How the pouch system helps CEP companies solve the problem of duty parcels for cross-border customs inspection

With the continuing surge in cross-border e-commerce, the number of parcels passing through distribution centres without the appropriate inspection and duty payment is becoming a pressing issue for CEP businesses. This calls for new ways in which to optimise the handling of these ‘duty parcels’. 

By Brian Jones

A solution that the CEP sector can leverage is the pouch system. Borrowed from warehouse and fulfilment facilities, this proven solution offers a new approach to the prevailing duty parcels challenge for the CEP sector.

The problem of rising duty parcels

The burden of duty parcels has become greater for CEP companies as e-commerce across borders rises.

When buying online, many consumers have no or inadequate knowledge about the potential inspections and customs duties they must pay as soon as their parcel crosses the border. When consumers fail to pay the applicable duties, distribution centres – together with customs authorities – end up being on the frontline in handling the shortfall.

Typically, customs officials ask CEP companies about the source of the parcels and request inspection of parcels coming from certain regions or countries. The customs inspection usually occurs over an indefinite period, meaning the distribution hub has to store the parcels without knowing for how long. During that period of time, they need to have easy and fast access to the parcels to be able to release them from storage for inspection or when the duty has been paid.

The cost of storing duty parcels to the hub

Being burdened with this responsibility for handling duty parcels is proving very costly to hubs, in terms of both space and labour.

Customs storage can occupy a large footprint

The distribution centre must find storage space for these duty parcels that is easily accessible for customs officials and its data quality must be sufficiently high for customs to handle these parcels online.

The storage areas needed to accommodate duty parcels can occupy large physical footprints, with some hubs having to accommodate up to 30,000 parcels at a time for storage durations that vary from minutes to weeks.

As most of today’s e-commerce parcels are small in size, most CEP companies establish small parcel storage areas at each of their distribution centres. For many, this entails simple racking that may or may not include precise tracking of parcel positions.

Others, however, opt to have one central storage space that services all their centres, in order that customs deal with these parcels at the one place. This is challenging for the business as greater space is needed for more storage.

Either way, storage impacts the business’ CAPEX and takes room from its sortation operations.

Labour intensive handling of duty parcels

Handling duty items in traditional storage solutions always adds a number of costly touch points, requiring excess manual labour. As the hub is not compensated for the increased handling cost, duty parcels also impact the business’ OPEX.

In addition, customs authorities set the deadlines for duty payments according to local regulations. If the parcel recipient fails to make the payment on time, the parcel is returned to the sender, at the CEP company’s expense.

Solving the duty parcel problem with the pouch system

The pouch system is a solution that the CEP sector can look to as a way of handling and storing duty items that conventional storage like racking, conveyor loops and other conveying technology is not suited to handle.

The pouch system is a solution that the CEP sector can look to as a way of handling and storing duty items that other conveying technology is not suited to handle.

The pouch system – also known as the pocket system – is an overhead storage and sortation system which relies on pockets, pouches, or bags to store, convey and sort parcels as small as 20g in weight. It’s a fully automatic storage with a full data storage inventory to control every single parcel inside the system.

 

It was originally designed for the very specific and niche fashion industry to hang individual garments and later evolved to add bags or pouches to the hanger.

How to handle duty parcels with the pouch system

So how does the pouch system actually handle duty parcels?

Once parcels enter the sortation system and are identified as parcels to which a customs duty applies, they are diverted to either immediate customs inspection or physical duty storage. Customs inspection without delay, however, is only available if customs officers are on duty.

Otherwise, parcels going to the duty storage are rerouted and automatically inducted to the pouch system. Each parcel is placed in its own pouch and is married with the pouch’s RFID, effectively creating a customs storage inventory control. The RFID technology means the system is able to deliver 100 percent tracking, accurate parcel identification, life time in storage and access at any time to any parcel within the system.

Once inside the pouch storage, it can stay there until customs clears the parcel – or until life time in the storage expires, at which point the pouch holding the shipment can be brought down and released seamlessly into the parcel flow for final sorting and distribution to the recipient – or returned to sender. If customs wishes to physically inspect the parcel, the pouch can easily be released.

The benefits of the pouch system for the CEP company

The pouch system is typically installed up in the air above conventional conveying and sortation equipment, so its use for duty items takes no additional floor space in the distribution centre. The technology complies with safety regulations and the access to it is fenced off and locked with secure access.

Importantly, the system significantly reduces the manual handling required and provides the CEP company with a means to optimise the handling of their duty parcels.

For those distribution hubs that have already deployed a pouch system for their parcel handling process, no further equipment is needed to create the duty parcel storage.

Distribution centres can opt to use the pouch system as a standalone solution to deal with duty items in a separate building or integrate it with a loop sorter system in the same building.

When would the pouch system be suitable for a CEP operation?

So, when would the pouch system be an appropriate solution for a CEP company struggling with duty parcels?

Firstly, that will depend on what proportion of its total parcel volumes consists of duty parcels. Secondly, does the business’ current building height allow for the technology to occupy roof or ceiling space in terms of building utilisation? In other words, how easy is it for the business to extend its storage capacity?

The technology is a modular system design, enabling CEP companies to start with a basic system that they can scale and extend to meet evolving capacities.

Summary

The pouch system is a perfect solution for CEP operators looking to reduce the complexity of handling duty parcels. By moving duty parcels directly into the pouch system, the distribution centre can eliminate traditional storage and most of the manual handling costs, while maximising its building utilisation. Customs inspection officers have direct and immediate access to individual parcels in a way that circumvents the internal handling process and removes a number of touch points which are costly and disturb the flow of the parcel operation.

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