The international commerce sector is seeing some big changes that could have a fairly significant impact on shippers’ operations. In that vein, we at PARCEL sat down with some with logistics technology executives to get their thoughts about how changes in US regulatory policies will affect the global parcel industry. Bob Malley, Managing Director, Pierbridge, Inc.; Benn Bekic (Head of Corporate Development Americas, WiseTech Global); Tim Leary (Director of Operations, ConnectShip, Inc.); and Chris Lentjes (VP, Pitney Bowes eCommerce) provide some insight into what changes shippers can expect in 2020 and how they can prepare.
PARCEL: Let’s start with the basics. On a general level, how is e-commerce changing international parcel logistics?
Malley: Online shoppers are more likely than ever to buy goods from e-merchants located in other countries. In fact, cross-border e-commerce is now growing twice as fast as domestic e-commerce. This has resulted in a dramatic shift in global logistics patterns from large containers deconsolidating into traditional supply chains with distribution from warehouses, to smaller, more frequent shipments delivered directly to last-mile residential consumers.
PARCEL: What impact is this shift having on US Customs clearance?
Malley: Global e-commerce is creating a “parcel tsunami” at the border, with waves of packages putting unprecedented strains on US Customs and Border Protection (CBP) resources. CBP is used to dealing with larger containers. Clearing individual parcel shipments is time-consuming and tedious. As a division of Homeland Security, CBP has really struggled with balancing the need to streamline small-package clearance processes with the need to ensure border security. As one official said, “Small does not mean secure.”
PARCEL: What is the US government doing to deal with this issue?
Bekic: In 2016, the US raised the de minimis value threshold for so-called Section 321 shipments from $200 to $800. Raising the threshold encouraged more cross-border e-commerce volumes. But, except for a few global parcel carriers who are allowed to clear parcel shipments in customs electronically as a single shipment, most customs brokers are subject to manual CBP filing requirements.
PARCEL: Is CBP going to broaden the use of electronic filing for cross-border parcel shipments?
Bekic: It appears so. In Q4 of 2019, CBP will begin testing an electronic filing process that will enable more customs brokers to automate manual Section 321 processes by transmitting detailed customs clearance data though ACE. That means freight forwarders with customs brokerage operations will be able to compete with global parcel carriers. This will achieve CBP’s quest for achieving both automation and increased border security.
PARCEL: How will changes in CBP processes impact cross-border service providers?
Tim Leary: Changes in industry trends and regulatory mandates often inspire logistics services and technology innovations to help meet business demands. Whereas cross-border last-mile services were the exclusive domain of a few global parcel carriers, we expect to see an increase in participants, and opportunities will arise to integrate freight forwarding and customs brokerage with multi-carrier last-mile delivery networks. Transitional modes and services will combine and blur. More competition will mean more customer delivery choices that are faster and lower cost.
PARCEL: How will changes in CBP processes impact parcel shipping system providers?
Leary: We have seen parcel shipping systems evolve from single-carrier point solutions to platforms that support domestic rating, shipping, and tracking needs for parcel, freight, and local carriers across the extended enterprise. Global e-commerce presents a whole new set of demands for parcel shipping technology providers. The parcel carrier industry is more fragmented outside of the US and farther behind in terms of technical standards. The old paradigm of hub-and-spoke communication with carriers is shifting to networks of carrier services built on collaborative partnerships.
Malley: E-commerce is forcing retailers and e-merchants to adopt omnichannel fulfillment processes where shipping origins extend beyond traditional fulfillment centers to locations holding inventory in closer proximity to customers, including brick-and-mortar stores, as a way of reducing the cost of free shipping while speeding up delivery. But it is also extending to the “endless aisle,” sources of inventory held by suppliers in domestic and international locations. Omnichannel fulfillment increasingly requires a “ship anywhere, from anywhere” mindset and an architecture that can manage the complexities of both inbound and outbound cross-border regulatory requirements, which are now in flux.
PARCEL: How will changes in CBP processes impact global logistics system providers?
Bekic: Freight forwarding and 3PL systems will need to accommodate the end-to-end data requirements that are common to all the transportation modes involved in the so-called “Cargo Chain.” That includes ocean, air freight, ground freight, and parcels. These used to be siloed systems and processes. A new generation of solutions will emerge that will be fully digitized and integrated to support end-to-end delivery processes.
Leary: Unlike many freight modes, parcel carriers have never been subject to data or documentation standardization. One of the areas of expertise that parcel shipping system providers have is the ability to normalize non-standard data. To support end-to-end cross-border and last-mile delivery visibility, we will need to map parcel data against ocean and air freight data sets. This is all part of the silo deconstruction process now well underway.
PARCEL: The US was expected to withdraw from the Universal Postal Union (UPU) on Oct. 17, but at the last minute reached a compromise. Why did the US pursue this initiative and what impact do you think this will have on global postal rates?
Chris Lentjes (VP, Pitney Bowes eCommerce) The UPU is an international body of 192 countries. They have kept global postal rates artificially low for 50 years to help promote international trade with developing countries. This has created market distortions to the point where the rates for inbound shipments from China to the US are often less expensive than domestic rates. This has resulted in the USPS recovering only a fraction of their costs and has disadvantaged US domestic manufacturers, while at the same time helping e-commerce merchants compete worldwide.
The “Option V” compromise allows countries to self-declare terminal fee prices for letters and packages weighing less than 4.4 lbs., provided they pay $40m into the UPU to help fund pensions, security measures, and other initiatives. Actual price increases are not yet known because those rates are set privately between countries, but some commentators expect price increases in the 125% to 300% range for this class of shipments.
PARCEL: How will this impact global e-commerce?
Lentjes: Short term, it is likely to have an impact as shippers will need to absorb costs. And it’s likely that “free shipping” will go away. But longer term, more volumes will shift to other carrier services. It will encourage more innovations as more carriers will be able to compete with postal services that will be priced more competitively. We expect that more partnerships will emerge, including those involving global postal service providers. Of course, any new arrangements will need to pass muster with CBP. Currently, the inability for foreign post offices to provide advance shipping data on parcels entering the US was one of the factors influencing the US’s desire to leave the UPU.
As shippers prepare for the regulatory changes occurring soon, it’s important that they not remain complacent. The US remaining in the UPU had many shippers breathing a big sigh of relief, but that decision doesn’t mean that the global commerce industry is remaining unchanged. Regulatory compliance issues and increasing prices means that shippers need to stay on their toes in order to remain competitive in this ever-growing sector.
This article originally appeared in the Fall, 2019 issue of PARCEL.
