The challenges of cross-border ecommerce in a world open for business

Among plentiful rewards and opportunities for growth, barriers persist

Cross-border commerce is rapidly growing and the long-term prospects are strong, with a high probability the total value of global cross-border ecommerce will exceed $1 trillion in 2023. Yet despite this bright outlook, challenges remain for businesses when crossing borders — that’s the crux of The state of global cross-border ecommerce report 2023–24, an industry survey and analysis conducted by Reuters Events and Avalara.  

Of the hundreds of businesses canvassed, 55% said they find the business environment difficult to operate in. Just 6% find the process very easy. It appears that even when nations are incentivised to open their borders and relax regulations more than ever, cross-border transactions still trouble most businesses.

So what are the top challenges they encounter in cross-border commerce during a time of economic growth? Taking a closer look here at the issues businesses like yours face can help you better understand and overcome them. 

Shipments delayed in customs

Near-instant delivery used to be a want — now it’s an expectation. In an era when cost is the main priority for online buyers above speed and convenience, sellers naturally want to get their goods through customs as quickly as possible. Yet 94% of survey respondents report facing delays in cross-border shipping due to incorrect item classification and documentation, and just 6% said that goods are never delayed. Incorrect, inaccurate, or incomplete documentation such as customs forms, invoices, packing lists, or certificates of origin can cause significant delays. For most of us, the penalty for sending an email with a wrong or missing attachment is usually no more than annoyance or a few blushes — an equivalent oversight for cross-border sellers can mean loss of business. Customers left waiting for their goods will not rush back to buy again or leave glowing reviews. 

Trying to ship items that are restricted or prohibited on grounds of health and safety, or even national security, can also cause customs delays. Because import rules differ across nations and regions, an item that can sail through customs in one country could be blocked or confiscated in another. Goods can also be held if customs authorities determine incorrect duties have been paid, or not paid at all. 

How are businesses learning to deal with these delays? In the survey, 87% reported using technology for help when handling trade documents, and 74% said they automate invoicing for tax and duties. That’s because automation can perform the complicated and time-consuming job of classifying goods correctly, so the correct duties are paid. The same software can also flag restricted items so businesses can remove prohibited goods from their inventory and reduce returned shipments. Such a boost to efficiency can be invaluable, particularly when shipping bigger volumes during peak sales periods (such as before Christmas or on Black Friday) when import/export activity spikes. 

Another way automation may help businesses save on costs and reduce the chances of customs delays is by identifying de minimis values — the thresholds under which goods can pass without paying customs duties and taxes. De minimis values are not global, and the threshold varies considerably across regions where it does exist, but 69% of goods shipped across borders are subject to de minimis thresholds. In North America and Europe in particular, the value of eight in every 10 purchases falls under de minimis thresholds. Taking advantage of this can help businesses reduce shipping costs and reach their customers perhaps more quickly than their competition. 

Customs regulatory compliance

HS codes — part of the Harmonised System — are six-digit identifiers assigned to every product sold across international borders, and enable customs authorities to apply the correct duties and taxes. Though the name may suggest a universal, complication-free system, businesses still face issues when assigning accurate codes. Understandable, since there are over 40,000 codes that update and change every few years, and country-specific prefixes mean the same product can have a different code depending on where it’s being shipped. HS codes are easy to get wrong. Indeed, 41% of respondents reported they find getting their HS codes right a challenge.

Small mistakes can be costly too — customs authorities tend to default to the highest tariff possible, which can mean delays or surprise costs being passed onto the customer. This is another problem automation can help to solve by assigning the correct codes to products, even when shipping in high volumes to diverse regions, to reduce the risk of holdups and nasty surprises. 

Added supply chain and delivery costs

It’s not too cynical to say the past few years have been somewhat of a rough ride for the world, with what feels like one global crisis after another. No great shock then that despite the sunny outlook for ecommerce, 54% of respondents were concerned about the potential for a recession to diminish its demand, 52% expressed inflationary pressures as a concern, 40% had fears over the cost of shipping (despite the cost of international ocean freight falling in 2022), and 37% expressed concerns over international supplier instability. 

At the final leg of the journey to the customer, parcel shipping costs are on the rise and have even exceeded the rate of inflation in numerous countries around the world. The report cites shipping intelligence that big-name parcel carriers (such as UPS, DHL, FedEx) will charge businesses up to 10% more in 2023 than they did in 2022. Passing these costs onto the customers via price increases would undoubtedly lead to loss of business, as well as a wave of returned goods with their own shipping costs for businesses to cover.

By using DDP (Delivered Duty Paid) businesses cover transportation, import, and customs costs, and offer the buyer transparency at the point of sale so they get their goods at the agreed price. Without unwanted surprises for the customer, the chances of returns and associated costs are reduced, and the customer experience is improved. Of the survey respondents, 61% said they show a DDP calculation to the customer at checkout, a sign that this advantageous practice to seller and buyer alike is becoming an industry standard.  

Cracking the code

Customs delays, compliance complexity, and associated costs represent the challenges of cross-border ecommerce — and are all connected. Goods delayed in customs, either due to a documentation error or assigning the wrong HS codes, will typically mean additional supply chain and delivery costs that are in some cases passed onto the customer. Inevitably, this leads to reputation damage and loss of business. By using automation to get customs documentation and HS codes right as well as reduce the chances of customs delays, surprise costs for customers, and additional or return shipping costs, businesses can save on costs and help keep their international customers happy.

In addition to documentation accuracy, the main benefits of automation cited in the report were better compliance with constantly changing rules and regulations, simplified filing, reduction of errors, and freeing of resources that allow businesses to focus on more revenue-generating aspects of their operation. 

Despite clear and ongoing challenges, over twice as many respondents expected the environment for cross-border ecommerce to improve rather than to deteriorate (46% compared to 20%). Clearly optimism remains, and businesses continue to improve their ability to manage complex cross-border requirements by adopting compliance tools.  

Recent posts
Will Washington be the next state to implement a retail delivery fee?
What makes filing a personal property tax return so complicated?
Vermont taxes remotely accessed software … again
2023 Tax Changes blue report with orange background

Avalara Tax Changes 2024: Get your copy now

Stay ahead of 2024’s biggest tax changes with this comprehensive, compelling report covering seven industries.

Read the report

Stay up to date

Sign up for our free newsletter and stay up to date with the latest tax news.