What if, as a CEP professional, you could identify non-customs compliant cross-border parcels before they are placed on your handling system? With the development of a new software solution that is able to check parcel data to ensure it is trade and customs-complaint, that’s now possible.
By BEUMER Group
We look at the challenges posed by cross-border trade, why the issue is problematic for the CEP sector and the technology addressing the problem.
As e-commerce continues to grow, the number of parcels moving across borders also grows, with the volume of international deliveries now increasing twice as quickly as domestic ones.
According to McKinsey, out of 9.3 billion cross-border orders in 2020, 60 percent were intercontinental. Core drivers of trans-border transactions are price – consumers look to foreign countries for cheaper goods or lower delivery costs – and the direct-injection model of transporting multiple orders in bulk to the destination country.
Even by conservative estimates, McKinsey projects that cross-border e-commerce will expand from its current value of approximately $300 billion to around $1 trillion in merchandise value by 2030.
Source: McKinsey
For postal services, international express shipments and commercial-parcel operators, this mushrooming growth in cross-border e-commerce parcels represents an opportunity, particularly if they can also guarantee fast delivery speeds, reliable service, reasonable prices and ‘track-and-trace’ visibility.
But while cross-border transactions are an opportunity, they’re also challenging for CEP businesses who must ensure the regulatory compliance of cross-border transactions in their networks.
This is, of course, not lost on the sector. In a 2022 survey of 91 postal houses by Escher, 63 percent noted they were struggling with the challenges. Indeed, cross-border and real-time tax and duty estimation was regarded as the number one obstacle to cross-border e-commerce growth.
Source: Escher
The main obstacles are twofold: the complex trade and customs regulations; and inaccurate or inadequate documentation that prevents products clearing customs.
CEP companies face an enormous hurdle in navigating the increasingly complex and constantly evolving trade landscape. Bilateral and regional trade regimes are numerous with different standards, rules of origin, and tariff and non-tariff measures, which are difficult and costly to decipher.
Understanding the regulations is very demanding as they are encapsulated in dense and elaborate legal texts, requiring expert trade compliance departments for large companies or blogs and internet searches by individuals.
Understanding regulatory regimes is one thing: full compliance is another. Cross-border trade involves substantial documentation which varies by the market and other factors.
Shipping a parcel outside of the EU, for instance, requires CN22 and CN23 customs declarations, which must indicate the contents of the parcel, their value, the shipper and the receiver and the parties involved in the shipping. Whether a CN22 or a CN23 form is required, however, depends on the weight and value of the package.
Moreover, in July 2021 the European Commission abolished the VAT exemption for low-value items and now requires declarations for all consignments, regardless of value. As a result, there has been an increase in some EU Member States in the number of requests from customs authorities for additional documentation when undervaluation of the consignment is suspected.
In the absence of standardised rules and regulations and the substantial paperwork required to accompany cross-border goods, customs clearance issues easily happen – with costly consequences.
Mis-declarations and undervaluations lead to additional taxes and goods will not be released, resulting in mandatory modifications, or even destruction, along with possible non-compliance sanctions. Errors in the country of origin or destination are amongst the most frequent – along with undervaluations, description errors and incorrect HS codes. A parcel stating it is destined to Kuwait, for example, instead of the ‘State of Kuwait’ could be blocked.
Non-trade compliant parcels mean significant disruption to the flow of goods for the CEP company which can negatively impact throughput, speed and utilisation of its system’s full capacity, jeopardising the ROI of its capital expenditures.
Then there is the extra manpower needed to manually deal with the non-compliant parcel, which is critical in an era of labour shortages in the sector. Not least, there is the reputation of the CEP company in the eyes of the customer.
A digital solution that is able to remove the obstacles that impede frictionless and efficient deliveries across trading blocs has become essential.
Fortunately, a digital trade compliance API integration to access analysis capabilities is now available to solve these cross-border issues. It has been developed by Berlin-based Holocene and is currently being piloted in a European CEP company.
The technology relies on machine learning to check parcel data and ensure it is trade and customs-compliant. Holocene’s solution reads the data to analyse which regulations apply to the parcel and checks the data compliance accordingly. The analysis via the API can be directly integrated into front-end CEP products or used at a later stage if CEP operators want to use OCR technology to extract the shipment data from the parcel.
Holocene has developed trade compliance analysis capabilities based on machine learning to check parcel data and ensure it is trade and customs-compliant. The solution reads the data to analyse which regulations apply to the parcel and checks the data compliance accordingly. Through OCR technology, the CEP operators are able to extract the data and send all shipment data through a Holocene analysis via API for controls.
When its algorithms identify incorrect data input in the CEP product or on the parcel labels, Holocene sends an alert that something is wrong. For example, if the product description stipulates a computer but the HS code is incorrect, a notification is sent on the shipment and the parcel can be put aside at the CEP sorting facility.
The sender can change the data on the shipment, or the CEP operator can print another label with the correct information directly at the sorting centre and put it on the parcel so that it will clear customs.
Holocene’s API interface offers benefits for all involved.
For CEP companies, it identifies non-compliance at an early stage to avoid unnecessary handling. By identifying problematic parcels before they are placed on the system, they can avoid bottlenecks, use their full system capacity, improve throughput rates and increase their quality service.
In addition, end customers don’t end up paying fees for further handling of their parcels. And regulatory entities can recoup the taxes and duties payable and prevent the importation of dangerous goods.
The solution is available on a licence model, calculated on the volume the CEP company processes in its international operations and the number of data compliance requests it makes.
This specialist technology will help CEP companies manage trade and customs requirements efficiently and reduce the likelihood of incurring fines and compliance issues. At the same time, it will automatically flag customs declaration production and identification and response to new regulations.
A dynamic solution in a dynamic environment.
