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The Impact of Technology on International Selling

Using automation to manage shipments of export cargo and import cargo in international trade.

The Impact of Technology on International Selling

In the second part of this three-part series, I described some specific pitfalls related to crossborder selling and some lessons learned. In this final part, I’ll take a look at a key trend that is impacting the marketplace: the use of automation to manage complexity.

As noted in Part 1 of this series, crossborder selling is becoming easier than ever. Research published by DHL Express predicts crossborder online retail will grow at twice the rate of domestic e-commerce until 2020. For most small and medium businesses (SMBs), this opportunity comes with a cost: dealing with the complexities of crossborder trade.

Tracking the range of obligations, from customs duties to import and export taxes is very complex and involves a number of variablesDifferent countries use different formulas to calculate their custom duties on specific items. Some countries exempt duty and import tax unless the total shipment value exceeds a certain amount. It can be very difficult to determine the current duty and import tax applicable to certain products, each has its own tariff code, which can make classification complicated.

Enterprises bring decades of experience and established procedures to this topic. New businesses are often approaching it for the first time, and are unaware of the volume and complexity of obligations they are undertaking. But when these obligations are missed, the result can be a significant delay of an order or a frustrated customer rejecting a shipment because required costs weren’t made clear upfront. In both cases, it has a direct impact on the business’s bottom line.

Until recently, there were few options to help sellers accurately navigate this complexity. Many SMBs simply store the information in spreadsheets, or rely on outdated and inflexible ERP systems, built on manual entries. Other SMBs simply outsource their tax compliance to shipping companies – who themselves are not experts on obligations, and certainly don’t have the same incentives as the seller.

This can make the prospect of crossborder trade appear daunting. The silver lining for SMBs is the growing trend of automation to manage the complexities of cross border trading. The value of automation comes from the fact that the right software can repeat the same process to a high standard every time, even as the volume of transactions being undertaken grows. As such, it can manage the complexities that SMBs encounter at crucial points such as assigning tariff codes or calculating customs duties. Furthermore, these solutions are shipper neutral, so they will work with any shipping option a seller wants to offer.

To take one example of many: calculating the landed cost. Many sellers who are entering international markets for the first time may never have needed to think about landed costs, or its various components. But if they fail to take account of landed costs and to assign the correct harmonized tariff codes, they can easily end up assigning this burden to their own customers. This can lead to delays, costs, or even rejected shipments. Automated landed cost systems can take the drudgery out of this process, assigning codes and making the necessary calculations for each transaction with minimal input from the seller.

Other notable areas where automation can add value include identifying, filling out and filing the documents needed for customs declarations and clearance; communicating with customers regarding who will remit customs duty and import tax; enabling transaction screening to avoid shipping sanctioned or restricted products or doing business with sanctioned or restricted entities or individuals; and ensuring accurate compliance oversight.

One of the reasons for the increase in new automation solutions is the use of Application Programming Interfaces (APIs). Before APIs, connecting multiple systems in order to create something like a landed cost calculator required huge budgets and long development cycles. APIs, a way to simplify connections between systems, dramatically reduces the cost and time of development. Further, the ability of vendors to offer an automation solution using software as a service (SaaS) model dramatically reduces the cost and complexity for sellers who lack the expertise to develop a solution themselves.

Looking Ahead: Automation to Handle a Complex World

As sellers consider their crossborder selling strategies, it’s important to keep two opposing trends in mind. On the one hand, globalization continues to accelerate. On the other hand, protectionism and anti-trade rhetoric are on the rise and claim that cheap imports are responsible for manufacturing decline and job losses.

While this uncertainty exists, the advances in online retail mean the opportunity for crossborder trade will only keep growing. To be ready for this opportunity – and to have the confidence to move forward with a crossborder selling strategy – it is essential for sellers to create mechanisms that will allow them to navigate the complexity of international trade. Automated solutions will become an ever-greater part of the SMB tool kit.

Amy Morgan is a senior product manager for global trade solutions at Avalara. She has managed crossborder compliance for companies ranging from startups to Fortune 500. She is motivated by simplifying import/export problems.

Learning to deal with crossborder shipments of export cargo and import cargo in international trade.

Going Global: Navigating the Pitfalls and Opportunities of Crossborder Selling

In the first of this three-part series,‭ ‬I introduced the challenges of crossborder selling.‭ ‬In Part‭ ‬2,‭ ‬I’ll dive into some specific pitfalls and lessons learned.

Pitfall‭ ‬1:‭ ‬Total landed costs
A colleague living in India purchased some of his favorite products from a professional-looking site.‭ ‬He did not realize the business was US-based because it had sophisticated translation options,‭ ‬localization based on IP address,‭ ‬international payment tools,‭ ‬and the ability to select the desired currency.‭ ‬Further,‭ ‬the site did not state that the products would ship from the US.‭ ‬My colleague purchased items totaling‭ ‬$211.91,‭ ‬with a shipping charge of‭ ‬$14.37.‭ ‬When the‭ “‬tax‭” ‬line showed a zero amount‭ – ‬with no mention of customs duty or any other required costs‭ – ‬he assumed taxes did not apply.‭ ‬Later,‭ ‬when the shipment arrived,‭ ‬he received a notice that India Customs required an additional‭ ‬$290‭ ‬to release the shipment‭! ‬The result‭? ‬A frustrated,‭ ‬angry customer who rejected the shipment.‭ ‬In the end,‭ ‬the retailer had to pay to have the product shipped back to its facility and may have lost a customer for life.

The lesson:‭ ‬Not calculating the total landed cost—the total cost of getting a shipment from a buyer’s facility in one country to a customer’s door in another—is the top mistake etailers make when selling across borders.‭ ‬Some retailers may believe that including the duty and tax might scare customers,‭ ‬but letting customers decide not to pay the additional charge is better than misleading them.‭

Retailers have the option of remitting the customs duty and tax themselves or passing it along to the end-consumer to handle.‭ ‬Either way,‭ ‬transparency is key.‭

Calculating the total landed cost manually is very complicated and time-consuming,‭ ‬requiring a significant effort to figure out the duty rate for each item while ensuring the formulas are correct for each destination country.‭ ‬Additionally,‭ ‬the rates are constantly changing.‭ ‬Fortunately,‭ ‬a number of services now automate the calculation of customs duty‭ & ‬taxes,‭ ‬ensuring that correct formulas are used and that the duty and tax rates are current.‭

Pitfall‭ ‬2:‭ ‬Export/import declarations
A U.K.‭ ‬company ordered a unique widget from a US manufacturer.‭ ‬The manufacturer,‭ ‬which had not sold internationally before,‭ ‬utilized its current shipping company,‭ ‬which took the first order to its hub and filed the export paperwork.‭ ‬When the shipping company asked the manufacturer for the duty rate for the export declaration,‭ ‬the manufacturer had no idea.‭ ‬Anxious to keep the shipment on schedule,‭ ‬the shipping company offered to source this information.‭ ‬After months and several similar shipments,‭ ‬a British customs officer discovered the duty rate on the customs documents did not match the item descriptions on the commercial paperwork.‭ ‬The shipping company had erroneously assigned a‭ ‬0%‭ ‬duty rate,‭ ‬and the customer had applied the same wrong rate on its import declaration.‭ ‬The correct rate should have been‭ ‬5%,‭ ‬and British customs‭ ‬went after the customer as the importer of record,‭ ‬assessing‭ ‬£7,750‭ [‬almost‭ ‬$10,000‭] ‬for current and past shipments.

The lesson:‭ ‬As with the landed cost,‭ ‬most organizations don’t know about export and import declarations.‭ ‬When faced with complexity,‭ ‬they often assume shipping companies are the experts.‭ ‬But this is a risky move.‭ ‬Shipping companies have no regulatory obligation to get the compliance details right.‭ ‬An error this large will almost always lead to a negative customer experience,‭ ‬including increased costs,‭ ‬fines,‭ ‬delivery delays,‭ ‬and even shipment seizure.‭ ‬Automation is again the easiest solution.

Pitfall‭ ‬3:‭ ‬Misinformation and Fraud
A man living in Hong Kong had a lucrative business using various online marketplaces to sell to customers in Hong Kong and the EU.‭ ‬When he started selling to customers in Canada,‭ ‬customers complained about the customs duty and tax they were being charged.‭ ‬The man consulted online communities and read that if he described his items as‭ “‬gifts‭” ‬on the shipping paperwork,‭ ‬customers would not have to pay the customs duty or import tax.‭ ‬He started declaring all Canada sales as gifts,‭ ‬but eventually,‭ ‬a routine exam by Canada customs found an eBay-generated invoice indicating a commercial sale.‭ ‬Customs held the shipment for a week before finally billing the end-customer the appropriate fees.‭ ‬Even though,‭ ‬the man got a poor rating from the customer,‭ ‬he was lucky authorities didn’t fine him or seize the merchandise.

The lesson:‭ ‬Taking advice from online communities is highly risky.‭ ‬For example,‭ ‬customs authorities in many countries are adopting electronic profiling tactics to help them detect phony‭ “‬gift‭” ‬or‭ “‬sample‭” ‬labeling and other scams.‭ ‬Also,‭ ‬the customs authorities monitor these same online communities.‭

Crossborder buying and selling is serious business.‭ ‬It’s a privilege—not a right.‭ ‬These organizations could easily end up on a‭ “‬no-shipment list‭” (‬like the no-fly list‭)‬.‭ ‬It’s not worth it‭!

In Part‭ ‬3‭ ‬of the series,‭ ‬we will look at the impact of technology on international selling and what the future holds.

Amy Morgan is a senior product manager for global trade solutions at Avalara.‭ ‬She has managed cross-border compliance for companies ranging from startups to Fortune‭ ‬500.‭ ‬She is motivated by simplifying import/export problems.

What SMEs need to know about shipments of export cargo and import cargo in international trade.

Crossborder Selling: What Small & Mid-Size Businesses Need to Know

Crossborder selling has become easy enough that small and medium-sized businesses from every corner of the economy want to take advantage of the global marketplace. According to research recently published by DHL Express, crossborder online retail is predicted to grow at twice the rate of domestic ecommerce until 2020.

But for small and medium-size businesses with limited international experience, what they don’t know about complying with crossborder regulations can end up creating nightmare scenarios for them and their customers. This three-part series will lay out the challenges, provide some critical lessons learned, and reveal how businesses can overcome the challenges and enjoy global selling success.

It used to be that only bigger companies could afford to hire the expertise required to navigate the complex rules and regulations involved in global selling. Today, however, crossborder selling has been made to feel almost effortless by a variety of affordable solutions, including ecommerce platforms and marketplaces, omnichannel fulfillment options, sophisticated payment and translation solutions, and an abundance of fast and easy shipping services. This can make the idea of having an ever-expanding customer base and a rapid increase in revenues irresistible.

As soon as a business sends products across borders, however, it will face significant crossborder transaction tax compliance obligations. For example, a customs duty may be levied when the shipped products clear customs into the destination country if the order exceeds that country’s value threshold. If businesses want to understand the total cost of the shipment to reach the customer’s doorstep, they must be able to assign the appropriate duty rate to each item in the shipment, and they must be able to calculate the correct tax amount by applying the specific tariff code(s) for each item based on the Harmonized Commodity Description and Coding System.

Imported goods may also be subject to other taxes, such as a Value-Added Tax (VAT) or a Goods and Services Tax (GST). To further complicate all this, the US has many regulations governing exports, and all the destination countries will have their own import regulations.

Without fully understanding the relevant import/export regulations, businesses cannot know with certainty what they are actually allowed to ship to specific countries. And without being able to calculate the appropriate customs duty and import taxes, businesses cannot accurately calculate the “landed cost” of a shipment. The landed cost is the total cost of getting a shipment from a shipping facility in one country to a buyer’s door in another country. This includes the cost of goods, total shipping and insurance costs, and the applicable customs duty and import taxes.

Calculating the landed cost for just a single multi-item shipment to one country can be extremely complex, and if a business cannot accurately calculate landed cost, how can it properly charge its customers? Or, if a business leaves the customs duty and import taxes for its customers to figure out, customers will be less likely to buy because they won’t know how much the products will really cost them when they order them from a website. Not having answers for these questions can seriously impact the customer experience, causing customs delays that can lead to additional fees, surprise costs, rejected shipments, and frustrated customers who may trash a business via social media and likely never return to shop again.

In a recent survey of 281 merchants by Amber Road and the American Association of Exporters and Importers, nearly a third say they have suffered delays and fines from regulatory agencies, such as customs authorities, because of compliance-related oversights. Another 24 percent said they were concerned about such penalties leading to fines and shipment delays. Even experienced exporters see challenges in international trade.

In order to experience long-term success at crossborder selling, a business must be able to understand, comply with, and financially account for import/export regulations and customs duty and tax costs. This leaves businesses with another important decision: who will remit the custom duty and taxes, the merchant or customers? And how can a business ensure the obligation is accurately calculated? Who in the organization has the time and expertise to do this painstaking work? What other options are there?

The reality of global selling is that merchants can’t just put something in a box and send it to another country. But that doesn’t mean a business should drop the idea and let others reap the benefits! In the next article in the series, I will share some specific examples of crossborder selling challenges and the lessons we can learn from them.

Amy Morgan is a senior product manager for global trade solutions at Avalara. She has managed crossborder compliance for companies ranging from startups to Fortune 500. She is motivated by simplifying import/export problems.