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The Importance of Trade Compliance for Retailers

Despite not being seen as a heavily regulated industry, retailers that source or sell globally face a number of regulatory challenges. In this QAD Precision Report, we look at the importance of trade compliance for retailers.

The Covid-19 crisis has made one thing crystal clear: companies that sell consumer goods have complicated supply chains. That’s true whether a company sells computers, clothing or chocolate. It’s also the case whether a company outsources the manufacture of all or part of the goods they supply, or if they buy finished products to sell. And complex supply chains are generally accompanied by compliance challenges.

The explosion of e-commerce has upended the nature of retail selling. Not that long ago, retail selling and geographic reach were indivisible. Today, retail supply chains are global. Goods can be manufactured anywhere, transported anywhere, and sold anywhere. Consequently, retailers can sell well beyond their local market. However, sourcing and selling globally introduces significant complexities.

Any company with an international supply chain must remain compliant with in-country regulations in all the markets where they operate. If you wish to do business with customers or vendors in another country, you need to be aware of — and comply with — local regulations.

Governments want a clear picture of what a company is exporting or importing. There are commercial implications as well as safety and security standards that enterprises must meet. Failure to do so can mean customs delays, fines, damaged reputations, and unhappy customers. Here we outline four areas of compliance that retailers must take into account.

Vendor and Trading Partner Screening

The United Nations, the European Union, the United States and a slew of international and national agencies publish lists of people with whom it is illegal to trade. These Denied Party Lists (DPLs),  also known as Restricted Party Lists, identify and name people involved in criminal and/or terrorist activities, such as money laundering, nuclear proliferation or the sale of illicit narcotics.

DPLs are subject to change. In fact, thousands of changes can occur over the course of a year, as people are added or removed from these lists. Undertaken manually, restricted party screening is an onerous and time consuming process. Despite that, any company that trades globally must ensure that they are not conducting business with individuals, entities or groups involved in criminal or terrorist activities.

Sanctions further complicated matters. Most sanctions do not ban all trade with a country. Instead, countries under sanctions may have limited trading relationships. Retailers may be able to trade in these countries, but only with licensed individuals. These licenses are subject to change, sometimes without much warning. Nonetheless, retailers must ensure that they remain up-to-date and compliant with any changes.

Tariffs and Commodity Codes

Retailers who sell goods internationally must ensure that they correctly identify their products. Almost all globally traded goods have a 6 digit identity code. This is the Harmonized Commodity Description and Coding System — or HS, for short.  The HS is an international tariff nomenclature system. In other words, it describes the good. More than 200 countries use the HS. However, countries can and do add additional digits to the HS to suit tariff or reporting requirements. For example, both the EU and the US use 10 digits. The 4 extra digits contain information about issues such as tariff quotas and duty suspension.

This requirement is likely to be a major pain point for UK retailers that sell goods only across the European Union. As a member of the bloc, UK companies did not need to do this. However, after the transition period for the UK’s withdrawal ends — scheduled for 31 December 2020 — any UK company shipping goods to the EU will need to include the correct commodity codes. 

Supply Chain and Inbound Shipments

Remaining compliant with trade regulations is often a more complex issue for retailers on the supply chain side. The more borders your supply chain crosses, the more opportunity there is for mistakes to multiply. Firstly, you must adhere to the regulations relevant to all of the countries or political entities where you trade. Companies must keep current with changing regulations and  developments in every country across the supply chain. 

Furthermore, political or other changes in one country — such as Brexit, newly ratified free trade agreements or environmental standards — may impact how you do business. As a result, supply chain professionals spend a huge amount of time and energy monitoring changes to trade laws.

Compliance missteps can cause delayed shipments and customs penalties. Worse still, authorities may decide to ship your goods back to their point of origin, causing stock outages. When that happens, retailers may need to have replacements shipped on an emergency basis. Unsurprisingly, having goods shipped via overnight air services is significantly more expensive than having them sent on a container ship.

Duties and Taxes

A clear understanding of your duty obligations is critical for retailers who sell internationally. Duties may be imposed on goods that cross borders, whether by import or export. Furthemore, both buyers and sellers need to take into account value-added tax, local sales taxes, import fees and so forth. 

E-commerce and omnichannel retailers need to make these complexities easy for their customers. Websites and marketplaces should display the total landed cost of a product. If you ask customers to pay duties once their purchase arrives, you can expect to see a surge in returned goods.

The Importance of Processes and Technology

To avoid violations, retailers need to make compliance a priority across their organization. A combination of standardized processes and procedures, backed up with technological solutions mitigates the risk of missteps and human error. 

The most important benefit of an automated compliance solution is that it removes guesswork. Better still, compliance and logistics personnel can access cloud-based compliance software anytime, anywhere. Other benefits include:

  • Ongoing compliance mitigation with real-time updates to changes in regulations

  • Automatic identification of known and suspected criminals and denied parties 

  • License and permit determination

  • Access to, and reports on, compliance metrics for continuous improvement to processes and workflows

About QAD Precision – Trusted Global Trade and Transportation Execution

QAD Precision, a division of QAD Inc., provides industry-leading global trade compliance, and multi carrier transportation execution solutions from a single, integrated platform. An ISO-certified company, QAD Precision assists companies to streamline their import, export and transportation operations, optimize deliveries, and increase logistics ROI. QAD Precision’s scalable and extensible solution easily integrates with existing ERP and WMS solutions. Industry leaders in every region of the world rely on QAD Precision’s global support centers to leverage thousands of carrier services and manage millions of global trade and shipping transactions every day. For more information about QAD Precision, visit www.qadprecision.com.

 

 

 

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