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 or Sanctioned 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
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
Automatic identification of known and suspected criminals and
Permit determination and license management
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
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.