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 out
As global sales are becoming complex, the logistics associated with
e-commerce are proving to be a stumbling block for companies.
Calculating the total 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, but calculating the final cost, which covers
international taxes and tariffs, has been lengthy and
complex.
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 number, an international code to classify products for
duty purposes. The range of tariffs is staggering. Within the EU
alone, there are more than 90 tariffs and even within a single
country there can be different regional taxes.
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.
Non-compliance with international trade regulations is a serious
issue. Penalties range from a 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.
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, CEO 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.
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 and the
results fed back into the application. By entering a simplified
product definition, the Catalog Harmoniser software 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.