This article was originally published in Global Trade Magazine on April 17, 2021.
By Jill Hurley and Michael Zobin, Directors, Global Trade Consulting
If you’re involved with U.S. retail supply chains, you’re likely very much aware of the extent to which the COVID-19 pandemic has accelerated the adoption of e-commerce and shifted the sales dynamic. You are also likely to be equally aware of the supply chain challenges associated with meeting the demands of online orders and the impact to customer service.
The truth is that extended time in transit is expected to continue to be a reality for the foreseeable future even as the international container shortage eases. The sheer volume of goods moving into U.S. ports is causing significant congestion and creating delays in offloading planes and cargo vessels, as well as inland transport. That’s the not-so-good news. The better news is that for those sectors where consumer expectations for delivery times are more moderate, there may be opportunity for time and cost savings through the recently implemented United States-Mexico-Canada agreement and an even newer program put in place by U.S. Customs and Border Protection.
Before diving into the supply chain relief, it’s worthwhile looking at the sheer magnitude of the change in America’s retail landscape. The numbers speak for themselves. 2020 marked the first year in which e-commerce sales grew while in-store purchases declined. And the growth trajectory was meteoric – an estimated $860 billion was spent by consumers via online purchases, representing a 44% year-over-year increase in online sales. What’s more, a McKinsey study conducted in August 2020 shows 20% of consumers who adopted a new digital shopping method intend to continue using it after the pandemic. The same study shows the move to online shopping is evenly spread out across socioeconomic categories.
All this means that while the current surge in e-commerce activity is undoubtedly being fuelled by rotating lockdowns and an inability for consumers to spend on widely used services, such as entertainment, accommodation, health and wellness, etc., the big shift to online purchasing is here to stay.
A new way of doing business
Yet, even as online sales have served as a boon to retailers looking to keep their businesses afloat while navigating the uncertainty wrought by the pandemic, it also creates a range of new risks and challenges, including a broader competitive landscape, an entirely new approach to marketing and sales, supply chain and warehousing considerations and customer service expectations.
The supply chain crunch
Since the outset of the pandemic, global supply chains have been in a state of disarray – from the production shutdowns in China in the Spring of 2020 to the subsequent sluggishness of the country’s outbound port activity that led to empty shelves in the U.S., to the continued container shortage and port congestion at many key ports, such as the Ports of Los Angeles and Long Beach. Traditional and e-commerce retailers are struggling to get product into the country.
As time in transit has grown significantly over the past year, many consumers have grown accustomed to long delivery times (three weeks or more) for online orders of non-essential consumer products (e.g., apparel and footwear, electronics, household décor, etc.). This represents a potential cost-savings opportunity, particularly for those online vendors facilitating direct-to-consumer orders through overseas suppliers while leveraging U.S.-based fulfillment and distribution centers, which may also help ease overall long transit times.
How to save money and time in transit
U.S. Customs and Border Protection (CBP) is currently testing a new program that allows importers to expedite the clearance of goods that fall within the U.S. de minimis threshold of $800 through an advanced electronic customs filing called Entry Type 86. The program was put in place to help CBP streamline the import of individual consumer goods while maintaining strong security and other government department requirements.
Entry Type 86 falls under Section 321 de minimis and expands the categories under which goods can enter the U.S. with an informal customs entry. In addition, using Entry Type 86 means goods usually receive advanced clearance, reducing customs processing time at the port of entry. Moreover, Entry Type 86 does not demand the same calibre of administrative documentation normally required for goods regulated by Partner Government Agencies (PGAs) that don’t qualify for release through the Section 321 manifest process. As such, businesses importing regulated goods that fall within the $800 de minimis threshold can leverage Entry Type 86 instead of having to do a formal customs entry. This further reduces the administrative burden and hastens the processing of de minimis goods entering the U.S. via Entry Type 86.
To make the most of Entry Type 86, importers would shift the destination of their imports at the time of customs clearance from an Express Consignment Carrier Facility (ECCF) where e-commerce goods are typically processed to a Container Freight Station (CFS) bonded warehouse. While processing via ECCF can expedite clearance because a customs official is on site to clear goods, the process is quite costly. Entry Type 86, however, removes the need for a customs officer to be on site as the goods are cleared before their arrival through the advanced electronic customs filing. The outcome is expedited clearance at a lower cost.
Because Entry Type 86 is relatively new, the vast majority of businesses are unfamiliar with the process. Businesses looking to take advantage of Entry Type 86 should take the time to evaluate what is required and make the necessary investments to facilitate the process. In many cases, this will require working with a third party to reconcile what technology and operational changes are needed to ensure proper use of Entry Type 86 from a technological and administrative standpoint.
By shipping goods into a Canadian port and having goods repackaged for final delivery through a bonded warehouse in Canada that has close proximity to the U.S.-Canada border, and then transporting the goods by ground freight into the U.S. using a Section 321 filing, U.S. online retailers have the opportunity to reduce overall time in transit as the Canadian ports may be less congested.
Moreover, the use of an e-manifest allows for imports to be processed far more seamlessly than a formal customs entry, reducing the possibility of goods getting delayed at the point of customs entry and expediting overall time in transit. In addition, routing through Canada – a USMCA trade partner – allows U.S. importers to still take advantage of the duty and tax savings associated with the U.S.’s generous de minimis threshold. In other words, routing through Canada offers the possibility to U.S. importers of achieving savings in both time and cost.
However, there is the touchy issue of Section 301 tariffs on China-origin goods, which have frustrated retailers in the U.S. since the onset of the U.S-China trade war in 2018. While imports that fall within the de minimis threshold have thus far been exempted from Section 301 tariffs, a temporarily shelved proposal being reviewed by the Office of Management and Budget has the potential to change all that. The current administration of U.S. President Joe Biden is still crafting its policy on China and leveraging allies to put pressure on Beijing to change its economic policies. That policy could include broadening the scope of U.S. tariffs on China-origin goods, including tariffs on goods that fall within de minimis. As a result, enterprises and/or their distributors looking to take advantage of Section 321 and Entry Type 86 should partner with an organization that closely watches regulatory changes and apprises them of those changes so they can pivot accordingly.
The long and short of it
Entering into or significantly expanding e-commerce represents a significant set of challenges to businesses, much of which is related to supply chain and distribution headaches. Looking for ways to reduce time in transit or find cost savings where time savings aren’t possible will be critical not only during the shutdown period of the pandemic but well into the future as the online landscape becomes more competitive and puts downward pressure on margins.
Jill Hurley is a U.S.-based director of global trade consulting at Livingston International. She brings a wealth of expertise in the development and implementation of import/export compliance programs, compliance audits, export licensing requirements, supply-chain security, the preparation, submission and oversight of penalty mitigation projects and assistance with U.S. trade remedies, such as anti-dumping and countervailing duties, and intellectual property orders.
Michael Zobin is a Canada-based director of global trade consulting at Livingston International. His expertise includes supply-chain optimization; duty deferral and drawbacks; conducting compliance program reviews; developing compliance procedures; voluntary disclosure; and post-entry review.