This article originally appeared in the March/April issue of PARCEL.
Today, the explosive growth of e-commerce and rapid advances in shipping and logistics has spurred even the smallest companies to reach and engage customers abroad. According to the International Trade Administration, nearly 300,000 US businesses are exporting to countries around the globe, and of those, 98% are small- and medium-sized organizations. Together, these smaller companies account for one-third of merchandise exports, and they are testament to a powerful global reality: 95% of the world’s consumers — and 70% of its purchasing power — reside outside of the United States.
While the global trade numbers are encouraging, the fact is that less than one percent of the approximately 30 million companies based in the US are involved in exporting. The reasons are numerous, but one stands out: getting a global strategy in place and making it work takes time and financial resources, and complex customs rules and regulations present a significant challenge along the way. While the rewards of going global are clear, the obstacles must be confronted directly.
Recently, DHL conducted a survey of more than 4,000 customers, and it reveals exactly what your company should consider when developing or advancing an export strategy, along with which countries are most promising for future growth. Understanding potential hurdles to trade, along with landed costs and the customs processes in the US and in various countries abroad, can save you and your customers from costly surprises down the road. Here are some key takeaways from the survey:
The ‘Brexit’ Effect
In the wake of “Brexit,” 60% of survey respondents remain uncertain about how the move will impact their business, while 25% believe that Great Britain’s exit from the EU will have no impact on their operations or bottom line. With Britain comprising one-sixth of the EU’s economy, there is little doubt that some companies trading in the region will feel an effect. Some possible impacts include diminished demand for goods in a declining economy, new trade duties and tariffs, and new customs procedures. Companies doing business in Britain or the EU — and those looking to expand to the regions — should carefully study the transition.
International Growth Opportunities
Customers in the US were also asked which country offers the biggest opportunity for international expansion. China took the lead, followed by India. In 2017, India may be a particularly important export target for businesses looking to grow. There are several reasons why the country’s economic potential has risen, but one leading factor is the emergence of business-oriented Prime Minister Narendra Modi, whose party won the general election in May 2014 by a wide margin. Modi has embarked on plans to boost foreign direct investment (FDI), combat corruption in the public sector, and promote manufacturing in India as a central economic driver.
Customs and Trade Law Tie-Ups
A major hurdle for businesses beginning or expanding their exports, identified by almost 50% of survey respondents, is the lack of standardization and consistency in trade laws and customs documentation requirements.
According to a US International Trade Commission report, hold-ups in customs can have a real impact on a company’s bottom line. Investigators looked at actual times recorded for Uruguay export transactions from 2002 to 2011. They found that a median increase of 10% in the time spent in customs translates into a 1.8% decline in the growth rate of exports. Impacts are particularly severe for exports of time-sensitive products in destinations with tougher competition and suffering from banking crises.
To make sense of ever-changing, complicated trade laws, and customs regulations, small businesses should turn to international trade experts for guidance and strategic assistance. By finding ways to improve customs clearance and accelerate time-to-delivery, companies can gain a critical competitive advantage while keeping customers engaged and satisfied.
Solutions That Could Expedite International Trade
Customs agencies in countries around the globe, including here in the US, are moving to make the complex process of filing documentation for international shipments easier and to create more uniformity in the processing and releasing of shipments from one point of entry to another.
To be successful in this evolving environment, logistics managers and other key leaders across the supply chain need to keep a close watch on new developments. Here are key areas to monitor:
Automation: A major advance in automation comes in the form of the Automated Commercial Environment (ACE) or the US Single-Window, a system the US Customs and Border Protection agency planned to be implemented soon. It streamlines the export and import process, providing a single window for entry processing, cargo release, and export processing. This will save time for importers and exporters by allowing them to submit the same data to different US. agencies in one single transmission. The US government is working internationally to harmonize ACE with countries that have instituted a single-window trade processing system. The results could lead to the acceptance of the US’s export data as the destination’s country’s import data.
De Minimis Levels: Another initiative that could speed the global transit of low-value cargo is increasing the de minimis threshold. Earlier this year, the US raised this threshold from $200 to $800, thereby allowing non-restricted items valued up to $800 to ship without incurring duties and taxes. Similar actions in other countries, like Canada, Mexico, and the European Union, where the de minimis is less than $150, could help low-value exports from the US move quicker and more cost-effectively.
Trusted Trader: Mutual recognition agreements remove barriers to trade and create consistency in customs on a country-to-country basis, and trusted trader programs provide an avenue for certain importers to receive expedited customs processing benefits. Companies should explore exactly how these initiatives can work to speed delivery of their products.
Understanding the specific barriers to successful international trade expansion is a critical first step for businesses looking to grow abroad. By exploring these challenges and understanding the resources and tools that are available to meet them, US companies of all sizes can get their export plans in gear and off the ground in 2017.
Eugene Laney is Head of International Affairs with DHL Express U.S. He has over 20 years of managerial, government relations, and public affairs experience in the non-profit, private, and quasi-public sector arenas.