because of COVID-19 are shopping online, often browsing beyond familiar retailers to buy from ecommerce sellers based in other countries. To meet this heightened demand, retailers and supply chain businesses must improve efficiencies, leveraging technology where possible to simplify and streamline cross-border compliance.
International ecommerce sales rose by 21% during the first half of 2020. Cross-border sales jumped by 10.2% in the United States, and nearly that much (9.5%) in Western Europe. And the growth of cross-border ecommerce has only just begun; by 2023, global ecommerce revenue is expected to exceed $6.5 trillion.
To make the most of these burgeoning cross-border opportunities, retailers need a well-oiled supply chain that can provide inexpensive and speedy delivery. They also need supply-chain partners that facilitate rather than obfuscate cross-border tax compliance. Failure to disclose the full landed cost of a transaction up front — applicable customs duties and import taxes (VAT or GST) — can lead to disgruntled buyers and package rejection.
New opportunities and challenges in international ecommerce
According to global logistics giant DHL, the increase in cross-border sales is largely due to an increase in demand for small, lightweight products such as consumer electronics, clothing, and health and beauty products. Many of these products are valued below the U.S. de minimis threshold of $800, meaning they’re exempt from customs duty. Yet they remain subject to oversight by U.S. Customs and Border Protection (CBP).
The influx of low-value ecommerce shipments has caused delays at customs. So following the lead of many other countries, U.S. customs introduced a new process to fast-track these imports — Entry Type 86. It launched in September 2019.
Entry Type 86 has indeed expedited the import process for de minimis shipments, but it’s also created new compliance challenges for U.S. importers. It requires the owner, purchaser, or designated customs broker to electronically submit certain data into CBP’s Automated Commercial Environment, including the country of origin of the shipment, the fair retail value, and the Harmonized Tariff System code.
The Harmonized Tariff System code (HTS or HS code*) is part of a global identification system for merchandise. Each country has different nomenclature for their tariff system. The European Union uses the Common Customs Tariff (CCT) and Integrated Tariff (TARIC) to manage customs regulations and tariff codes. In the U.S, a 10-digit HTS code is used to determine tariff classifications for goods entering the country. There’s a unique HS code for every product bought and sold: The first six digits of an item’s code are the same in all countries that use HS codes; the remaining digits are country specific.
Low-value imports entering the U.S. normally don’t require an HTS code, as they’re exempt from customs duty. However, shipments benefitting from the expedited clearance offered by Entry Type 86 do need to be identified with the full 10-digit HTS code.
These codes vary by product and by country. For example, the HS code for a short-sleeve, 100% cotton T-shirt exported from the U.S. to Mexico is different from the code for a short-sleeve, 100% cotton T-shirt exported from the U.S. to France. Thus, ecommerce businesses selling a variety of products into numerous countries can easily be overwhelmed with this one aspect of cross-border compliance.
Shipments labeled with the incorrect HS code risk being delayed at customs. Furthermore, incorrect HS codes can lead to over- or under-collection of customs duties and import taxes, both of which are problematic. Inflated customs charges can cut into seller margins, while under-taxed packages risk being delayed at customs.
Supply chain and logistics professionals that can facilitate Entry Type 86 clearance for clients will have a competitive advantage over those who can’t support ecommerce sellers shipping across international borders. This is especially true for retailers new to selling internationally, who may be unfamiliar with HS codes, Entry Type 86 clearance, and all that cross-border compliance entails. They’ll come to rely on logistics and shipping partners who can help them navigate this complex world.
Other considerations when selling across borders
HS codes are a headache, but they aren’t the only complicating factors for cross-border ecommerce businesses. Others include rising global postal rates and shifting trade agreements. Here, too, automation can improve efficiency.
Rising global postal rates. The beleaguered U.S. Postal Service (USPS) is increasing the cost of the final-mile delivery, especially for packages originating outside of the country. It’s not alone: Prices to ship small, lightweight packages are on the rise throughout the world. To keep costs down, logistics and shipping businesses will need to rely on cost-saving technology such as AI and automation.
Shifting trade agreements. After decades geared toward free trade, barriers to the international flow of goods are now being raised. Trade wars between the U.S. and China as well as Brexit mean more cross-border tariffs and tighter controls over imports and exports. To successfully navigate this changing landscape and ensure the accuracy of their HS codes, retailers need to work closely with logistics partners.
Supply chain and logistics professionals can provide cross-border sellers with the support they need to keep costs down while meeting rising demand. But to do so, supply chain businesses must improve efficiency.
Learn how to prepare supply chains for the surge in global ecommerce and the requirements behind a smooth operation in this Reuters report.
* HTS code is more common in the U.S.; HS code is used worldwide.
The 2021 sales tax changes report: midyear update
Your guide to navigating the complicated world of tax compliance and preparing for the future
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