trade-related aspects of cross-border postal …...tim walsh 15th september 2018 congress of the...
TRANSCRIPT
Tim Walsh
15th September 2018
Congress of the Federation of European Envelope
Manufacturers
Tallinn
Final
Trade-Related Aspects of Cross-Border
Postal Ecommerce
Industry Partnering For Growth and Innovation
Shaping Postal, Parcel and
Ecommerce Policy and
Standards
DMAB25 Years
Postal and
Parcel
Experience
Across 60+
Countries
Shipper Needs Buyer Needs
Cost certainty
Low shipping
fees
Low cost
tracking
Reliable and
fast shipping
times
Parcel visibility
and notification
Simple return
processes
Low complexity as
per domestic
shipping
Assurance on
compliance issues
Data and visibility
around the order
Supply-chain
integration to
delivery partners
for efficiency and
quality
Timely inventory
re-integration on
returns
Cross-Border Trade Policy Environment
Agenda: Cross-Border Ecommerce Change Drivers
What constitutes a desirable trade-related policy framework for the future of cross-
border ecommerce where regulatory requirements balance trade facilitation with the
need to promote safe, efficient, fiscally-secure and “trade creating” cross-border
ecommerce?
Striking this balance is critical especially in context of massive volume growth in
time-sensitive, small packets – outbound, inbound return/refund processes;
Terminal
Dues
Illicit
Trade,
Counterfeit
Goods/IPR
Tax, Duty
DeMinimis
& Excise
Aviation
Securityeg Hazmat
Product
Safety
Prohibition
and
Restrictioneg CITES
Customs
Processes,
IT & Other
Agencies
Returns
and VAT
Recovery
External
Costs
Supply-Chain and Delivery Dynamics
Border Control(Fiscal and Non-Fiscal)
Trade
Facilitation
The geography of trade originally supported by the flow of letters which projected
merchants’ authority over goods/ money that travelled independently across geographies;
While letter networks determined the boundaries of trade its effectiveness was only as
vibrant as the distribution networks on which it operated: mule, camel, caravan, ship;
Medieval merchants protected the security of commerce by:
packaging and labelling (“bales and bundles”);
contract enforcement via reputation management; and
the management of customs and the “bureaucracy of trade” as a “key differentiator;*
Ultimately Genoese-centred commerce triumphed over Islamic trade because Italy
protected commercial transportation as a state obligation;
The scale/shape of international trade was ultimately limited by wind patterns until the
invention of steamships (1850-1900) which reduced costs, improved quality and re-
created trade routes globally (“1st-wave globalisation”);
“2nd-wave globalisation” (based on Jet engine and post-war trade liberalisation and rules-
based institutions) has given way to “3rd-wave globalisation” or the potential for the
individualisation of trade, based on the internet;
A Brief History of Cross-Border Trade
*Goldberg, J.L. (2012:12). Trade and Institutions in the Medieval Mediterranean, CUP.
Trade Fundamentals Remain: network efficiency and integrity;
customs management; security; data associated with flow of goods;
labelling; global rules and agreements
Cross-Border Ecommerce and Trade: Three Economic Insights
Trade between two countries,
based on comparative
advantage, determined by
factor endowments,
technology and/or other
genuine cost advantages
Trade Creation Trade Diversion
Exchange on the basis of
distortions such that trade
from least cost production
countries is displaced by
trade from otherwise higher
cost countries
Versus
Cross-border ecommerce which is
efficient, sustainable and likely to
engage political and other
stakeholders, long-term
Non-economic derived advantages
in ecommerce are likely to be
contested, unsustainable and
ultimately inefficient
2. Cross-border ecommerce = $500bn (IPC, 2018): the fastest growing segment of
world trade (= $17tr) but still only 3% of total global trade. Online ecommerce’s ability
to build “scale without mass” raise fundamental tax issues: where is the value
created?; where is the “place of establishment?”;
1. Ecommerce overturns economists’ “proximity model”
showing a strong, negative effect of distance on trade:
each 1% increase in distance between 2 countries is
associated with a fall of 0.7-1% in trade*
*Krugman and Obstfeld, 2006
Prices/ Choice
Employment
Exports
3.
GDP
5.8%
Cross-Border Postal Ecommerce Small Packet Market
Sources: Forrester; E-marketer; 2017; IPC, 2018
4 platforms (Amazon, ebay, Alibaba, Wish) account for two-thirds of cross-
border ecommerce items: growing around 30% p.a.;
Posts have 70% share supported by pricing (TDs), light-touch postal customs
clearance and operational fit:
84% of cross-border ecommerce items <2kg (51% below 500g):
46% of items globally fit into the mailbox;
Most packets sorted, transported and delivered in letter post or mixed
networks;
Posts’ share down 3% (2016-2017) due to often poor service levels on some
lanes and competition, including from express carriers’ focus on <2kg items,
outbound freight competition and others;
Global Growth Projections (CAGR) 2017-2021
Retail
5.1%
Online
Retail
14.7%
Cross
Border
Online
Retail
27.5%
Average order values:
< €10 = 18%;
< €24 = 39%
Significant current volumes at risk if
costs rise (for any reason): higher
price elasticity to lower the AOV;
A priori, the lower the AOV the
greater likely propensity for “trade
diversion”
The Changing Global Architecture of Ecommerce:
Customs, De Minimis, EAD and Tax Issues
Asia
• China Ecommerce
Law, effective 1/1/19
• China e-data law in
place. Likely to follow
EU timeframe
• De Minimis Removal +
Tax on inbound:
Australia, 10%
(1/7/18); NZ, 15%
(2019)
• Australia’s Home
Affairs Dept
considering a $5-7 tax
on all inbound low-
value parcels to cover
the (external/social)
costs of bio-security
screening;
• APEC Cross-border
ecommerce facilitation
framework, 2017
Americas
• US Law requiring e-
data in place
• STOP Bill requires
USPS to transmit EAD
95% of cross-border
packets by end 2022;
• S. Dakota v. Wayfair
Supreme Court
decision: tax where
users are located;
• US de minimis ($800)
under discussion
within NAFTA
• US Customs and
Border Force
Ecommerce strategy
• Brazil new law for
electronic pre-advice
to reduce delays
being developed
• Brazilian tax ID (CPF)
for every packet;
Global
• OECD-supported registration-
based consumption taxes on B2C
ecommerce sales
• 2016 revised CN22/23 forms with
additional data fields (HS code,
CoO, tel number of sender and
recipient
• UPU EAD 2021 roadmap to
improve security screening, fiscal
management and Leg 2 reliability;
• WCO Framework on 15 Standards
for risk management and customs
clearance, June 2018
• WCO Ecommerce strategy
• WCO SAFE 2015 Framework
enhancing airline security
• WCO-UPU customs and EAD
guide;
• ICAO-WCO aviation guidelines
The Changing Architecture of EU Cross-Border Ecommerce
Legislative Drivers
Union Customs Code: overhauls
customs, declarations and tech;
EAD mandatory for EMS,
parcels and small packets;
EU Ecommerce Package, Dec
2017:
VAT collection on items < €22
(de minimis removal); between
€22-€150; duties >€150; +
excise – requires substantial IT
development;
VAT one-stop-shop and
marketplace liability to account
for VAT;
Proposed 3% Revenue Tax
Where Value Created
CEN TC331: data exchange
standards & labels
Risks for Ecommerce Trade:
Efficiency and Delivery Risks
Clearance not aligned with
logistics processes;
Impacts on the Physical
Supply-Chain: (i) inbound
routing of product into EU; and
(ii) location/ structure of
fulfilment network;
Operational: de minimis removal
and customs tech readiness;
Complexity: Inconsistent member
state IT spec/ implementation;
Data: “mostly” understood as CN
22/23 + transport manifest data;
data quality; readiness of 3rd-
countries;
Returns: VAT recovery process
that has been paid in advance
when goods are returned;
Channel Distortion: revenue tax;
Counterfeit Goods: “Free-riding” on the IPR of Others
Counterfeits Seem To Be Increasing In International Trade*:
From 1.9% of world imports (2009) to 2.5% of world trade (2013) - 5% of EU imports;
Virtually all product categories are pirated;
China No.1 point of origin and account for 80% of all counterfeits seized (fewer than ten
countries account for virtually all of the problem – Free trade zone a particular problem);
Evidence That Ecommerce Expands Trade in Counterfeit Goods:
Demand-Side: Choice and low shipping fees drive greater consumer complicity; 7% have
bought counterfeit goods in the last 12 months; 15% among 15-24 year olds,**
Supply-Side: Greater scope for anonymity; flexibility to avoid detection; 24/7 global
reach; increasing share of small shipments, postal/ express with significantly higher
enforcement costs (detection to destruction); use of criminal marketplaces modelled on
legitimate platforms***;
But
Most counterfeits are in bulk imports – only 2% in postal/express;
Main cause of counterfeit is corruption, and failure to enforce, in provenance
countries**** – limited enforcement yet new legislative measures which threaten to
disrupt legitimate cross-border flows;
EC’s Product Safety and IPR Regulation on Compliance & Enforcement:
Concern that EU product safety standards and IPR rules are being compromised by the
ecommerce channel. Aims to: (i) protect EU consumers; (ii) ensure EU traders do not
face unfair competition; (iii) improve the effectiveness of surveillance authorities;
…Sources: *OECD, 2016; Chaudry and Zimmerman, 2009; ** EUIPO, 2013. EC, 2017 report on functioning of the MoU. ***Europol,
SCOTA, 2017; ****EUIPO/ OECD: Why Do Countries Export Fakes 2018
EC’s Product Safety and IPR Regulation on Compliance & Enforcement
Proposes: a person responsible for compliance information be established within the EU
“as a necessary condition” for trading by importers:
Person’s contact details be shown “on the product, its packaging, the parcel or an
accompanying document” (Art 4 point 5);
It is not clear how this could be operationalised, still less how under-resourced surveillance
authorities would act on such information;
Being able to serve a global market without being established in every country is the very
core of SME ecommerce – tilts ecommerce playing-field in favour of marketplaces;
Neither risked-based (only a small handful of countries are responsible), practicable nor
enforceable;
Proportionate Approaches:
Industry-Wide MoU* **,
Provide a single contact point and co-operate with Member State authorities;
Consult RAPEX and take down dangerous goods within 2 days;
Effective in removing counterfeit products and fostering trust between parties;
Inter-agency co-operation in destination countries
Joined-up, inter-agency co-operation and detection at destination (penalties, seizures:;
Ability to track/trace (IT/data) consignments critical in limiting counterfeits:
Share of counterfeits in total exports is on average 7.5%, compared with only 0.5% for
economies that can track shipments;
Ecommerce Trustmarks…
* Memo of Understanding, June 21 2016 23 signatories of rights owners, platforms and associations, **Product Safety
Pledge signed by eBay, Amazon, Alibaba and Rakuten France, June 2018:
https://ec.europa.eu/info/sites/info/files/voluntary_commitment_document_4signatures3-web.pdf
European Trustmark do not include specific requirements concerning counterfeit goods,
rather:
EMOTA: “Transparent information about the trader” or “Clear, complete and
accurate product description” or “appropriate protection of minors”*;
Ecommerce Europe: product characteristics “adequately described”, delivered
based on the description,” and a reminder about “the existence of a legal guarantee
of conformity for goods.”**
The Merchant Charter is stronger: “As an online shopper with an EMOTA‐accredited
merchant, you have the right to… Convenient, reliable, safe and legally compliant
service”;***.
National Trustmarks can also be explicit**** e.g. German Trustmark, (EHI), “webshop
operators are obliged not to sell any goods that do not comply with the legal
requirements”*****;
Stronger Role For Ecommerce Trustmarks
and Industry Action?
*https://europeantrustmark.eu/en/emota/participation-criteria/ **https://www.ecommercetrustmark.eu/the-code-of-conduct/)
***(https://europeantrustmark.eu/en/for-merchants/merchants-charter/ **** shops need to be certified by a national
Trustmark that is a member or the European Trustmark to be allowed to display the European Trustmark on their website
***** https://ehi-siegel.de/fileadmin/redaktion/gos_contracts/gos-Kriterien_140624_01.pdf).
With thanks to Alien Mulyk, EMOTA, for input on European Trustmarks
Can Ecommerce Trustmarks be strengthened to address the counterfeit
and product safety issue, thus protecting “trade creating” ecommerce and
avoiding the risk of excessive legislative intervention which adds cost/
delays to the flow of cross-border items;
End-to-end electronic data, prior to loading, using
standardized messages/ interfaces, critical in
balancing control of illicit trade with facilitation
Electronic Advance Data (EAD) Origin
Post
Destination
Post
Airline
Destination
Customs
Posts
Carrier Compliance: data collected at
source; preparation of items for border
authorities (fiscal and non-fiscal);
Reduced handling costs: in context of
high volume growth;
Process Innovation To Meet New
Legislation: automated item tax/ duty
calculation and tax invoice generation in
context of LVCR removal;
Value-Added Service Opportunity:
provides platform for VAS for benefit of
shippers and recipients (DDP; tracking);
and returns VAT recovery;
Improved QofS: delivery reliability via
visibility in Leg 2; and customer service
Customs and Border Authorities
Risk-Based, On-Route Decisions:
Visibility about origin country; item
description and value; possible automated
decision-making on low risk items/flows;
Improved Data Quality, detections and
Duty/Tax Revenue Collection
Higher Throughput at Less Cost
Security Alerts: Supply-chain & aviation
security identifying high-risk and advice
on consignments (pre-loading; pre-arrival;
Risk Assessed Database Supports
Analytics: seizure from provenance
countries; protects against “trade
diversion”; interface with “control”
agencies
External/Social Costs: The Environment
Environmental and consumer concerns about sustainability shapes the trade landscape:
Social costs associated with cross-border flows are generally not reflected in prices;
Sustainability of the “Zalando Party” phenomenon?;
Primary Packaging: a major ecommerce waste stream:
Contain and protect the product, communicate the brand and integral to overall
customer experience;
Optimised for efficiency/ effectiveness across supply-chain: storage, transport,
sorting and delivery (to the door; collection points…):
Secure: limits damage and theft-proof, yet easy to open (“wrap rage”);
Attractive: SKU-specific formats and materials: consumers’ low perceived of
product in polybags?;
Efficient: designed for dimensional pricing and lowest total cost (“no air”); Box-
on-Demand opportunities: package bespoke for each order; easy returns;
Revenue Stream: Amazon planning to sell zipcode relevant ads on packets;
Sustainable: Reuse, inks, recycling, ease of disposal and curb-side recovery;
Significant risk of “single use package tax” – UK likely to proposed packaging levy in 2018
Industry-approach needed - carriers, retailers, marketplaces, envelope and
packaging industry – to capture functionality and emotion of sustainable ecommerce
packaging, at a cost-effective price – limit risk of “package tax”;
Testing re-useable compressible bag requiring less space
than standard cycle packaging – can be reused 1,000 times
Terminal Dues: Distort Cross-Border Fulfilment and Delivery
Absence of cost-reflectivity distorts:
Location of fulfilment services + split orders to ensure packages are below
the 2kg threshold:
Industrialised country retailers disadvantaged;
Suppression of outbound competition, and cross-subsidies within and
between national posts (e.g. high v. low cost; net export v net import posts);
Agreed increases in TDs rates from 2018-21, including +13% p.a. on China
inbound, will not end “trade diversion” for items below 2kg or the complaints of
developed country retailers;
TDs regime risks becoming a contentious trade issues based on likely inefficient
“trade diversion” rather than genuine “trade creation” in the fast growing, light-
weight cross-border segment – White House Memo, 23rd August 2018:
This Subsidy for China
Is Dumb as a PostFebruary 6th 2018
“The United Nations is
helping subsidize
Chinese shipping.”
March 11th 2015
Terminal Dues are the inter-postal payment charge for
delivery on ecommerce items weight less that <2kg market;
TDs based on the equivalent domestic postage:
inbound item pays same as a domestic shipper;
Impose own rates – but opt-out/reservation from
UPU Convention not permitted;
Terminal Dues Reform and Trade: 2022 and Beyond
Failure to address distortions on <2kg packets increases risk that low-value,
lightweight ecommerce flows will explode as a contentious trade issue;
A majority of UPU posts will not easily vote to eliminate their cost advantage on
lightweight packets, especially if there is no protection of the least developed
countries;
UPU Ethiopia Addis Ababa Congress, Sept 2018 called for:
“more equitable, competitive and cost-based model in particular in light-
weight packet segment <2kg”, and
alignment with >2k inbound parcel rates;
A new inbound remuneration system for light-weight packets and postal parcels
to be developed over next two years for decisions at 2020 Congress for
implementation in 2022. May include:
Greater cost coverage to deter trade diversion on low-value items;
Incentives for EAD necessary for more effective control and facilitation;
Promote QofS improvement – bonus/penalties to improve reliability,
necessary if posts are to compete in higher AOV segments once low-value,
trade distorted streams diminish;
To defray collection costs, Sweden Post levies a fee of between 75-125 SEK (≈
€7.5 - €12.5), depending on merchandise value;
Since 1st March:
Inbound Chinese volumes down 90% - from 150k to 15k per day;
Much of this decline will be the low-value “trade diverted” volumes – but tax
and collection fee hits all inbound volumes (down c. 60%);
Wish.com Swedish-bound volumes returning but as Delivery Duty Paid;
Other volume transiting into Sweden (via NL) until de minimis removed across
EU in 2021 (eg Fyndiq Swedish bargain marketplace);
Norway considering the same the same approach;
Similar cross-border volume hit might be anticipated in Australia (1/7/18), NZ
(2019), and EU (2021) e.g:
Amazon.com no longer available to Australian shoppers - only Amazon.au
– fulfilment moved to Australia arguable at a cost to efficiency;
Nordic Case-Study: The Volume Risk on Cross-Border Packets
Excessive transaction costs will constrain “trade creating”
ecommerce and not only “trade diverting” flows;
PostNord Sweden required to collect VAT (25%) and duties on all
inbound packets from 1st March 2018;
Conclusion I
“Individualization of trade” via ecommerce: Transforming the way firms operate: sourcing, supply-chain, inventory and
distribution. Promises significant economic benefits, if “trade creating”; Heightens challenge to balance control (fiscal and non-fiscal border risks)
to tackle diversion, with facilitation;
Legitimate cross-border ecommerce requires fast, simple and predictable custom formalities but such an environment also favourable to counterfeits and other “trade diverted” flows;
Essential to balance border control with trade facilitation, where policy-makers focus on proportionate, provenance-oriented, risk-based and collaborative approaches based on data and analytics;
The ecommerce industry and policy-makers have joint interests to create a cross-border regulatory eco-system which promotes the predictability, transparency, security and fair competition of “trade creating” ecommerce;
Though ecommerce is the fastest growing segment in total trade, further
growth (beyond 3% of total world trade) requires modernisation of the
trade-related rules for the efficient and effective management of the
tsunami light-weight cross-border packets;
Shipper Needs Buyer Needs
Cost certainty
Low shipping
fees
Low cost
tracking
Reliable and
fast shipping
times
Parcel visibility
and notification
Simple return
processes
Low complexity as
per domestic
shipping
Assurance on
compliance issues
Data and visibility
around the order
Supply-chain
integration to
delivery partners
for efficiency and
quality
Timely inventory
re-integration on
returns
Cross-Border Trade Policy Environment
Conclusion II
Terminal
Dues
Illicit
Trade,
Counterfeit
Goods/IPR
Tax, Duty
DeMinimis
& Excise
Aviation
Securityeg Hazmat
Product
Safety
Prohibition
and
Restrictioneg CITES
Customs
Processes,
IT & Other
Agencies
Returns
and VAT
Recovery
External
Costs
Supply-Chain and Delivery Dynamics
Border Control(Fiscal and Non-Fiscal)
Trade
Facilitation
Electronic Advance DataStrengthened
Industry-wide
Trustmarks
Company
Processes and
Actions
Postal Policy and
Agency
Collaboration
Proportionate
Legislation and
Trade Facilitation
Annexes
Ecommerce Business Model Drives Fulfilment and Delivery Integration
Traffic x conversion x basket value + Re-visit - Shipping - Inventory Return Costs
Four Critical Capabilities:
1. Get the Basics Right: merchandise, site navigation, copy, pricing, payments;
2. Drive Traffic and GMV: marketing, promotions and communications;
3. Innovation: Customer experience; choice, convenience and impact on repeat
business (AI; Augmented reality; algorithms…);
4. Supply-Chain Visibility and Integrated Delivery and Returns:
Optimise order management and fulfilment (what is stocked, where and
when) with delivery, based on SKUs and recipient needs;
Timely management and re-integration of processed returns to inventory
(returns are often carriers’ largest single stream);
Returns experience,
and immediate refund,
supports recipient
stickiness to retailers
Returns minimise
retailers’ inventory costs
and avoids mark-downs
Delivery choices/
prices critical for
successful checkout
Doorstep/ pick-up
experience shapes
overall satisfaction and
loyalty
Retailer brand
and marketing
programmes
Carrier selection based
on SKUs, value-add,
QofS and cost;
Fulfilment, Delivery and The Wider Supply-Chain
Fulfilment centre location/ numbers minimise inventory (better margin), optimise in-stock (improved customer experience) and reduce costs: For every 100 mile reduction in the distance of shipping goods Amazon reduces total
shipping costs by 50% and increases profit margin by 5-14%;
Delivery is a sub-set of a wider systems question: Order Management: Dynamic and seamless order management from DC, store,
suppliers based on enterprise view of inventory; Fulfilment: from batch processes (episodic picking, sorting and packing) to continuous
and predictable fulfilment processes; Delivery: procure delivery services optimised for the needs of the SKU category, and
the proximity of the merchandise to the recipient; Returns: Timely and visible in-transit returns, across channels;
But decisions around customer order assignment are myopic: Individual order merchandise combinations are unique and cannot (wholly) account for
subsequent downstream events: other orders, inventory replenishment, delivery delays;
Hence real-time analytics/ algorithms to drive order assignment, minimise total number shipments and optimise routing/delivery based on both the goods & recipient location;
Commercial objective is to reduce per unit costs (sourcing, fulfilment and delivery) without violating the due shipment date;
Delivery re-imagined as an extension of the supply chain for the efficient flow
of inventory – delivery and upstream integration supports the customer
experience, innovation and cost control, which in turn boosts retail growth;Houde, J-F., Newberry, P. and Seim, K. (2017) Economies of Density in E-Commerce: A Study of Amazon's Fulfillment Center Network NBER Working Paper No.
23361, April
Thank you
[email protected] 44 7743 840 396