Once upon a time, retail was a brick-and-mortar, locally based industry. But today, retail supply chains are global with products sourced and manufactured anywhere on the globe, transported long distances to warehouses and ultimately shipped to retail stores or directly to customers.
Customers themselves are no longer locally-based either. Today’s Chicago-based retailer with an online channel might just as easily serve customers in Hong Kong or Paris as Oak Park or Evanston.
All of this means that mastering global trade is a critical capability for today’s retail brands. And one of the biggest challenges when it comes to international trade is getting a handle on the complex web of trade regulations that governs cross-border transactions. In this primer, we’ll address some of the international trade compliance issues that retailers commonly face, and how to address them using technology.
E-commerce has delivered global reach to retailers, allowing any retail brand to sell products to any customer, anywhere in the world. This means that retailers aren’t limited to local markets, which is beneficial for business growth. However, doing business globally introduces complexity to the retail business as well. Dealing with international trade compliance regulation is one area that retailers must address if they hope to do business globally.
Every country has trade regulations with which anyone hoping to do business in that country must comply. In the United States, the U.S. Treasury Office of Foreign Assets Control maintains lists of sanctioned countries, individuals and organizations with links to drug trafficking, terrorist and criminal activity. One such list maintained by OFAC is the Specially Designated Nationals or SDN list, The Department of Commerce maintains a similar list, called the List of Denied Parties. U.S. retailers cannot do business with any entity appearing on these lists, which are frequently updated.
In addition, the international trade compliance waters are muddied further by the fact that some sanctioned countries may have a limited trading relationship that allows trade only with licensed individuals. Those licenses are subject to change, and it may be a violation of trade agreements to do business with any entity whose license is not current.
It’s a big challenge to keep track of the names appearing on these lists, which countries are sanctioned and which licenses have expired. Failure to comply can cost violators big: fines for non-compliance can exceed $10,000 dollars per transaction, although typically these fines are imposed on banking organizations or businesses in strategic industries such as telecommunications and oil where large financial transactions are involved.
But, even if fines aren’t a major issue, international trade compliance is still challenging for retailers sending packages and parcels abroad. The most common trade compliance issue for retailers is that shipments may be returned to sender due to OFAC sanctions. This is costly, since the retailer assumes the cost of any returned shipments.
The goal for retailers who want to do business internationally is to eliminate any possibility of fines associated with violating international trade regulations and to minimize costs associated with returned goods for outbound customer shipments.
International trade regulation compliance is an even bigger issue for retailers on the supply chain side, where lack of awareness regarding trade regulations can cause inbound shipments to be delayed or returned to their point of origin. When this happens, shipping delays and stock outages are a common result.
Worse, the cost of obtaining goods from abroad goes up with products that have to be shipped on an emergency basis (for instance, shipped via overnight air versus container ship). Warehousing costs increase while products are stored as compliance issues are hammered out. Customs penalties may also be applied, adding to the cost.
For all of these reasons, international trade regulation compliance is a major issue for today’s global retailer, regardless of whether their shipments are coming in from abroad, or being shipped to overseas customers.
Regulatory bodies such as OFAC and the US Department of Commerce regularly publish lists of sanctioned entities and updates to other trade regulations on their websites. It’s the responsibility of anyone wishing to do business abroad to be aware of whether trading partners appear on these lists.
One option for staying in compliance would be to scan these regulations and lists with every international order to ensure compliance. However, given the constantly changing nature of international trade and the length of these lists—thousands of individuals, entities and countries are named—this is an inefficient (if not nearly impossible) approach for managing regulatory compliance.
Technology has made this job much easier by providing tools to check whether an order is in compliance with international trade regulations. Desktop and parcel shipping software with built-in compliance checks makes it simple to determine at the point of sale whether an individual shipment, or batch of shipments, is in compliance. Trade compliance software is able to automatically check every international order against all published lists, whether maintained by OFAC or other regulatory bodies, to ensure that the shipment isn’t being sent to an embargoed nation or organization, or to a person that appears on denied parties screening lists.
As retail increasingly becomes an online and global space, the ability to manage regulatory compliance for international shipments will become a higher priority for retail brands. Technology such as parcel shipping software with built-in international trade compliance checks will help retailers manage their international shipments and avoid fines and product returns associated with international shipments.