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Embracing the South American Ecommerce Marketplace

south american

Embracing the South American Ecommerce Marketplace

Ecommerce is on the rise in South America. Double-digit growth is expected for 2019 with sales of $71.34 billion (USD), tying it with the Middle East and Africa as the world’s second-fastest-growing retail ecommerce market. 

That’s great news for shippers looking to expand their online retail presence in South America.

A diamond in the rough

Online retailers in South America have been struggling for years to overcome several obstacles to success, including extensive customs delays, poor transportation infrastructure, and the lack of end-to-end supply chain visibility. Progress has been made on all three of these “challenges,” but more work is necessary to ensure the region’s continued double-digit growth. 

Within each challenge lies opportunity

While these obstacles may keep a few shippers from expanding into South America, others are viewing the area as a “diamond in the rough” and working diligently to reap the rewards of this truly untapped region. 

Having the right information is the first step to wading through the muck and mire of this complicated ecommerce marketplace:

South America customs vary by country

Red tape and bureaucracy pose the biggest obstacles for importing products into South American countries. In addition to customs taxes, tariffs, and fees, it can take 30+ days for some goods to be cleared through customs, especially in Brazil and Argentina. As a result, inventory builds up, costs rise, and customers wait longer for their products to arrive. In comparison, however, Chilean customs are very similar to the U.S. and allow products to flow through relatively quickly.

As you can tell, customs procedures can differ significantly, making it difficult for shippers to ensure compliance with each region’s unique customs. For a more seamless process, it’s essential shippers work with a customs broker or third party logistics provider (3PL) with local offices in the area. They’ll know the customs standards and understand the paperwork necessary to ensure products are approved for import.

Free trade agreements 

The United States-Chile trade agreement allows all U.S. exports of consumer and industrial products to enter Chile duty free. While still in the works, the United States-Brazil free trade agreement can help facilitate trade and boost investment between the two countries, especially in infrastructure. The United States-Colombia Trade Promotion Agreement eliminates tariffs on 80% of U.S. consumer and industrial imports into Colombia. 

South America infrastructure at port and inland

South America is hobbled by its inadequate infrastructure, and it’s probably not going to change anytime soon. Roads remain the primary means of transportation, but 60% are unpaved, hampering the speed of delivery by truck to inland locations. Improvements are slowly occurring, thanks to increased government funding (but corruption hampers many efforts). It’s worth mentioning that China, the largest trading partner of Brazil, Chile, and Peru, invests heavily in the region, providing more than $140 billion (USD) in loans for infrastructure improvements in the past decade, according to The Business Year.  

While surface transportation remains stagnant, ocean freight shows promise. According to icontainers.com, routes going to and from South America represent 15% of the total number of trade services.

The largest container port in South America is in the city of Santos in Brazil’s Sao Paulo state. Its location provides easy access to the hinterlands via the Serra do Mar mountain range. More than 40% of Brazil’s containers are handled by the Port of Santos as well as nearly 33% of its trade, and 60 % of Brazil’s GDP, according to JOC.com

In 2018, Brazil’s busiest container cargo port handled 4.3 million TEUs, compared with 3.85 million TEUs in 2017. 

For Argentina, Zarate serves as the critical port for roll-on/roll-off (ro-ro) and breakbulk cargo, while Buenos Aires and Rosario serve as the top container ports. Only two countries in South America are landlocked, Paraguay and Bolivia. 

Shippers and ocean carriers using the Port of Santos have been complaining about congestion and labor disputes at the port, and about politicization and time-consuming bureaucracy. That’s why it’s essential that shippers must have the latest information on traffic through these South American ports. Global freight forwarding companies in the area will have the newest information available to help you choose the right port of entry for your freight.

End-to-end supply chain visibility

Most online retailers and carriers understand that the sale is not complete until the product is delivered to the consumer. If merchandise is damaged during transport or arrives much later than promised, it reflects poorly on both parties and undermines consumer trust in ecommerce purchases. 

Lack of adequate infrastructure has forced many online retailers to put logistics on the back burner, focusing on the user experience through purchase. That’s why many products take weeks to arrive at the customer’s door, setting a bad precedent that must change. 

The South America trucking industry is highly fragmented, with providers ranging from owner-operators (about one-third of the industry) to sizable fleet operators and experienced freight forwarders who may not own any trucks at all, according to Tire Business newspaper. 

Final mile, LTL services paramount in South America

Once your product reaches port in South America and makes it through customs, how it gets delivered to the customer’s door can add extensive costs to your supply chain. Less than truckload (LTL) and final mile services are paramount to successfully operating in the region. Especially those carriers that can provide GPS freight tracking capabilities, such as C.H. Robinson’s Navisphere® technology

Final thoughts

Yes, there are obstacles to operating a supply chain in South American countries. Knowing the ins and outs of each country’s unique customs procedure, understanding which South American ports are best for your freight, and being able to track your shipments end-to-end will ensure your success in the region. Shippers who realize the potential of this “diamond in the rough” marketplace should work with a freight forwarder who will be extra focused and diligent in ensuring their freight moves quickly from customs fiscal warehouses to the final destinations. 

Enlist the aid of a global freight forwarding provider, like C.H. Robinson, who offers a global suite of services and has offices in the region that can help navigate any disruption in your supply chain.

Start the discussion with an expert in South America to accelerate your ecommerce trade. 

compliance

11 Common Misconceptions: Compliance & Denied Party Screening

With the growth of eCommerce, business integration, and global connectivity showing no sign of abating, compliance and denied party screening (DPS) have been thrust into the spotlight. The era of the mega fine has emerged, with fluid international sanctions policies impacting unsuspecting companies in unwelcome ways. In addition to the potential for reputational damage, penalties for non-compliance can include substantial fines—multimillions of dollars in some instances—, revocation of export privileges, and criminal charges, including prison time. 

The solution? Screening for restricted and denied parties, and due diligence to ensure that goods, technologies, and services are not destined for a sanctioned or embargoed country—not to mention screening every financial transaction—should be an integral component of every organization’s governance, risk, and compliance strategy. 

WHO NEEDS TO SCREEN?

While homeland security-sensitive industries (e.g., aerospace, defense, telecommunications, IT, energy, research, financial institutions) have a high bar when it comes to complying with U.S. and international export, trade, and financial laws, ordinary businesses from across all industries have an obligation to adhere to compliance requirements as well—and the penalties for non-compliance can be severe.

The reality is that companies found in violation of international trade regulations come from a wide spectrum of industries, not just the usual suspects. In fact, many organizations that have received financial, or even criminal, penalties fall outside the realm of the higher-risk industries. 

Unfortunately, many companies hold the erroneous belief that compliance and DPS do not apply to them. By increasing awareness surrounding the following misconceptions about compliance and restricted party screening, organizations can take a proactive and vigilant approach to mitigating risk and avoiding costly penalties.

DPS MYTHS: DON’T LET THEM HAPPEN TO YOU 

Screening doesn’t apply to our business, industry, or country.

All businesses, not just those operating within homeland security-sensitive industries, have an obligation to screen. Companies both in the U.S. and those outside of the country that engage with the United States in any capacity—including selling products or services in the U.S., or even using American banks and financial services for transactions—are subject to U.S. export and financial compliance laws.

We don’t need to screen because we supply services, not products.

Every time money changes hands, there is an obligation to ensure that the good or service is not destined for an individual or entity on a government watch list; services (e.g., travel agencies) are not exempt. 

We rely on a third party (e.g., freight forwarder) to screen for us.

Many companies make the mistake of thinking that the burden of compliance rests with the shipping or freight forwarding company but this is not always the case. The U.S. government can designate the owner or seller of the merchandise being exported (or imported) as the Exporter of Record, shifting the onus of compliance to both organizations. 

Our company operates domestically so screening is not required.

A significant number of individuals found on watch lists are U.S. nationals or citizens located in the United States who have been found guilty of violating export laws. Consequently, organizations are obligated to screen regardless of shipment destination.

Export laws don’t apply to us because we’re located outside the U.S. 

Regardless of where an organization’s headquarters or subsidiaries are based, it is highly likely that some, if not all, transactions flow through the U.S. financial system at one point in the purchasing or supply chain process. As such, these transactions fall under the purview of the U.S. Department of Treasury’s Office of Foreign Assets Control (OFAC).

We don’t export to countries under sanctions or embargoes.

Virtually every nation, on every continent, has debarred individuals and entities inside their borders—even Antarctica! Given the dynamic nature of international sanction policies, especially in the current political climate, organizations are at risk of engaging with a denied or restricted person or organization regardless of where they export. 

Our goods are EAR99 so we don’t need to screen.

Although an organization’s goods might be EAR99 (under the jurisdiction of the U.S. Department of Commerce and not listed on the Commerce Control List), selling them to a denied party is still subject to penalty. For reference, the 2017 edition of the Bureau of Industry and Security’s Don’t Let This Happen to You is replete with examples of EAR99 export violations.

We already screened our customers and contacts once.

Denied and restricted party lists change frequently, in many cases daily. To ensure compliance, organizations would be best served by screening all transactions at multiple points throughout the business workflow.

The project we needed to screen for is complete so we’re in the clear.

While exports are commonly associated with the shipment of goods, export controls also encompass the transfer of technology, software, or technical data, even when the transfer occurs in the United States. Case in point: although a project may have concluded, the release of controlled technologies (a.k.a. deemed exports) to foreign nationals is subject to U.S. export laws.

We only need to screen the person to whom we’re shipping.

One of the most misunderstood areas of export compliance is the requirements surrounding end-use. End-use compliance involves requesting documentation from the purchaser to confirm they are the ultimate destination of the goods and that they will use the product as intended. While obtaining an end-user statement doesn’t guarantee the veracity of the purchaser’s claim, this process demonstrates that a company has taken additional measures to ensure adherence to export and trade compliance laws and will stand them in good stead if issues arise. 

We’ll just pay the fine.

Fines incurred as a result of an export of OFAC violation should not be treated as a business expense. In fact, criminal penalties can include jail time and organizations can have their export privileges revoked. Moreover, negative media attention is an increasing concern for risk-adverse organizations attempting to protect their reputation by avoiding conducting business with non-law-abiding people or companies. 

FINAL THOUGHTS

Penalties from any export, trade, or OFAC compliance violation can negatively impact an organization’s bottom line, or ultimately cripple a company’s trade. Implementing a comprehensive screening program that encompasses restricted and denied parties and sanctioned and embargoed countries, coupled with cultivating a culture of compliance within the organization, will help keep goods flowing while minimizing the risk of penalties. 

_______________________________________________________________________

Marc Roy is Vice President & General Manager, Compliance Solutions at Descartes Systems Group, the global leader in providing on-demand, software-as-a-service solutions focused on improving the productivity, performance, and security of logistics-intensive businesses. 

trade

Realign Your Trade Compliance Program with a Midyear Review

The complexities of importing and exporting goods in the United States means it’s easy to overlook process changes and forget to make updates in a timely manner. However, if not caught quickly, outdated information or imprecise processes can add unnecessary fees and penalties. If left to accrue over the course of a full year, these costs can be staggering.

That’s why I recommend a midyear customs review. If something is off base with your customs compliance program you can rapidly realign as needed. Use C.H. Robinson’s comprehensive checklist to guide your own midyear customs process review.

Midyear customs clearance checklist

1. Review customs broker powers of attorney

Revisit powers of attorney (POAs) and revoke any from U.S. customs brokers with whom you no longer wish to work. Remember, any POA you extend should have an expiration period, providing a natural time to review. If you aren’t sure of existing POAs, you can see all U.S. customs brokers transacting business on your behalf by requesting your Importer Trade Activity (ITRAC) data (see #11)

2. Update names and addresses on file with U.S. Customs

U.S. Customs and Border Protection (CBP) uses contact information from CBP Form 5106 to communicate with Importers of Record. If you have recently moved, or have not reviewed the information listed on CBP Form 5106 in a while, re-validate the information you have on file so you will receive all pertinent and time-sensitive correspondences the CBP sends.

3. Ensure bond amount is sufficient

If your import activity has changed, or you anticipate a large increase in activity during the remaining half of the year, your bond may need updating. CBP can determine your bond is insufficient and may require you to increase your bond amount. A midyear review and update is a proactive move.

4. Consider changing listing multiple principals on the same bond

Having multiple entities on one bond can bring cost savings. But be sure to decide if the risks are worth the reward. When sharing a bond, each entity shares liability if CBP issues a demand against the bond. In addition, if any entities terminate the bond, this can disrupt the other entities within the bond.

5. Check customs broker instructions

Review and document any customs broker instructions you send to U.S. customs brokers regularly—from Harmonized Tariff Schedule (HTS) classification rules and related party verification instructions to anti-dumping/countervailing duty instructions—to ensure your customs broker declares entities to the CBP according to your wishes.

6. Request updated certificates of origin

Be proactive with foreign suppliers and obtain updated annual blanket certificates of origin (COO) for any program in which you’d like to claim preference. And provide any updated COOs to your U.S. customs broker. Not obtaining COOs in a timely fashion may lead to unnecessary annual duty costs.

7. Update free trade agreement instructions

Revise any instructions pertaining to free trade agreements (FTAs) so your U.S. customs broker has proper direction about how you would like to file entries that may be eligible for FTAs.

8. Obtain your manufacturer’s affidavits

If you utilize a U.S. goods return program, found under Heading 9801, be sure you have obtained your manufacturer’s affidavits for the rest of the year. Share these affidavits with your U.S. customs broker and record them within any customs broker instructions.

9. Review anti-dumping/countervailing duties products

The CBP can investigate any potential anti-dumping/countervailing duties (AD/CVD) evasion allegations. Accurate case numbers, rates, etc. are critical for reporting upon entry. Even if you are disclaiming AD/CVD, document your product details internally, explaining why your product does not fall within the scope of the order.

10. Provide reconciliation flagging instructions to U.S. customs broker

If you are a reconciliation participant, approved by CBP, flagging of entries is the responsibility of the importer. Now is the time to send your U.S. customs broker written direction with any flagging instructions you would like established or changed.

11. Request import activity records from CBP

ITRAC provides a wealth of information you can use to create or improve your import compliance program. Likely, you’ll need tools, like C.H. Robinson’s Global Trade Reports®, to transform the raw ITRAC data into user-friendly dashboards and reports.

12. Sign up for the ACE Portal

The ACE Secure Data Portal is a powerful way to manage trade compliance programs. This powerful tool enables you to receive paperless notifications from CBP, monitor your brokers, audit entries in real time, and much more.

13. Request export activity data

Similar to ITRAC data for import activity, request your Electronic Export Information (EEI) from the Census Bureau, Foreign Trade Division. If you are the filer in the Automated Export System (AES) using the ACE Export Portal, you can review your EEI on a regular basis.

14. Check U.S. Import HTS Classification and Export Classification

Review and communicate any updates to your HTS Classification Database and your Export Schedule B Number to proper stakeholders—both internally and externally.

15. Reduce liability with marine cargo insurance

Steamship lines and air cargo providers have limited legal and financial responsibility for international cargo. Marine cargo insurance plans can reduce your company’s financial exposure and bring new efficiencies.

16. Protect trademark and trade names

Make sure the CBP has any and all of your trademarks and trade names protected and recorded. This allows CBP to help you combat potential counterfeit products or infringement.

17. Request manifest confidential treatment

You can request confidential treatment of inward and outward manifest information. However, note that there are mandatory biannual renewal requirements. In addition, account for all possible variations of names within your request.

18. Review your denied party screening program

Look at which parties you are screening, and how often. This can ensure your program is appropriate for your current business model and bring potential risks to your attention.

19. Perform internal and external training

Regularly schedule time to ensure adequate training is happening with appropriate stakeholders. This keeps all parties, especially new employees, up to date with changes.

20. Address priority trade issues

Be sure that your compliance program addresses each one of the CBP’s initiatives to mitigate the risks of priority trade issues.

Smooth customs clearance doesn’t just happen

Careful planning and regular reviews of your customs processes are critical components to a strong trade compliance program.

If a midyear review seems unfeasible or this list seems daunting to conduct all at once, consider bringing in an outside expert like C.H. Robinson to guide you through the process. The most important part is to ensure you review, update, and communicate any changes to these areas of your compliance program on a consistent basis.

In an Unclear International Trade Environment, Tariff Forecasting Provides Answers

If there’s one thing we can say with a fair amount of certainty amid the rapidly shifting priorities of the U.S. government’s current administration, it’s that tariffs appear to be their preferred international trade tactic. Though customs duties have always been a part of any worldwide shipping equation, their renewed prominence has the potential to create serious (and expensive) headaches for companies that are not proactively assessing their supply chains and goods classifications.

To combat this, cut through the confusion, and stay ahead of changing customs regulations, perceptive businesses are turning to a new data-driven analysis method offered by some logistics providers: tariff forecasting.

How tariff forecasting works

As the U.S. government announces lists of new tariffs or changes to existing tariffs, the delay between announcement and implementation offers a window of opportunity for immediate action. Beyond merely issuing client advisories detailing the impending impacts, savvy providers use historical shipment data to predict what their customers’ actual cost ramifications will be once the new or altered tariffs come into force.

Essentially, providers will analyze what shippers imported in the past six, twelve, or eighteen months to calculate what the total duty would have been on that historical cargo, had the approaching tariffs been in place during those times. Then, using information about upcoming shipments and business intelligence about a company’s importing patterns and cadences, providers can automatically project the additional costs that newly announced tariff changes will impose on importers.

Understanding future customs impacts today

When customs brokerage and trade compliance services originate from the same company that also offers global air and ocean freight logistics services—like with C.H. Robinson—customers benefit from their provider’s ability to synthesize that information and provide innovative insights.

As a result, importers gain true visibility to their incremental costs, eliminating the manual guesswork and uncertainty that changing tariffs can create. With concrete data on how changed tariffs would affect their bottom line, shippers are in a better position to reallocate resources or shift strategies before they experience impacts. Rather than merely react, businesses that use tariff forecasting open new possibilities and solutions for taking charge of the international trade situation, mitigating consequences, and preserving their margins.

But more than just easily highlighting anticipated duties on a shipper’s impending imports, forecasting offers new opportunities for businesses to rethink their broad importing strategy.

A chance to reconsider customs importing strategies

Because tariffs apply to particular countries, classes, and commodities, seeing duties’ specific impacts can spur new conversations about the best ways to declare imports. This often involves revisiting the basics of customs enforcement and asking holistic questions that may have previously slipped under the radar: Do our goods have the right tariff number/classification, or are they misclassified? Are our imports’ countries of origin correct? Are we properly declaring value?

With the rise in tariffs bringing renewed scrutiny to these compliance considerations, revisiting the customs process may suggest fresh ways for companies to keep their costs down. Here, providers’ modeling can also offer perspective on what would be the current or future impacts of changing strategies, helping importers project and evaluate the consequences of different courses of action to adapt to tariff volatility.

Additional opportunities around exclusions

Providers’ access to importers’ shipment information also allows them to provide valuable services surrounding tariff exclusions.

When the U.S. government announces that currently active tariffs will be reduced or suspended, providers can “invert” their tariff forecasting, using their customers’ historical information to quickly locate past shipments that were charged duties but—under upcoming cancellations—would not have been had they shipped later. With this data, providers’ local experts can approach U.S. Customs on their customers’ behalf to request refunds, saving importers time and money.

That means whether tariffs are coming or going, good logistics providers, like C.H. Robinson, proactively combine their experience and scale with the vast amounts of customs data they submit for their customers to create an information advantage that helps deliver better outcomes.

Staying prepared in a volatile trade environment

With all the politics and personality that surrounds U.S. tariffs and economic policy, seeing through the rhetoric and determining concrete impacts can be a real challenge. But doing so is essential for companies to remain in compliance and avoid unexpected, unpleasant increases in costs. Tariff forecasting is a proactive and automatic way some providers leverage their routine business with customers to provide additional insights and value-added services that keep companies ahead of changes, putting importers in better positions to make crucial decisions.

In an unclear global trade environment, it’s a powerful tool that can provide shippers some much-needed, tangible reliability.