The surge in cross-border e-commerce activity is straining the operations of world customs authorities that are processing millions of international packages shipped to consumers with systems and procedures designed to support business-to-business commerce, experts say.
World Customs Organization (WCO) Secretary General Kunio Mikuriya highlighted those challenges earlier this year when he spoke of e-commerce's rapid growth bringing a "tsunami of small packages to the doorsteps of customs administrations and other regulatory agencies around the world." The consequences of this rising tide, which shows no sign of abating, was discussed at length late last week at the 22nd Annual Northeast Trade & Transportation Conference produced by the Coalition of New England Companies for Trade (CONECT).
World customs agencies are accustomed to processing large-scale transactions between established and familiar players. However, e-commerce is changing the landscape. Business-to-consumer transactions often involve a single shipment that can be a "one-off" from small companies that customs authorities do not know to individuals equally unfamiliar. Sometimes, criminal enterprises, or criminal activity, can be involved.
"Low value does not mean low risk," said Amy Magnus, director of customs affairs and compliance for customs broker A.N. Deringer, who spoke at the conference. Product descriptions may be incomplete or inaccurate, and declared values may be understated, Magnus said. Many of the orders fall below the importing country's value thresholds and thus don't require the filing of formal entry documents. Because of that, information provided to customs agencies is minimal, and in many cases, no advance electronic notification is required, she said.
Customs authorities also are under pressure to clear time-sensitive e-commerce shipments quickly, sometimes without sufficient staffing to handle the huge growth in volume, according to Magnus.
For customs agencies, including U.S. Customs and Border Protection (CBP), this situation has created a number of challenges, Magnus said. Chief among them is security. Without access to detailed information, such as the full Harmonized Tariff System (HTS) commodity identification code, or the identity of the buyer—which may differ from the consignee—in advance of a shipment's arrival, agencies are hampered in their efforts to target suspicious shipments, she said.
Another concern is that because formal entries are not required for most of these shipments, governments are not collecting trade data or duties on them. With millions of packages shipping daily, the lack of data and potential lost revenue is significant, she said.
Magnus cited the increase in the U.S. de minimis threshold to $800, mandated by Congress in 2016, as a factor behind the current problems. Some third-party logistics providers (3PLs) have set up fulfillment operations in Mexico and Canada that are "filled with goods, waiting for e-commerce orders," specifically to take advantage of that change, she noted. The 3PLs ship the individual consumer orders in truckloads across the border into the United States, saving their customers millions of dollars annually, they claim.
Because every package on the truck meets the de minimis criteria, no formal entry is required, so no HTS numbers appear on the manifest. CBP does not receive advance electronic notice of the shipments; the driver arrives at the border and hands a paper manifest for potentially 1,000 or more small parcels to the CBP agent.
This places customs officers in a difficult position, said a CBP officer in the audience. "The officer is forced to make a decision: Do we delay the truck and thousands of small packages to inspect them? That would take a whole day." The officer must figure out what to do with that truck with almost no information, no advance notice, and a thick pile of paper to work from, he said.
These and other unanticipated consequences of the higher de minimis level have gotten customs authorities' attention. A WCO working group in December of 2017 issued a proposed framework for standards for cross-border e-commerce, including simplified customs processing, new legislative frameworks, and requiring advance electronic data, among others.
CBP, meanwhile, worked with industry stakeholders on the Commercial Customs Operations Advisory Committee (COAC) to develop an e-commerce strategy, which CBP released in early March. The agency plans to take such steps as enhancing legal and regulatory authorities to better position CBP and partner agencies to address threats, adapting affected CBP operations to respond to supply chain dynamics created by the rapid growth of e-commerce, and driving private sector compliance through enforcement and incentives.
Magnus noted that there are many complex issues associated with e-commerce, and the COAC working group did not agree with everything CBP decided.
Gartner, Inc.
