Ecommerce Continues to Explode, Can Customs Keep Up?

If you’ve been following our blog, you may have noticed that we often mention the growth in eCommerce and its impact on various aspects of customs. Of course, this does not happen. Rather it is because of the truly staggering proportions of this growth, the resultant growth in the number of parcels shipped (100 billion parcels shipped in 2019, a number expected to rise to 262 billion by 2026 – Pitney Bowes 2019 Parcel Shipping Index), and the sweeping and overriding impact these have had on the slow-moving world of customs.

In this article, we take a closer look at the rise of eCommerce and what it means for international trade and customs clearance.

Ecommerce – Redefining hyper-growth

OK, besides us mentioning it at the outset, we’ve all heard of the exponential growth in eCommerce, and many (if not most) of us have a stake in it. However, words definitely do not do justice to the true magnitude of this growth. Let’s try and correct that.

The first “legitimate” online purchase, according to a column by Peter H. Lewis in The New York Times, was made by Dan Kohn in August 1994, who sold a CD of Sting’s “Ten Summoner’s Tales” to a friend in Philadelphia for $12.48 plus shipping (there are claimants to the title, but this is the most widely recognized).

From these humble origins, eCommerce has climbed to unimaginable heights, with consumers spending $861.12 billion online in the U.S. alone in 2020 (“US ecommerce grows 44.0% in 2020”, Jan 29, 2021, Digital Commerce 360). Here are a few more mind-boggling stats (same source):

  • This represents a 44.0% year-over-year growth – the highest annual U.S. eCommerce growth in at least two decades.
  • This massive growth was largely propelled by the COVID 19 crisis. Experts say that without the pandemic, it would have taken at least another year to reach something similar to $861.12 billion.
  • Online spending represented 21.3% of total retail sales for the year – up from 15.8% in 2019 and 14.3% in 2018. The more than five-percentage point gain in eCommerce penetration is by far the biggest year-over-year jump for U.S. retail sales ever recorded.
  • Total retail sales increased 6.9% to $4.04 trillion from $3.78 trillion the year before, the highest growth since 1999. This is 100% attributed to eCommerce.

The eCommerce super-highway – an obstacle course for customs

In 2018, World Customs Organization (WCO) Secretary General Kunio Mikuriya spoke of e-commerce bringing a “tsunami of small packages to the doorsteps of customs administrations and other regulatory agencies around the world.” The numbers we quoted earlier – 100 billion parcels shipped in 2019, 262 billion by 2026, show that Mr. Mikuriya’s comment was spot on.

While eCommerce is paving a path to a bold, new, more convenient future for consumerism, it is putting up roadblocks for the future of customs, hurdles that all international trade stakeholders are finding hard to overcome.

To better understand the challenges posed by the shipment boom, let’s first consider the perspective of regulators.

Massive volumes – By far, the biggest issue faced by authorities around the world is how to cope with the vast amount of additional work required to process and clear the mountains of goods flowing through their borders. From paperwork to inspections and law enforcement, the incremental work is monumental.

Alarming Increase in illicit goods: eCommerce has made it easy for even the smallest businesses and entrepreneurs to sell their wares overseas, such that much of the volume growth is in small packages. This surge has, unfortunately, but expectedly, been accompanied by a surge in illegal goods trying to make their way across borders.

More unsophisticated buyers and sellers: Ecommerce has created a new category of casual buyers and sellers with limited knowledge of export/import processes and regulations, causing countless additional classification and processing errors.

New ploys for avoiding customs and taxes: For example, in 2015 Congress raised the U.S. minimum value for customs declaration (de minimis) for merchandise to $800 from $200, i.e., an untold number of additional shipments did not need to be declared. In addition to contributing to the increase in illicit goods, many businesses have sought to take advantage of this law to pay less customs duties, for instance, importers into the US have set up warehouses in Mexico. They ship goods to the warehouses in bulk (paying minimal Mexican customs) and ship them out individually to the US as orders come in.

The net effect of all these and other problem areas, according to a 2018 report by Armstrong & Associates, is that the growth in eCommerce “is straining customs operations and creating challenges for authorities around the globe”.

A heavyweight on businesses

From the perspective of importers, exporters, customs brokers, and other related businesses, this means that regulators are doing everything they can to streamline their operations and reduce the burden on their human and financial resources by offloading as much as possible to commercial entities involved in international trade. Moreover, each country is doing this differently.

This, plus the direct effects of the eCommerce upsurge, are encumbering international trade businesses in many ways, including:

  • Creating mounds and mounds of paperwork and forms to be filled.
  • Finding ways to rapidly classify (assign HS codes) goods in shipments.
  • Having to contend with the many and evolving laws of each country they ship to or from.
  • Not enough experienced personnel to deal with the increased demands.
  • How to stay profitable in the new world of eCommerce.

Where do customs go from here?

The only viable solution that will allow customs authorities and international trade businesses to keep abreast, and maybe stay ahead of the eCommerce revolution is automation. The traditional, manual methods and processes employed by regulators and businesses in the industry simply can’t effectively or efficiently deal with all of the continually growing volumes of transactions, shipments, goods, and documents.

For more about what’s being done in general, and by AiDock specifically to confront this deluge, contact us.

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