As global sales are becoming complex, the logistics associated with
e-commerce are proving to be a stumbling block for companies.
International traders have always had to overcome a complex
array of tariffs and local tax laws. But with the advent of
e-commerce, having this information at your fingertips is critical
to successful business, as Hazel Ward finds outCalculating the total end-to-end cost of a transaction - the
total landed cost - is a critical function for anyone involved in
global buying or selling. Speed is essential when quoting a final
price to a potential buyer to avoid losing a sale. But calculating
the final cost, which covers international taxes and tariffs, has
been lengthy and complex (see panel, below).
Research published last September by US investment consultant
Bear Stearns found that 85% of online traders were unable to handle
international orders because of the difficulty of getting a total
landed cost estimate in real-time. The report said the logistics
market would increase from $42bn (£28bn) last year to $274bn in
2004, with expenditures from outsourcing the logistics functions of
e-commerce rising from $11bn in 2000 to $100bn by 2004.
The use of Web-based technology track local regulations can
enable a company to take into account the visible and hidden costs
associated with international buying and selling, such as duties
and taxes, insurance and shipping.
Anthony Awaida, chief executive of Xporta, a California-based
software company that provides immediate information on costs,
tariffs and delivery charges at the point-of-sale, said the
expansion of international trade over the Internet meant that
companies could no longer afford to keep local inventory.
"With 40% of orders over a B2B Web site being from abroad, the
cost at origin and at destination can be very different and working
it out can be complex," Awaida said.
Calculating the landed cost of importing or exporting has always
been the responsibility of export-import managers who are experts
on these issues. Now sales or procurement staff need this
information.
"These people don't have that expertise, so they pick up the
phone and liaise with the export-import manager, which takes a lot
of phone and fax contact," Awaida said.
The import-export manager usually has to calculate the
international taxes and tariffs and allocate a Harmonised Tariff
Schedule (HTS) number, an international code to classify products
for duty purposes.
The allocation of an HTS code is a legal requirement and is a
highly complex, and crucial, part of the process.
The range of tariffs is staggering. Within the European Union
alone, there are more than 90 tariffs and even within a single
country, there can be different regional taxes. In some cases,
there are import taxes on PC equipment over a certain weight or
chip speed.
According to Tim Minahan, director of supply chain management
research at US analyst Aberdeen Group, many companies have not been
successful at working out all the elements involved, with even the
largest organisations falling foul of international regulations for
cross-border shipments.
Since 1995, over 200 high-tech companies have violated US
regulations and incurred a civil or criminal penalty, with names
like Silicon Graphics, IBM, Dell and Boeing incurring penalties for
non-compliance.
"Most violations have been administrative. It's not wilful
negligence, it's just that the information is not widely available
and the export-import laws are so complex. They can't proactively
track whether they have the right licence, if they have paid enough
tax or if they are shipping to a prohibited area," Minahan
said.
Non-compliance with international trade regulations is a serious
issue. Penalties range from a hefty fine, which can be up to five
times the value of the goods exported, a revocation of export
privileges or even a prison sentence.
Having accurate information in real-time is also a matter of
customer service.
"Because most organisations don't have up-to-the-minute landed
cost information, they update data monthly or quarterly - it's not
accurate and this can hit customer satisfaction and cost.
"It's almost better not to ship to certain areas because it's so
expensive. If you don't know the information at point-of-sale, you
cannot quote the buyer the total landed cost and later discover it
was two or three times as much. Then you either charge that back or
swallow the charges yourself, cancelling out any profit and even
causing negative debit," added Minahan.
Knowing landed cost at point-of-sale was becoming important for
companies wanting to support cross-border e-commerce.
"It's extremely important to have real-time estimates, because
without the total landed cost, it could be costly mistake. Having
that information in real-time is going to be imperative for global
ventures," Minahan said.
For vLinx, a Canadian B2B exchange for consumer products,
investing in software to automate trade and tariff rates for
international imports and exports was an effective way of gaining
competitive advantage and rationalising operations.
Formed two years ago, vLinx offers Asian-produced goods to
wholesalers and retailers in Asia and the North American
continent.
"Importing and exporting goods is a quagmire of complexity and
fraught with uncertainty," said Kombiz Eghdami, chief executive and
chairman of vLinx.
Variation in tariffs could alter the final price by 40% of stock
value.
"Finding all the duty, tax data and HTS codes was a practical
part of logistics, but it was taking up too many resources," said
Eghdami.
After considering trade facilitation products, vLinx invested in
Xporta's Global Tradeware software.
Previously, vLinx had 17 people working in-house to determine
the HTS number and calculating landed costs.
vLinx chose Xporta as it felt it could integrate quickly with
existing systems and because of the integrity of Xporta's database
for HTS product codes.
The software was delivered via vLinx's customer relationship
management system and took three weeks to integrate with vLinx's
databases. Data is uploaded to the Xporta program, analysed, then
the results are fed back into the application. By typing in a
simplified product definition, the Catalog Harmoniser software
automatically assigns it an HTS code, an important sourcing and
decision-support tool to the company.
"Before, everything was in-house and inefficient, but now the
configuration of all complex information is immediate. It has taken
the burden off us," said Eghdami.
hazel.ward@rbi.co.uk
Trade tariffs for importing a laptop
| | France | Brazil |
| Product | $1,500 | $1,500 |
| Duties | $0 | $900 |
| Taxes | $322 | $880 |
| Shipping | $95 | $90 |
| Total | $1,917 | $3,370 |